The Voices of the London Bullion Market project brilliantly captures and contextualises the changes and development of the bullion market through the eyes of those who worked in it. So far in the series, we have featured the voices of 13 people from the market. In this latest feature, we reflect on Peter Fava’s career in the bullion market, taken from a recorded conversation with Michele Blagg in 2014.
Peter Luke Fava was born in a British military hospital in Malta in 1948, and moved to Germany and Singapore before settling in England at five years old with his father and mother. After his schooling – at St Peter’s in Guildford and another St Peter’s, this time in Bournemouth – Peter went straight into the working environment with a job at Lloyds Bank in 1978.
Three years in the Lloyds Bank back office, by London’s Waterloo Station, was enough to inspire Peter to become a dealer, and he approached a local employment exchange to find a new job. The exchange had a positions clerk role available at Johnson Matthey Bankers – and that’s how he joined the bullion market. At the time, Dennis Selby was the Chief Dealer, and Peter Treloar was his number two. Andy Stoppani was also at Johnson Matthey Bankers at the same time as Peter.
The comprehensive training Peter received for his new job took all of five minutes.
After a quick demonstration, he was told: “This is how you work the limits out and keep our positions and make sure you don’t make a mistake.” Launched straight into the dealing room, Peter was tasked with helping the dealers keep their positions and give them their limits, which was all done by hand on cards.
With no computers, everybody talked to each other and when something was happening in the market, everybody knew about it. The market was a much more vibrant and exciting place than it ever was since computerisation. When automatic brokers became commonplace the market lost a lot. The lack of computerisation, though, had drawbacks as contact with some markets, such as Australia, was made almost impossible due to the time difference. Switzerland was a huge market in those days, Germany was quite active, and Hong Kong was also important.
Peter Fava served as Chairman of LBMA from June 1997 to July 1999, and was one of the individuals pivotal in shaping LBMA into the association it is today
Dealings in Dealing
After some 18 months in the back office, Peter’s colleague Mike Oliff-Lea and a friend of his started up a dealing operation as part of the Merrill Lynch Group called Rally Merrill Lynch, and they desperately needed a third person. So they asked Peter if he’d like to come along and start dealing.
Peter was launched into dealing silver within 18 months of joining the bullion market, which was a bit of a shock. One couldn’t deal gold without a banking license in those days. It was an exciting time for silver as the Americans were using the silver market as they too were unable to deal in gold.
The average trade at the time was probably a lakh of silver, so 100,000 ounces. To do a million-ounce swap was quite a large deal in those days. The spot price was stuck around the $4 mark and it gyrated in a relatively small band around that level for quite some time.
It was another 18 months until Merrill Lynch decided to sell off the trading operation to McLean Watson, part of the London Metal Exchange, so Peter moved to McLean Watson to trade for them. By this time both of his colleagues had left, so Peter, at the age of 22 or 23, was left with the Silver Book – another big shock as he hadn’t been trained well at that stage. Within the next two years, Peter was headhunted by Rothschild as they needed a specialised silver dealer, so Peter went to work with Alan Baker.
THE MARKET WAS A MUCH MORE VIBRANT AND EXCITING PLACE THAN IT EVER WAS SINCE COMPUTERISATION. WHEN AUTOMATIC BROKERS BECAME COMMONPLACE THE MARKET LOST A LOT.
The Rothschild Difference
Peter joined Rothschild in 1974, and it was very different to the other organisations Peter had previously worked for. As a member of the London Gold Fixing this was a very important part of the day. And as a bank with a banking license, it had a Foreign Exchange team, so it was much more banking orientated, and certainly the largest bank that Peter had worked for at that time.
Peter spent ten years at Rothschild, half way through which he moved over to the money market side, working with Sterling, and borrowing and lending Sterling. This marked the start of almost 15 years spent in the money markets, rather than the bullion markets – an environment which was rapidly changing thanks to the opening of the Futures Exchange. This experience was a fantastic way of bolstering knowledge of the markets surrounding the bullion market
[image: Rothschild & Co, Newcourt, London. Their motto “Concordia, Integritas, Industria” means "harmony, integrity, industry".]
The Discount Market
By the time the ‘Big Bang’ happened in the mid-80s, Peter was working for a discount house called Alexander’s Discount plc, which was responsible for ensuring that the Bank of England could balance the books at the end of the day. The discount market was probably the most fun Peter ever had, as it was a genuine market – purely based on supply and demand. One could take a reasonable amount of risk, but always within boundaries as the Bank of England was on one’s shoulder.
Peter had a wonderful time in the discount market, during a real ‘English gentleman’s’ era – which was probably rather public school boyish, Peter admits – but it was fun.
Eventually, the discount market business was transferred to the clearing banks and Peter’s time in this part of the market came to an end. Peter’s next move was to Midland Bank (HSBC) as Head of Precious Metals in 1993. Midland Bank owned Samuel Montagu, a member of the Gold and Silver Fixing. It was a very small team, as only one person was designated to look after each market: so one Deutschmark dealer, one Swiss Franc dealer, one gold dealer and one silver dealer. Which wasn’t enough and it got very tight when one was out of the office for the silver fixing or someone was ill.
But in 2000, when HSBC bought Republic National Bank, the Group finally started to take bullion seriously.
Peter was a director both for gold and silver fixing boards from 1994 to 2004. Peter was also on the platinum and palladium board of the LPPM, so was privy to many discussions over the years about how the markets worked. But there really is no better method for determining the price of gold than the current fixing system.
THE DISCOUNT MARKET WAS PROBABLY THE MOST FUN PETER EVER HAD AS IT WAS A GENUINE MARKET – PURELY BASED ON SUPPLY & DEMAND
Silver: A Strange Affair
However, pricing silver was always difficult. Orders were taken prior to the fixing, then the three fixing members would go into an isolated room and fix the price of silver. If you moved the price higher there were sellers, if you tried a bit lower there were buyers, so one had to find somewhere in the middle where everybody could do as much business as possible. But, as a result of this, one could end up with two or three lakhs of silver on your books – not necessarily what you wanted – and, without a mobile phone, you had to walk back to the office before you could tell them what the position was. So it was difficult, and it’s easy to understand why the silver fixing hasn’t evolved in the same way as the gold fixing.
Peter’s opinion has always been that the two metals should be fixed in the same manner. However, one had to produce a 3 / 6 / and 12 month forward prices for silver - not just the spot price - so it could not be done in the same way. A great pity.
Being a member of the gold fixing was a tremendous, prestigious affair. When the Americans were allowed to trade gold it was wonderful, and just spectacular to be part of. When Great Britain decided to sell its gold reserves – a huge shock – and the Treasury insisted that the Bank of England sell its gold by auction (see Gordon Brown’s Bottom, in issue 94 of the Alchemist), the market was impacted dreadfully. The price was knocked down to below £250 at one stage. There were many other options which would not have impacted the price of gold so dramatically. The Treasury would not speak to anybody else apart from those at the Bank of England to gain additional advice.
BEING A MEMBER OF THE GOLD FIXING WAS A TREMENDOUS, PRESTIGIOUS AFFAIR
Peter served as Chairman of LBMA from June 1997 to July 1999, and was one of the individuals pivotal in shaping LBMA into the association it is today and making it financially sound. A meeting between the directors of London Gold Market Fixing Limited – who established LBMA originally – and the market makers who were not fixing members, resulted in the opening up of the market. This meant any market maker could become Chairman.
Subsequently, non-London market makers were encouraged to join LBMA with the offer of overseas membership and a number of other benefits. Once Peter retired from his Chairmanship, and Martin Stokes took over, the first Conference was held in Dubai, and LBMA just took off from there.
Peter Fava with some of the other great faces of the bullion market, many of whom participated in the Voices Project. (Left to right) Chris Elston, Albert Helmig, David King, Philip Clewes-Garner, Tim Green, Colin Griffith, Howard Davies, Martin Stokes, Alan Baker, Stewart Murray, Peter Fava and Terry Smeeton.
Evolution of the Market
The advent of the computer changed absolutely everything. Previously there were physical brokers, people would actually talk to one another and say: “I’ve got a gold price for you”. Information was so limited, yet now you can find out absolutely everything you need to know within seconds. This is a huge change from, for example, running the futures book without a computer, and having to work out what one’s positions were, and what the risk was – effectively creating a spreadsheet by hand.