By David Jollie, Head of Research, Mitsui & Co Precious Metals Inc
For the 2015 annual conference, once again held in conjunction with the London Platinum and Palladium Markets (LPPM), the LBMA has plumped for another new location, Vienna in Austria.
So, why does the conference move location each year? Although the LBMA is the London Bullion Market Association, it has member companies located all around the world. This conference is organised by the industry for the industry and we hold a responsibility to involve all of the market, recognising our historical base in London but acknowledging and embracing new developments in our industry. We feel that by moving location on a regular basis we can change the focus of the event and bring it to a new audience at the same time.
Last year’s conference was held in Lima, Peru, the first time the conference had taken place in South America. This allowed us to talk to and involve many producers, given the huge number of precious metal mining companies active throughout South America. The geographical distance from the main trading centres made this a smaller, but more concentrated and no less worthwhile event. Sadly, the distance from both the main producing and consuming regions of the platinum group metals meant that the 2014 conference was the first to be held without the direct involvement of the LPPM for some time.
By returning to Europe this year, we have made the event more accessible to the London market in particular and we expect a return to near record attendance. We also welcome back the LPPM as co-sponsor this year, ensuring that this conference will cover each of the four major metals in some depth. In geographical terms, this conference will also follow the historical flow of metal from South America, where the lure of silver and gold attracted the Spanish, to Europe, where this metal was spent, and we can expect a greater focus on the downstream end of the market rather than upstream production.
So, why choose Vienna for this year’s event? Vienna is by no means the most active location in the world of precious metals, despite being host to Austria’s Central Bank, the Austrian Mint and a number of consumers of our materials and banks.
Vienna does, however, have a very long and important history in the precious metals market. The Maria Theresa Thaler was first minted as a silver coin around the middle of the 18th century in Vienna and subsequently became one of the world’s pre-eminent trade coins, aided by the expansion of the AustroHungarian Empire. It was minted in numerous locations around the world over the next 200 years and gained acceptance as a real, valuable currency far outside this Empire, underlining the monetary nature that precious metals can possess in the right circumstances. The name of this coin and other older Thalers, after being corrupted, gave rise to the word dollar, just as the UK’s currency, sterling, is derived from the name of a different silver coin, again reminding us of the link between the precious metals and the monetary world.
It seems appropriate therefore to be visiting the home of the thaler at a time when the precious metals’ monetary value is being raised again. Recent dollar strength and emerging currency weakness have been accompanied by a willingness by the Chinese authorities to allow China’s currency, the renminbi, to weaken, reigniting talk of potential ‘currency wars’. There are still widespread fears that loose monetary policy around the world and several years of quantitative easing could yet lead to uncontrolled inflation. At the same time, many worry about the possibility that slowing economic growth in China and elsewhere could trigger deflation or stagflation. Meanwhile, precious metal prices have retreated along with those of other commodities, bringing into question whether they can be monetary instruments, financial assets and safe havens from risk, or whether they remain mere commodities.
In this scenario, we therefore plan to start the conference with speeches from Lord Gus O’Donnell, former head of the UK’s Civil Service, and John Authers, a well known FT columnist, who will set the economic and political scene. We will follow this with two sessions focusing on the financial and monetary aspects of the precious metals market, perhaps with an understandable focus on gold. For much of the lifetime of this conference (which was first held in 2000 in Dubai), the gold price has been rising, contributing to a sense of bullishness and an expanding industry. More recently, the falling gold price has tested the confidence and patience of the gold bulls and encouraged the industry to question the role and reality of this metal. This conference will feature sessions on the official sector and on investment interest on the precious metals, allowing attendees to revisit the question of whether gold retains its value as a currency or as a financial asset.
We will not ignore the commodity aspects of these metals though. The tyranny of the cost curve is well known, with falling prices across the precious metals forcing producers of all of these metals to cut costs and focus on the short and medium-term sustainability of their operations rather than on maximising output in ounces or tonnes. It is therefore a particular pleasure to feature a session on producer hedging, looking at the rationale behind this and some of the ways in which this can be accomplished.
On the final afternoon of the conference, we will also look at some other aspects of the physical gold market as we hold a responsible gold forum, looking at the rules currently covering the sourcing, processing and documenting of gold in an ethical and responsible way. With new rules expected to come into force, this is a key area for the gold market and could be increasingly relevant to the other precious metals too. Time constraints mean that we can only devote a limited amount of time to some of the more commodity-like aspects of these metals. However, on the second day, we will hear from experts on the Chinese and Indian markets, both of which play a vital role in driving demand for the precious metals. Although the platinum group metals will have their own session, discussions of these metals will also be threaded through some of the other sessions on occasion to test how they are linked to gold and silver, and how these groups of metals might differ. There will be presentations on the jewellery and automotive sectors, the two biggest end uses of these versatile elements.
The final sessions of the conference aim to set the scene for what the next year might hold, with a panel of vastly experienced and hugely informed industry specialists addressing some of the key issues and burning topics facing the industry today. We can expect regulation (which will have its own short session this year on the first day of the conference) and the general move of the precious metals markets from West to East to be two of the key questions that are raised and are likely to be discussed in the bars and coffee houses of Vienna during the conference.
The final act of the conference proper will see myself stepping into Ross Norman’s shoes to make my debut in summing up the conference and trying to draw out some of what we have learnt, ably led by John Reade, who has performed the same role valiantly on previous occasions.
With the conference ahead of us, what can we forecast with any certainty? Bearish sentiment seems likely to dominate and sustained low prices could cast a downbeat backdrop for the event. At the time of writing this editorial, we cannot be certain of the Federal Reserve’s planned actions in terms of American monetary policy, nor of how soon it might be before the Chinese economy recovers. We can, though, be fairly confident that Viennese patisserie will be inflationary to the waistlines of many of those attending.