Can Scotiabank’s metals business closure impact gold?

Canadian Bank of Nova Scotia, Scotiabank, appears to be shutting down its metals business. According to sources, the bank had a global call with all its metals staff, and it was closing its metals business. Scotiabank plans to run down all existing metals businesses by the beginning of the next year. 

Analysts say that the move will create more challenges for the gold market. It has already seen a supply crisis and significant price differences between spot and futures prices. 

Jim Wyckoff, a senior technical analyst at Kitco, said that the bank’s move is a sign of the markets’ explosion. However, the coronavirus pandemic has severely impacted many companies and mines in recent weeks. Therefore, it is not a shock to the metals market.

Wyckoff noted that the Comex futures market has temporarily dominated the spot gold market, given the significant slowing of spot market-making.

So, this news will not disturb the gold market from a price perspective, according to the analyst.

Gold prices could become less reliable

There is a fear that spot prices could become less reliable. It could be a big blow to the gold market. Everett Millman, a precious metals expert at Gainesville Coins, stated that it would affect price discovery. If fewer big banks are participating in the metals markets, the prices coming out of London will become less reliable. The expert mentions that the precious metal market has already faced such a problem in the past weeks. It could get worse if more big banks closed their bullion businesses. He said that now many people are worried Scotiabank is going to be the first of many banks to exit the metals business. 

The client inter-phase side could be interrupted

There is a concern about disruption on the client inter-phase side. Peter Hug, global trading director at Kitco Metals, assumes that Scotia has financing projects. Metals accounts for the clients and inventory financing handle dealers. Scotiabank will attempt to sell these deals or handle them to maturity. Clients needing new credit facilities may be a bit nervous and likely looking for new possibilities, Hug shared.

High pressure on the supply side

Peter Grosskopf, CEO of Sprott Inc, said that the news might add pressure to the supply side. He mentioned that it is almost the opposite of what is happening in the oil market right now.

Other analysts believe that the physical market is not going to change.

George Gero, managing director of RBC Wealth Management, said that the spot price was never really reliable since it is not liquid, and it is full cash, there is no margin. Gero added that several banks moved their trading departments or closed them. A lot of it has to do with other things such as Brexit. 

The trading of gold has changed a lot. However, it will not affect anything, said Gero.

In 2017, Scotiabank attempted to sell ScotiaMocatta, the oldest gold trader in the world, owned by the bank. It was not able to finalize the sale. Scotiabank kept the business but downsized it at the beginning of 2018.