The Price Of Silver Is Set By A New Electronic System [Newmont Mining Corp(NYSE:NEM), BHP Billiton Limited(ASX:BHP)]

silver 600X300A relic from Queen Victoria’s time catapulted into the computer age last week. I’m talking about the “silver fix” – the mechanism by which a handful of dealers set the price of silver by backroom negotiation.

The silver fix has been in place for about a century. But as of last Thursday, the price of silver is set by a new electronic system. Participants enter electronic orders at a proposed starting price tracked by CME Group, which owns the Chicago Mercantile Exchange.

If buy and sell orders in the new silver-price mechanism don’t match, an algorithm picks a new price for a second round of bidding. And volumes of bids and offers will be open to the participants.

CME Group and Thomson Reuters will run the electronic system and post the rate at noon every weekday.

It all sounds pretty transparent. That’s the point, CME Group says.

And in a surprisingly good development, it turns out the backroom silver fix isn’t the only one that’s changing.

The fixing mechanism of platinum and palladium are also on the workbench. And even gold’s price-discovery mechanism could change.

But I’m guessing it’s also being done to head off potential lawsuits by furious investors who believed the old silver fix was broken – or even rigged.

An investor filed a complaint on July 25 alleging that HSBC, Deutsche Bank and Bank of Nova Scotia manipulated the silver price.

Let’s be fair. Bank of Nova Scotia said it would “vigorously” defend itself against the charges. The other two big banks didn’t comment. However, Deutsche Bank did say that it would no longer participate in the silver fix. It also took a hatchet to its commodities business.

Yeah, that doesn’t look suspicious at all.

Not Just Silver

Also, we know that silver isn’t the only market under

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