FAQ – The Precious Metals Market

The largest and most competitive precious metals market in the world is defined by the participants in the Primary Bullion Market.

The Primary Bullion Market consists of Central Banks, Bullion Banks, Government Agencies, large institutional traders, refineries, and fabricators. These participants are able to trade gold in the OTC market at the most competitive global prices.

This wholesale precious metals market is the basis for virtually all transactions in gold and silver. Trades are made by dealers based on US dollars per fine ounce for gold and US dollars per ounce for silver. Settlement and delivery for metals is two business days after an order is executed.

• ADDITIONAL RESOURCES:
• The Primary Market
• Participating in the Primary Market

The London Bullion Market Association (LBMA) is the London-based trade association that represents the wholesale gold and silver bullion market in London. London is the focus of the international Over-the-Counter (OTC) precious metals market for gold and silver, with a client base that includes the majority of the central banks that hold gold, plus producers, refiners, fabricators and other traders throughout the world.

The LBMA Good Delivery List is now widely recognized as representing the de facto standard for the quality of gold and silver bars, in large part thanks to the stringent criteria for assaying standards and bar quality that an applicant must satisfy in order to be listed. The assaying capabilities of refiners on the Good Delivery List are periodically checked under the LBMA’s Proactive Monitoring program.

The ongoing work of the Association encompasses many areas, among them refining standards, trading documentation and the fostering of good trading practices. Some examples:

• In January 2004 the LBMA introduced proactive monitoring of refiners on the List, an important initiative which further enhances the reputation of the List and the refiners on it.
• In conjunction with the foreign exchange and money markets in London, the Association has developed the Non-Investment Products Code, which provides a code of conduct by which all Members and Associates are required to abide.

• ADDITIONAL RESOURCES:
• London Bullion Market Association
• LBMA Membership
• Historical Statistics
• Brand specifications for LBMA gold bars
• Brand Specifications for LBMA silver bars

A primary function of the London Bullion Market Association (LBMA) is facilitating the international distribution and acceptability of their gold bars. Historically, members of the London bullion market compiled lists of accredited smelters and assayers whose gold bars they would accept without question in settlement against transactions conducted between each other and with acceptable counterparties.

LBMA Good Delivery accreditation has become an internationally accepted standard of quality. Today, refiners of gold have to satisfy the Physical Committee of the LBMA that their bars meet the stringent requirements outlined in the “LBMA Good Delivery List.” For this reason, the on-going review and maintenance of this list is a core function of the LBMA. Additionally, the assaying capabilities of refiners on the Good Delivery List are periodically checked under the LBMA’s Proactive Monitoring system.

Good Delivery Rules for Refiners

Refiners wishing to apply for Good Delivery status submit applications to the LBMA Chief Executive, who in turn consult members of the Physical Committee to assess the refineries. The main requirements to be considered for listing are normally:

• The applicant has been in existence for not less than five years and has been involved in refining operations of the metal for which it is applying for Good Delivery status for not less than three years prior to the application.
• The applicant has an established annual refining production (which need not be in the form of standard bars) of no less than 10 tonnes of gold.
• The applicant has a tangible net worth of not less than the equivalent of £15 million or such figure as the LBMA may from time to time determine.
• The applicant’s ownership, financial standing and reputation would allow it to satisfy the KYC (Know Your Customer) tests practiced in the London bullion market.

The LBMA Good Delivery List is now widely recognized as representing the de facto standard for the quality of gold and silver bars, in large part thanks to the stringent criteria for assaying standards and bar quality that an applicant must satisfy in order to be listed.

• ADDITIONAL RESOURCES:
• More information on the LBMA Good Delivery Standards

The Good Delivery specification is a set of rules issued by the London Bullion Market Association (LBMA) describing the physical characteristics of gold and silver bars used in settlement in the wholesale London precious metals market. These bars are notable for their recognized brands and high purity.

Good Delivery Rules for Gold Bars

Details of the specific standards required for inclusion on the LBMA Good Delivery List are published by the LBMA in the “Good Delivery Rules for Gold and Silver Bars,” available on their website.

Generally, to qualify as Good Delivery metal, gold bars must conform to the following specifications:

• Form: plate or ingot
• Weight: minimum 350 fine troy ounces (approximately 10.9 kilograms); maximum 430 fine troy ounces (approximately 13.4 kilograms)
• Purity: the minimum acceptable fineness is 995.0 parts per thousand fine gold
• Appearance: smooth, free from cavities, holes, or blisters and easy to handle
• Markings include the following: (a) Assay stamp of refiner, (b) Fineness, (c) Serial number and (d) Year of manufacture

• ADDITIONAL RESOURCES:
• More information on Good Delivery Bars

Precious metals ownership via the Clear Title Accounts affords our clients a critical defining feature within the Primary Bullion Market: The Chain of Integrity.

To ensure that all metals we hold on behalf of our customers are of the highest quality and that the bars contain the weight of metal they are said to contain, we maintain the Chain of Integrity. This means that a bar from outside the chain can only be entered into the chain once it has been proven that the quality of the bar is according to LBMA Good Delivery standards.

The members of the Primary Bullion Market ensure that every bullion bar delivered into this Chain of Integrity was refined by an accredited bullion refiner and stamped with its four distinguishing characteristics:

• A unique serial number
• The purity or fineness of the bar
• The official bar weight
• The refiners mark

Bars traded by London Bullion Market Association (LBMA) members maintain a traceable chain of custody among trusted trading partners. The LBMA precious metals market maintains a list of acceptable member refineries that meet certain membership requirements and have passed assay tests. This is important because bullion products from these refineries will generally be accepted by other members of the LBMA at face value without further assay testing. When purchasing bullion products, the face value can generally be accepted if the product can be shown to have remained in the custody of a certified bullion repository since its manufacture by an acceptable refinery. The rules established by the LBMA create the environment whereby members can trade bullion between themselves without concern as to the quality or the purity of the bars.

From the day they are manufactured, Good Delivery Standards bars are kept in bullion vaults recognized and monitored by the gold-dealing community. The same standard applies for silver and platinum. Whenever the bullion bars are moved, a record is maintained showing continuous storage through trusted hands. This audit trail, or “Chain of Integrity”, guarantees the bar’s authenticity and becomes key to assuring the liquidity of the precious metal. Taking delivery of the bullion and storing it at home, or even storing in a safety deposit box, does not confirm the provenance of the bar. The bar must be re-assayed prior to selling it back into the gold-dealing community.
Because the quality of the bullion remains verified when it is in the Clear Title Account Program, you can sell your bullion without the need to re-confirm its purity – this greatly reduces the time required to sell the bullion and reduces the costs related to a sale.

• ADDITIONAL RESOURCES:
• Gold is a highly liquid asset.

This refers to the price paid for an asset when the exchange of goods and money between buyer and seller takes place in the present, or “on the spot”. This is opposed to the futures market, where delivery of goods takes place on a specified future date. The spot market is also known as the “cash market”.

The best gold price in the world, the internationally quoted Spot Market Price, is exclusively enjoyed by the participants in the Primary Bullion Market. By becoming a Strategic Gold client, you too will enjoy the substantial price advantages usually reserved for large institutional traders, refineries, fabricators, government agencies and bullion banks.

The Spot Market is where these large professional bullion traders buy and sell gold for immediate settlement. It is a distributed precious metals market made up of professional bullion market participants from around the world who share a common set of rules and standards when trading gold with each other.

When quoting the spot price to each other it is understood that:

• The buyer is paying in full within 48 hours.
• The price quoted is in US dollars per troy ounce.
• Bars will be Good Delivery gold bars manufactured by refiners on the LBMA Good Delivery list.
• The units of delivery will be whole 400 oz bars.
• The buyer will send a recognized specialist bullion courier to the sellers vault door for the collection, at the buyer’s expense.

The Fixing is an open process in which precious metals market participants can transact business on the basis of a single quoted price. Orders can be changed throughout the proceedings as the price is moved higher and lower until such time as buyers’ and sellers’ orders are satisfied and the price is said to be ‘fixed’. Orders executed at the fixing are conducted as principal-to-principal transactions between the client and the dealer through whom the order is placed.

The current LBMA Gold Price was launched on the 20th March 2015 to replace the historic London Gold Fix. ICE Benchmark Administration (IBA) provide the auction platform, methodology as well as overall independent administration and governance for the LBMA Gold Price, with the LBMA holding the intellectual property rights.The price continues to be set twice daily (at 10:30 and 15:00 London BST) in US dollars. Sterling and Euro prices are available but they are indicative prices for settlement only. The independent third party provider, ICE Benchmark Administration (IBA) were chosen following consultation with market participants. IBA provides the price platform, methodology as well as the overall administration and governance for the LBMA Gold Price. The IBA’s platform provides an electronic, auction-based, tradeable, auditable and fully IOSCO-compliant solution for the London bullion market.

• ADDITIONAL RESOURCES:
• More information on the London Gold Fixing.

There are currently fourteen Gold Fixing members – all of whom are Market Making members of the LBMA. They are Barclays Bank, Bank of China, Bank of Communications, China Construction Bank, Goldman Sachs International, HSBC Bank USA NA, ICBC Standard Bank, JP Morgan, Morgan Stanley, Societe Generale, Standard Chartered, The Bank of Nova Scotia – ScotiaMocatta, The Toronto Dominion Bank and UBS.

• ADDITIONAL RESOURCES:
• More information on the London Gold Fixing.

The chairperson sets the starting price and the price for each round in line with current market conditions and the activity in the auction. Participants then enter their buy and sell orders by volume (i.e. number of ounces). The price discovery process is in US Dollars but participants may, if they wish, request to settle in different currencies. If the net volume of all participants fall within the pre-determined tolerance at the end of a round (i.e. the imbalance is set at 10,000 oz.), the auction will be complete, with all volume tradeable at that price. Netting of orders is processed automatically for participants with all house and client orders, plus any share of the imbalance, contributing to their final net volume. This net volume is then matched against other participants to produce trades with immediate trade confirmations.

• ADDITIONAL RESOURCES:
• More information on the London Gold Fixing.

The fixing is used to deal in large amounts, or to achieve the accepted average price of the metal. As a benchmark, many other financial instruments are priced off the fixing, including cash-settled swaps and options. The silver fixing started in 1897 and will end in August of 2014 and the gold fixing started in 1919.

Since the dawn of civilization, gold has been sought after for its status as a means of exchange and universal store of value par excellence. In fact, gold has served as a universal medium of exchange, a symbol of prestige, a store of value, and a reserve against political and financial instability. Only gold has all of the attributes desirable in a store of value – it is very rare, non-toxic, non-corrosive, uniform, portable, divisible, malleable, universally coveted and accepted, fungible and highly valuable. People only trust in money as long as it offers a certain degree of safety with regard to its future supply and thus to its future purchasing power.

Gold discovery and production are extremely capital intensive, which limits new supply.

Unlike financial assets, physical gold is not a promise to perform in the future and does not rely on counterparties. Gold produces no cash flow, and its value is based on global supply and demand rather than financial valuation conventions. Physical gold markets – worldwide – are well established and operate independently from securities markets and financial institutions. Unlike financial accounts, well-managed physical gold ownership confers Clear Title to a real asset that delivers protections from counterparty, systemic and sovereign risks.

Throughout history, all nations and civilizations have sought to possess gold as a medium of international exchange and as a store of wealth. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and to protect against other macroeconomic and geopolitical risks.

Gold has out-lived every other form of money known to man. It has provided protection against the destruction of wealth for centuries. No other asset has matched the universal appeal of gold or its safe haven properties.

• ADDITIONAL RESOURCES:
• Learn why gold is an essential part of a well balanced portfolio