(Repeats April 22 item, no changes to text)
* Banks retreat from commodities operations
* Gold and forex similarities aid consolidation
* Automation set to displace traditional bullion traders
By Clara Denina and Jan Harvey
LONDON, April 22 (Reuters) - The increasing use oftechnology on financial trading floors is driving a trend forbanks to roll precious metals operations into their forexbusinesses as a separate unit from other commodities activities.
Barclays on Tuesday followed similar moves byrivals Deutsche Bank, UBS, JPMorgan Chase &Co and Morgan Stanley by announcing that it wouldkeep its gold trading business while hiving off most of itsglobal commodities operations.
The consolidation of interbank gold dealing and foreignexchange trading on electronic platforms is making itincreasingly easy for forex traders to execute precious metalsdeals, allowing banks to ease cost pressures by moving the assetclasses into a single business unit.
"If you were to look at the size of the banks' trading teamsin foreign exchange (compared with) ten years ago, they are ashadow of their former selves," one former banker said.
"The machines have taken over ... If you have gold, there isno reason at all why you wouldn't include that as anothercurrency pair."
The uptake in electronic trading in the past few years hasbeen a key tool in banks' efforts to reduce costs and increaseefficiency.
Barclays added part of its precious metals trading to theBARX FX platform in late 2012, citing the cost-effectiveness ofelectronic trading.
With regulatory scrutiny showing no signs of abating andcost pressures on banks still elevated, industry sources saidthat more institutions may drop out of commodities and streamgold alongside forex platforms.
SEA CHANGE
"We have to face (the fact that) the market has changed andwe have to make lower the cost of trading gold," SocieteGenerale analyst Robin Bhar said. "(Banks) can do that bycutting headcount and transferring trade to electronicplatforms."
As global regulators press for greater market transparency,banks have been required to move some of their over-the-counterderivatives trading to electronic platforms where possible.
"There is a sea change going on because of regulation,squeeze on capital, reputational risks. Banks don't want to docertain things anymore, while what's left tends to be morecomputerised," said Niki Beattie, CEO of consultancy MarketStructure Partners.
"Where you saw banks paying a huge amount of trading andsales staff, (those) salaries could ultimately be going intotechnical support roles. That's what happened in equities acouple of years ago."
Trading gold alongside foreign exchange operations makes alot of sense. The metal is often regarded as a dual asset, botha commodity and a store of value. Prices tend to be moresensitive to factors such as U.S. interest rate policy,inflation expectations and forex rates than the supply anddemand flows that exert a heavy influence on commodities such asoil or industrial metals.
Gold is a highly liquid asset class, with daily tradingvolumes comparable to some currency pairs, while its volatilityis more in line with foreign currencies, analysts said.
PRODUCT PACKAGE
The client base is also different to that for othercommodities. For instance, banks that serve central bankingcustomers with large bullion reserves to manage will have agreater need to offer gold trading and storage services.
"Banks still want to have a complete institutional productoffering, so as a result they need to retain precious metals aspart of their product family," said George Kuznetsov, ofanalytics firm Coalition.
"Banks have been struggling with capital, so they've beenmuch more selective in terms of the products they're betting onfor the future," he said. "Commodities come with a big questionmark."
Coalition estimates that total commodity trading revenue atthe top 10 investment banks fell to $4.5 billion last year, lessthan a third of the $14.1 billion they racked up in 2008 at theheight of the commodities boom.
Back then, a full-service bank would have been expected tooffer a full commodities service. That is no longer the case,bankers say.
"After Deutsche pulled out, it's easier for Barclays to pullout, and it'll be easier for whoever else wants to pull outnext," one commodities market source said.
"It seems the floodgates are open now. Once people werepiling into the market because they felt they had to be incommodities. Now they're piling out of it again." (Editing by Veronica Brown and David Goodman)
Barclays (BARC)
