Loco London Precious Metals Market
In the Loco London Market, trade is carried out directly between two counterparties, without the involvement of an exchange – enabling transactions to precisely meet a client’s requirements. LBMA is at the heart of this market.
How the Market Works
Governed by LBMA and running 24 hours a day through London, the London Bullion Market – as it’s known to its members – provides flexibility in pricing, size of deals and length of contract. It also maintains confidentiality and ensures that all risks exist only between the two counterparties.
Counterparties and their clients from all over the world settle their transactions through the market, with the bullion settling physically across accounts held in London. The term Loco London simply refers to gold and silver bullion that is physically held in London vaults to underpin the trading activity in this market.
Internationally, precious metals are traded on a 24-hour basis. Either for immediate delivery, known as spot, or for a date in the future. LBMA accredited refiners annually refine approximately 5,000 tonnes of gold and more than 30,000 tonnes of silver.
Good Delivery Bars of gold and silver are traded globally in what is referred to as Over The Counter or OTC market. Approximately 25 billion dollars worth of gold is settled each day in the global OTC market, with London at its centre.
This means all transactions are conducted between two parties without the need for an exchange.
An OTC market offers flexibility, in that two parties can negotiate bespoke transactions that precisely meet the needs of the customer. For example, in terms of price, amounts to be bought or sold, and time to maturity.
It maintains confidentiality and means that all risks, including those of credit, exist only between the two counterparts.
Typical market clients include miners, central banks, governments, fabricators, investors, hedge funds and refiners.
Only gold and silver bars, known as bullion, conforming to our standards, are acceptable in the market. We maintain the Good Delivery List of refiners whose standards of production and assaying meet our requirements.
The five market elements
All bullion transactions between the clearing members of the LBMA are cleared and settled on a net basis electronically by London Precious Metals Clearing Limited.
Seven LBMA members and the Bank of England provide secure locations for bullion and act as gatekeepers to the London market.
Only bullion produced by refiners whose practices and bars meet the stringent standards required to appear on LBMA’s Good Delivery Lists can be traded in the London market.
Most bullion trading and settlement in London uses unallocated accounts – customers do not own specific bars but have a general entitlement to an amount of metal. An allocated account is opened when the customer requires ownership of specific bars.