Citigroup Inc. and Morgan Stanley are among banks preparing to challenge the dominance of JPMorgan Chase & Co. in the global gold market by seeking to offer vaulting services in London, as investor interest in the precious metal surges.
Citi is well advanced in the process of setting up a business that would allow it to become a clearing member of the London gold market, according to people familiar with the matter, who asked not to be identified as they weren’t authorized to speak publicly. Morgan Stanley’s plans are at an earlier stage, but it aspires to expand its physical precious metals offering to include vaulting and clearing, other people said.
Clearing members provide a crucial role in London, the global hub where more than $1 trillion in gold is stored, by offering vaults where precious metals can change hands to settle contracts. But their number has dwindled to just four banks in recent years, as some firms stepped back from commodities and others balked at the costs of operating a vault.
Spokespeople for Citi and Morgan Stanley declined to comment.
JPMorgan has become increasingly dominant in London’s gold market in recent years. The US bank, long the largest player in precious metals, is custodian of the lion’s share of the exchange-traded fund gold in London, and also accounts for a large share of the remaining holdings outside the Bank of England, according to people familiar with the matter.
Gold’s dramatic rally this year has thrust the traditionally niche market into the global spotlight, spurring a race for talent as trading houses, hedge funds and Wall Street banks all seek to grow their precious-metals businesses. While prices have retreated over the past week, they’re still more than 50% higher than at the start of the year.
“We’re delighted to see that there has been a series of banks who have been interested” in becoming clearing members, London Bullion Market Association chief executive officer Ruth Crowell told journalists at the group’s annual conference in Kyoto on Monday, declining to identify the interested banks.
The number of clearing banks who deal in the physical business of storing bars has shrunk in recent decades, with lenders including Rothschild & Co., Deutsche Bank AG, Bank of Nova Scotia and Barclays Plc all exiting since the start of the century. ICBC Standard Bank Plc was the last to be accepted as a clearing bank in 2016, when it purchased Barclays’s 2,000-ton capacity vault.
In addition to JPMorgan, HSBC Holdings Plc, UBS Group AG and ICBC Standard Bank Plc make up the four current clearing members of the London gold and silver markets. The Bank of England also provides storage, principally to other central banks.
London Precious Metals Clearing Ltd., the company owned by clearing members, earlier this month appointed an independent chair for the first time.
‘It should be open’
“The talk was always: ‘Is it a club which won’t let anybody else in?’ Well, having an independent chair facilitates that,” Paul Fisher, chairman of the LBMA, said in Kyoto. “We’ve certainly been saying for many years it should be open.”
Fisher added: “It’s not a zero-sum game: the more clearers you get, the bigger the market. It’s good for everyone.”
The market shifts over the past year have demonstrated the value that the scale and integration of being a clearing member of the London market can bring.
When the London gold market was squeezed earlier this year by a rush to ship metal to the US amid fears that President Donald Trump might impose import tariffs, queues to take gold out of the Bank of England ballooned and access to immediately-available gold in London was at a premium. Similarly, there was a massive squeeze in the silver market.
Banks with sizable wealth-management divisions also see an opportunity in being able to offer storage to their clients’ gold themselves, rather than having to send them to a rival, some of the people said.
Revenues from vaulting — which are typically calculated as a percentage of the value of the gold stored — have shot up as prices have soared about 55% since the start of the year.
Still, operating a vault — or outsourcing it to a specialist precious logistics company — is expensive, and carries no guarantee of a return.
“It is a big commitment in terms of investment,” Crowell said. Still, “assuming negotiations go well” there should be more clearing members within the next year, she said.
(By Jack Farchy, Sybilla Gross, Jack Ryan and Yihui Xie)