Proposals to replace the 117-year-old system of fixing prices for the $5 trillion silver market are poised to add more transparency for the London benchmark used in the $18 trillion gold industry as well.

London Bullion Market Association members will hear firms’ proposals tomorrow for alternatives, including electronic trading, to replace the silver fixing by banks that began in 1897. The daily procedure will end Aug. 14, when Deutsche Bank AG quits the meetings as part of the German company’s exit from commodities, leaving just two banks to set prices. The World Gold Council yesterday called for a meeting next month for the industry to discuss changes to its own valuation process.

Precious metals are getting more attention from regulators after price rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks. The U.K.’s Financial Conduct Authority in May fined Barclays Plc after a trader sought to influence the gold fix in 2012. An LBMA survey last month showed the market wants a new silver system to be an electronic, auction-based process with more direct participants and prices that can be used in trades.

“The process is somewhat antiquated,” Courtney Lynn, the treasurer for Chicago-based Coeur Mining Inc., the biggest U.S.- based primary silver producer, said June 12. “In that sense, it could use some updating. If the silver process ends up working well and the market feels that they can remove a certain level of regulatory risk, I think they’ll opt to move to the silver pricing mechanism” for gold, she said.

David Fuller's view

Silver and gold can be traded all over the world but the volume has been low in recent years, in line with the declining trends in prices following silver’s spike peak in April 2011 and gold’s peak in September of that year. 

However, this move to increase transparency will revive interest in these arguably cheap assets which some investors also regard as hard money.  Several other behavioural/fundamental indicators could also contribute to a recovery which very few people currently expect.

1) Industrial commodities are often cyclical performers.  They tend to recover late in stock market bull cycles because they look cheap relative to assets that have appreciated in price. 

2) Production may have declined due to low prices so there will be less fresh supply to meet demand in a global economy that is gaining in strength.  

3) Sentiment is usually bearish at market troughs because people have lost money and faith in a recovery.  Traders may also be short and hoping to talk the market down even further.

These factors eventually produce powerful recoveries as bears cover shorts, value investors return, and momentum traders buy into the recovery.