The world gold market has been growing steadily in the past several years ever since, in the aftermath of the great financial crisis of 2008, precious metals prices went soaring. Although demand was growing, the process of setting prices remained rather antiquated using a fixed price set by five major banks, which has recently come under scrutiny.
With the demand for physically delivered precious metals growing, one company has decided to venture into the market, providing an alternative marketplace for physical precious metals.
Bullion Capital is an electronic marketplace that is matching the orders of liquidity providers and clients aiming to diversify their portfolios into a safe haven investment. Bullion Capital is currently the only institutional real-time electronic exchange for allocated physical precious metals.
The company is dealing with a number of different market participants which can be divided into several groups: wholesale entities, banks and large trading houses – some of which are acting on behalf of central banks – come first.
Wealth managers and investment advisors allocating physical precious metals to investment portfolios come second. The third key market that the company is after are the online brokers who are diversifying their offering for clients by introducing physical gold trading.
Bullion Capital’s CEO, Thomas Coughlin, says, “We offer brokers a great solution to easily roll-out to their clients. Our platform sits alongside their existing suite of services and enables their clients to benefit from additional precious metal wealth management opportunities. Offering physical bullion alongside traditional investment, Forex and CFD products is a proven strategy for brokers.”
Brokers can add the firm’s proprietary MetalDesk platform or, alternatively, integrate directly to the exchange via their existing proprietary platforms.
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The firm is offering trade from a number of independently priced markets. There are eleven vault locations investors can choose from – Sydney, Singapore, Hong Kong, Shanghai (Free Trade Zone), Bangkok, London, Zurich, New York, Istanbul and Dubai.
Clients who have purchased their gold, silver or platinum can either store their precious metals in the set locations or opt for physical delivery. The holdings are also exchangeable – a client who is willing to swap his holdings in London with the Shanghai Free Trade Zone can do so electronically and immediately.
An alternative precious metals market
CEO Thomas Coughlin shared with Forex Magnates reporters, “What Bullion Capital has effectively accomplished is to create an alternative to the existing wholesale precious metals market, which is based out of London.”
“We’re modernizing physical precious metals trade the way that EBS and Reuters modernized foreign exchange trading, by bringing it into an electronic online trading environment. Physical precious metals are largely traded over the phone, in the same way as foreign exchange used to be traded,” he explained.
In the past several months Bullion Capital on-boarded over 50 members to its exchange, with many of the participants being online forex, CFD and equity brokers. The firm shared with Forex Magnates reporters that it recently received applications for the on-boarding process from some of the largest firms in the online brokerage space.
Fixing the precious metals price fixing
An electronic exchange is the most transparent approach to eradicating the front-running issues which a number of clients have been complaining from in past years. Bullion Capital’s solution has the capacity to take the power out of the hands of the very few precious metals market makers.
The terms of trade of precious metals are largely set by six banks in London, all the other banks in the world have to deal with these same six on order to get their deals done.
According to sources across the industry, there has been substantial frustration especially on the part of Asian banks with their orders being front-run. An anonymous marketplace where the liquidity provider can’t see the liquidity taker eliminates the opportunity for front-running and price manipulation.