Annex 4: Precious Metals Market Conventions

Prices are expressed in US dollars per fine Troy Ounce for Gold and per troy ounce for Silver. Prices against other currencies or in units of weight other than Troy Ounces are available on request.

In the spot market, the standard dealing amounts between Market Makers are 5,000 fine ounces in Gold and 100,000 ounces in Silver. The usual minimum size of a transaction is 2,000 Troy Ounces for Gold and 50,000 Troy Ounces for Silver, while Dealers are willing to offer competitive prices for much larger volumes for Clients.

In the forward market, subject to credit limits, London’s Market Makers quote for at least 50,000 fine ounces for Gold swaps versus US dollars, and for at least one million ounces of Silver.

The date agreed between parties for one settlement of a transaction.

Market convention is for the interest payable on loans of Gold or Silver to be calculated in terms of ounces of metal which are converted to US dollars based on a US dollar price for the metal agreed at the inception of the lease transaction. The interest basis for Gold and Silver is a 360-day year.

Interest therefore equals: B x (R/100) x (d/360) x P - where B is ounces of Precious Metals, R is the lease rate, d is the number of days and P is the price of Gold or Silver agreed for calculation of interest.

Market convention is for forward prices in Gold and Silver to be quoted in interest rate terms on the basis at which a Dealer will borrow or lend metal on the swap.

A Dealer therefore may quote three months forward at, say, 0.40 per cent to 0.50 per cent. This means that he will lend on the swap, i.e. sell spot and buy forward, and pay on the basis of 0.40 per cent per annum over the spot price for the forward leg, or borrow on the swap, buy spot and sell forward, and charge on the basis of 0.50 per cent per annum over the spot for the forward.

In this scenario, were the Dealer to be asked to lend on the swap at 0.40 per cent and the spot price were, say, $1,265 to $1,265.50, the Dealer would, in accordance with market practice, base the deal at the middle of the spread. They would therefore sell the spot at $1,265.25 and buy the forward at a premium calculated as: $1,265.25 x 90/360 x 0.4/100 = $1.26. The forward price would therefore equal: $1,265.25 + $1.26 = $1,266.51.

The outright forward purchase price is calculated as the spot bid price plus the forward swap bid and the forward sale price as is calculated the spot offered price plus the forward swap offer.