London is the focus of the international Over-the-Counter (OTC) 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.
Members of the London bullion market typically trade with each other and with their clients on a principal-to-principal basis, which means that all risks, including those of credit, are between the two counterparts to a transaction. This is known as an ‘Over the Counter’ (OTC) market, as opposed to an exchange traded environment.
The London bullion market is a wholesale market, where minimum traded amounts for clients are generally 1,000 ounces of gold and 50,000 ounces of silver.
Unlike a futures exchange – where trading is based around standard contract units, settlement dates and delivery specifications – the OTC market allows flexibility. It also provides confidentiality, as transactions are conducted between the two principals involved.