26 July 2017
DIGGING FOR GOLDEN OPPORTUNITIES IN DUBAI AND LONDON
Precious metal drives growth in strategic trading route
London’s $5 trillion-a-year gold market, a flurry of new bullion contracts across the globe and fresh arbitrage opportunities have fortified Dubai’s appeal as an international trading venue.
LME’s first gold futures contract in 30 years (LMEprecious) is the latest development worth analysing. Backed by the World Gold Council, LMEprecious’s centrally cleared market is favoured by regulators and is intended to appeal to institutional banks and fund managers that abandoned metals trading in recent years.
Presented by the FT as “the blueprint for an overhaul of the 140-year-old exchange,” LMEprecious had a promising start with $56million worth of gold exchanged on its opening day.
This may appear a conservative figure when compared to Comex’s $24billion on the same day, though if we consider LME’s gradual fall in trading volumes, the analysis changes from lukewarm to encouraging.
Glittering growth & LME DGCX arbitrage
That said, it will be some time before the market’s response to LMEprecious can be measured, however its very launch and other new gold contracts elsewhere in the world means arbitrage opportunities within the asset class are back on the agenda for many commodities traders.
Middle Eastern exchange Dubai Gold and Commodities Exchange (DGCX) is one venue that could likely capitalise on these opportunities.
The exchange has established itself on the global stage as a reliable location for bullion trading and its proximity to new gold contracts in London and Hong Kong raise DGCX’s market competitiveness even higher.
These developments also come at a time when DGCX recorded an impressive trading period, as shown in the exchange’s latest update.
DGCX’s Precious Metals segment grew substantially, partly because of market uncertainty caused by geopolitical issues and gold’s safe haven status.
Investors rushed into Shanghai Gold Futures and Spot Gold, giving DGCX its highest monthly volume and Average Open Interest (AOI) figures to date – $189.62 million traded in total.
Scaling the walls
These figures are enough to entice any trader.
Those already established in LME could benefit considerably by expanding into DGCX, although with any new opportunity traders should comprehensively plan marketplace access.
This is crucial in particular when connecting to Dubai.
Significant progress has been made in recent years in international connectivity and execution, however Dubai’s state-supplied networks reduce the connectivity options available for international investors, especially those organisations interested in securing low latency access to the region and to other strategic trading venues for arbitrage purposes.
Dubai’s telecommunications structure can also impact network diversity, overall redundancy and if approached impulsively, can substantially increase initial setup costs and operating expenditure.
Opening the gates to trade gold London DGCX
For those with an existing presence in key London data centres, market data services offer the greatest flexibility and reliability, highest performance and strongest return on investment.
If larger volumes are in play – for example traders looking to exchange gold aggressively across multiple markets – then dedicated connectivity from an independent network supplier is the more suitable choice, especially from a network diversity perspective and ensuring best execution.
Ultimately, investment in routes such as London to Dubai are becoming increasingly popular with international traders.
They are taking advantage of the growing demand for commodities contracts in regions such as the Middle East and Asia.
No-one can predict which direction gold will head in, but there is a compelling case for possessing network connectivity that can rapidly adapt to shifts in the market as they emerge.