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Deutsche Bank AG is mounting a return to the top table of precious metals trading a decade after it all but abandoned the business, notching up significant trading profits and applying to rejoin the inner circle of banks that play a central role in the market.
The bank’s precious metals traders generated well over $100 million in revenue during the first half of the year, a period when tariff-driven dislocation provided lucrative arbitrage opportunities, according to people familiar with the matter. That catapulted the bank into the top handful of earners, after the likes of JPMorgan Chase & Co and HSBC Holdings Plc, the people said, asking not to be identified as the information is private.
It’s a marked turnaround for a lender that abandoned its gold vault in London and its role on the precious metals price benchmark more than 10 years ago. With gold set for its best annual performance since 1979, more banks and trading houses have pushed into the industry this year, looking to capture surging investor interest and trading volumes.
Now Deutsche Bank is looking to rejoin the pool of 11 banks that sit at the center of the London market. It’s applied to become a London Bullion Market Association market maker, a status that would require it to offer prices for precious metals during trading hours to the other member banks, people familiar with the matter said.
To be accepted, the bank must go through a probationary period for a couple of months, during which time it must provide two-way price quotes for the precious metals it has elected to trade, according to a description of the process on the LBMA’s website. Becoming a market maker is a necessary step, if Deutsche Bank were to decide to become a “clearing” member of the London market, with its own vault to process trades for other financial institutions.
Citigroup Inc. and Morgan Stanley are among the institutions preparing to become clearing banks in London, the dominant gold trading hub, Bloomberg reported last month. If successful, it would mean the banks would offer vaults to the market where precious metals can change hands to settle contracts.
Deutsche Bank’s expansion in precious metals has come as a response to client demand, the people familiar said. An increase in the bank’s precious metals inventories through the first nine months of the year helped swell its overall trading assets, according to the lender’s latest quarterly results.
In 2014, the bank exited physical trading of precious metals, in a broad pullback from commodity trading driven by regulatory pressure. Two of Deutsche Bank’s former traders were later convicted of fraud for manipulating gold and silver prices between 2008 and 2013.
Deutsche Bank has benefited this year from strong fixed income and currencies trading, the franchise under which precious metals are housed, and plans to keep investing in individual products and teams, Bloomberg reported in November.
Areas of focus include Deutsche Bank’s credit trading and the precious metals trading activities. For opportunities to be regarded as worthwhile, they need to bring at least €70 million ($81 million) to €80 million in revenues.
(By Jack Ryan, Jack Farchy and Arno Schütze)