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Why Zimbabwe should seek readmission into the London Bullion Market

Features Editor – 17 January 2019

ANALYSIS – HARARE (Mining Index) – GOLD output targets have been set. For 2019, Zimbabwe has projected 40 tons. With the mining sector expected to lead economic recovery in the coming years, 100 tons per annum is anticipated by 2030.

Government, through Fidelity Printers and Refiners (FPR), Ministry of Mines and Mining Development and the Reserve Bank of Zimbabwe (RBZ) now need to consider ways of making Zimbabwean gold more valuable to fetching favourable prices on the global gold market.

Zimbabwe is now open for business and must be open to do business with London Bullion Market Association (LBMA).

Zimbabwe was ejected from the LBMA in 2008 following depleted gold production levels which slumped to 3 072kg tons, far below the stipulated 10 tonnes per annum required by the London Bullion guarantee membership.

LBMA is the largest over-the-counter (OTC) gold and silver wholesale market in the world where investment banks, brokers, dealers, Exchange Traded Funds (ETFs), jewellery companies, mining companies, refiners, and central banks (in the case of gold), interact and trade with each other.

Why should Zimbabwe seek readmission into this prestigious club when there are over 40 gold markets around the world?

Zimbabwe has options to join other major bullion markets in Dubai, India, Japan, Singapore, America, Switzerland and Hong Kong. However, the US futures market, Shanghai Gold Exchange (SGE), and London OTC market are the most important, being the top three gold trading centres comprising over 90 percent global trading volumes, with London Bullion Market being the crème de la crème, offering greater influence on the global gold market price.

London Bullion attracts participants from all around the world and sets twice the daily global reference benchmark for gold. Recent studies have also revealed that the international gold price is derived from a combination of London OTC gold prices and the US futures market prices.

LBMA is the biggest centre for gold trading, which can potentially increase Zimbabwe’s ability to sell its gold to international buyers, including its former trading partners.

London Bullion also sets the benchmark for refining standards for gold and silver metal bars across the world, good trading practices and standard documentation, which will certify and endorse the quality of gold from Zimbabwe to prospective buyers.

Trading on an international gold exchange market will help Zimbabwe derive comparative advantage to increase gold marketing on the global market in which Zimbabwe will benefit from LBMA’s status as a leading global financial services hub.

Zimbabwe’s re-joining the London association will put Zimbabwe among the elite group of gold producers in the world and enjoy benefits derived from trading on this platform.

Zimbabwe will appear on London Bullion’s Good Delivery List, used by precious metals exchanges around the world to identify refiners whose gold and silver bars are accepted in their own markets.

LBMA enjoys a favourable time zone advantage, bridging Asian and American trading hours, and is only two hours behind Zimbabwean time during winter and one hour during summer.

Seeking readmission will enable Zimbabwe secure a market that offers protection against price movements. Gold produced and refined at FPR will be directly exported at the international gold prices obtaining at the London Bullion, without any middlemen or intermediary, taking commission on sales made.

Zimbabwe’s gold is sold to the global market in United States dollar, through the Rand Refinery (SA) as the marketing agent, resulting in the country losing 0.3 percent of total foreign currency earnings.

With efficient value addition, Zimbabwe could rake in over US$4 billion per annum from bullion exports, equivalent to Zimbabwe’s annual budget of US$4 billion. ENDS//

 

 

 

 

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