How Metals Are Priced: The LME, COMEX and the LBMA

Introduction

News reports talk about "the price" of copper or gold as if it were one number. In practice, metal prices come from a small number of exchanges and benchmarks, each with its own rules for how and when the number is set. Most prices you see quoted trace back to three London and New York institutions: the London Metal Exchange (LME), COMEX, and the London Bullion Market Association (LBMA).

This guide explains what each one does and why two sources can show different prices for the same metal at the same time. It quotes no prices.

A metal price is only meaningful with its source, its time and what kind of contract it refers to.

The London Metal Exchange

The LME is the main reference market for industrial metals such as copper, aluminium and zinc. Its benchmark is the LME Official Price, quoted in US dollars per tonne.

According to the LME's benchmark statement, Official Prices reflect trading on LME venues during set periods, and for Ring-based prices the method uses bids and offers as well as completed trades. The Ring is the LME's open-outcry trading floor. In August 2021 the LME announced that Official Prices would return to Ring-based price discovery from September 6, 2021, while its separate Closing Prices would continue to be set electronically.

The benchmark statement describes two main uses:

• The Cash Seller's Official Price, also called the Official Settlement Price, settles the LME's physically deliverable futures.
• Producers, smelters and traders use the prices as a global reference for physical contracts.

That second use is why the LME matters to miners: a base metal concentrate sale may be priced off an LME price, with smelter charges deducted.

COMEX

COMEX is a New York futures exchange in the CME Group family, and its gold futures are among the most widely followed metal contracts. According to CME Group's fact card, its standard gold futures contract covers 100 troy ounces and is settled by physical delivery, alongside smaller contracts for 50 and 10 ounces.

A futures contract is an agreement to buy or sell a set amount of metal at a set price on a future date. Physical delivery ties the futures price to the physical market. Some live gold quotes on trading platforms are futures prices rather than spot prices, so check the label.

The LBMA Gold and Silver Prices

London has a large over-the-counter market for physical gold and silver, and the LBMA benchmarks are its reference prices. They are administered by ICE Benchmark Administration (IBA). According to IBA's methodology:

• The LBMA Gold Price is set twice each London business day, at 10:30 a.m. and 3:00 p.m. London time.
• The LBMA Silver Price is set once, at 12:00 noon London time.
• Both are formed and settled in US dollars and also published in pounds sterling and euros.

Each price comes from an electronic auction. IBA publishes a price, and participants have 30 seconds to enter or change buy and sell orders. If the gap between buying and selling exceeds a set threshold, the price is adjusted and another round begins. When the gap falls within the threshold, the auction ends and that round's price becomes the benchmark.

These benchmarks are used for contracts, valuations and some product pricing. Unlike a live quote, an LBMA price is a fixed number for that auction.

Spot Versus Futures

A spot price is for metal delivered in the near term. A futures price is for delivery on a set date further out. The two are usually different. The gap reflects things such as the cost of financing and storing metal until the future date and how tight physical supply is right now.

Exchanges list several delivery months at once, so there is no single futures price either. A quote should say which contract month it refers to.

Why Two Quoted Prices Differ

If two websites show different prices for the same metal, check:

• The venue. An LME price, a COMEX futures price and an LBMA benchmark are different things.
• The time. A benchmark set at 10:30 a.m. in London will not match a live quote at 2:00 p.m. in Toronto.
• Spot or futures, and which contract month.
• The unit. Base metals are usually quoted per tonne or per pound; precious metals per troy ounce. The unit converter handles the conversions.
• The currency. A Canadian-dollar price moves with the exchange rate as well as the metal.
• Bid, ask or last trade. A screen may show any of these.

Precious metal prices also respond to interest rates and the US dollar, which our note on gold and real interest rates covers.

Who Oversees the Benchmarks

Because so many contracts reference them, these prices are run under formal rules. The LME's benchmark statement says the exchange is authorised and regulated by the UK Financial Conduct Authority for its benchmark administration, and that a committee sets the Official Prices with a second check before publication. IBA describes the LBMA auction platform as auditable and designed to align with international benchmark principles set by IOSCO, the global body of securities regulators.

None of this makes a benchmark "correct" in any deeper sense. It means the method is written down, so users know exactly what the number represents.

What This Means When Reading a Junior

• Price assumptions in studies. A technical study states the metal prices it assumes. Those are assumptions chosen by the authors, not a market quote, and the study's results change with them.
• Prices in news releases. If a company quotes a metal price, look for the source and the date.
• Metal equivalents. A gold-equivalent or copper-equivalent grade depends on the prices used to convert between metals. Check which prices, and when they were set.
• Sales terms. A producer's sales contracts usually reference a benchmark or exchange price under agreed terms, so realized prices can differ from the price on any one day.

This article is general information. It is not advice and makes no prediction about prices. Check the filings, and speak to your own adviser before making decisions.