The headline reads “Moscow World Standard to Destroy LBMA’s Monopoly in Precious Metals Pricing”. Wow! Could it be? Is this it?! The gold revaluation we’ve all been waiting for! Someone, who has the power, will give us a venue in which we can sell our gold at its true price… how does $50,000 sound, eh?
Not so fast.
Betting Against the Incumbent?
For one thing, there are sanctions. If you’re a citizen of a Western country, there is a legal barrier between you and a brokerage account in Moscow. And even if you’re not, Russia has capital controls. Who would send their gold and cash there? Russia is a net exporter of gold; gold is always leaving the country anyways.
Leaving that aside, let’s look at the economic problem before we get to the actual news under the headline.
Basic market theory teaches that, if the price in the Moscow market were higher than the price in London and New York, then it would attract all the sellers. But the buyers would stay away. The idea of a market which prices higher than another one is unworkable. Like a magnetic monopole, it is missing one of two required sides.
There are two ways to destroy an incumbent market player. One is beat them at their own game. In the case of an exchange, that means providing better liquidity, tighter bid-offer spreads, and greater capability to absorb large orders without moving the bid or offer. This is almost always a fool’s errand, as these are precisely the incumbent’s strengths.