24. Frequently Asked Questions

The London Bullion Market Association (LBMA) is an international trade association, representing the global market for gold and silver bullion which has a global client base. This includes the majority of the gold-holding central banks, private sector investors, mining companies, producers, refiners and fabricators. The on-going work of the Association covers a number of areas, among them refining standards, trading documentation and the development of good trading practices.

The maintenance of the Good Delivery List, including the accreditation of new refiners and the regular retesting of listed refiners, is the most important core activity of the LBMA. The LBMA Brochure provides further information about the LBMA.

The London Platinum and Palladium (LPPM) is a trade association that acts as the co-ordinator for activities conducted on behalf of its members and other participants in the London market.

It acts as the principal point of contact between the market and regulators/other official bodies such as HM Revenue & Customs. It ensures the continued evolution and health of a marketplace for platinum and palladium in which all participants can operate with confidence.

The LPPM website is: www.lppm.com

Most global OTC gold and silver trading and to a lesser extent platinum and palladium is cleared through the London clearing system, managed by the London Precious Metal Clearing Limited (LPMCL), which operates a central electronic metal clearing hub, with deals between parties throughout the world settled and cleared in London.

The most widely traded market for bullion dealing globally is for delivery of metal in London. Consequently, the volume of Loco London metal settlements between counterparties requires an effective and efficient daily clearing system of paper transfers, which avoids the security risks and costs inherent in the physical movement of metal. LPMCL, which is operated by its members, provides an electronic matching system to effect the daily settlements in gold, silver, platinum and palladium.

The LPMCL website is: www.lpmcl.com

OTC stands for Over The Counter as opposed to an exchange traded environment. While transactions between members of the LBMA and LPPM tend to be in standard dealing amounts, when dealing with clients, a dealer will provide a tailor-made service – offering quotes for variable quantities, qualities and types of precious metal as well as for various value dates and delivery locations. Thus, OTC markets offer far greater flexibility for clients compared to a futures exchange that operates with standardised contract sizes, delivery dates and settlement locations.

There are daily benchmarks for gold (twice daily at 10.30am and 3pm), silver (once daily at noon) as well as platinum and palladium (twice daily at 9.45am and 2pm). The palladium auction follows immediately after the auction for platinum. All times referred to are London time not GMT.

Details of the LBMA prices for all four metals can be found in section 11.

The intellectual property for all four global precious metal benchmarks is held by Precious Metals Prices Limited, subsidiary company of the LBMA. However, the auctions themselves are independently administered by third party providers. Full details of the benchmarks can be found on the LBMA’s website.

Details of the LBMA prices for all four metals can be found in section 11.

As at end March 2017, there was 7,449 tonnes of gold valued at the time at $298 billion.

As at end March 2017, there was 32,078 tonnes of silver valued at the time at $19 billion.

EFP stands for Exchange For Physical. It is the mechanism by which Loco London OTC positions are switched with those on futures exchanges.

Further details are provided in section 13.

Exchange Traded Product (ETP) and Exchange Traded Fund (ETF) are two terms used for investments in metals, as well as other assets, that are traded as individual securities on a stock exchange.

Further details are provided in section 13.

Loco London is simply a metal trade where the metal part of the transaction settles over accounts held in London.

Loco Zurich is simply a metal trade where the metal part of the transaction settles over accounts held in Zurich.

A Loco (location) swap is an agreement to exchange equivalent quantities of metal in two separate locations. One location will almost invariably be London. The other could be a variety of places but perhaps most commonly will be Zurich.

The trade is booked as the purchase of metal in one location and the sale of an equivalent amount in another. The price differential will be a reflection of the demand for metal in each location, but at its simplest, may be nothing more than the cost of shipping the metal into London, plus refining costs if appropriate. Conventionally, this transaction will take place on the spot date with the currency aspect net settled. Obviously, the metal part of the transaction cannot be offset as the deliveries are for different locations.

The troy ounce is the standard unit of measurement for precious metals. In everyday life, we use avoirdupois ounces, which are smaller than troy ounces, or ‘ounces troy’, which is the correct terminology but is almost never used. The term is thought to originate from a medieval gold fair that was held in the French town of Troies. A troy ounce is 1.09714 avoirdupois ounces.

There is more information on troy ounces in section 4 and a conversion table appears in section 18.

PGMs stands for Platinum Group Metals. By market convention, this term is generally used to solely refer to platinum and palladium, rather than the wider group which appears on the periodic table – namely, platinum and palladium plus rhodium, osmium, ruthenium and iridium.

An account where specific bars are not set aside and the customer has a general entitlement to the metal. This is the most convenient, cheapest and most commonly used method of holding metal. The holder is an unsecured creditor. A common analogy is having a current or checking account at a bank.

More information is provided in section 8.

An account where specific bars are set aside and the account holder knows the precise bars that they own. The account operator is basically a custodian of the metal. A common analogy is having a safe deposit box.

More information is provided in section 8.

Tables of the various conversion factors are provided in section 18.

A contango market is when the forward price – the price for delivery of metal further ahead than two business days – is higher than the spot price.

More information is provided in section 9.

Backwardation is the opposite of contango and is when the forward price – the price for delivery of metal further ahead than two business days – is lower than the spot price.

More information is provided in section 9.

Yes is the simple answer, with the level of the rates set by relative interest in borrowing or lending for the relevant metal.

More details are provided in section 9.

It has been estimated (by GFMS Thomson Reuters) that by 2016, approximately 187,200 tonnes, or roughly 6 billion ounces, has been recovered in human history.

As kilobars do not meet all the criteria for London Good Delivery, they are not regarded as Good Delivery bars.

However, as the LBMA has become the de facto authority on quality standards applied to gold and silver bullion, it will, when appropriate, collaborate with geographically relevant organisations to ensure the highest possible standards are maintained and the appropriate level of support is provided to the Good Delivery List (GDL) refiners.

Further information is provided in section 5.

RGG stands for Responsible Gold Guidance. In order to respond to US Conflict Mineral legislation, the LBMA took its role as accreditor of the world’s gold refiners very seriously by expanding the scope of its requirements, to include corporate social responsibility, by the creation of the Responsible Gold Guidance (RGG). Ultimately, it will be superseded by Responsible Sourcing Guidance (RMG), which will encompass silver, platinum and palladium as well.

See section 16 for more information.

RSG stands for Responsible Sourcing Guidance. While the LBMA originally put in place a robust framework to ensure compliance with its Responsible Gold Guidance scheme, it has subsequently responded to industry demands to broaden the scope of the Guidance to include precious metals other than gold.

See section 16 for more information.

33,259.2 tonnes of gold – according to data compiled by the World Gold Council using information taken from the International Monetary Fund’s International Financial Statistics (IFS), February 2017 edition, and other sources where applicable.

See section 21 plus the World Gold Council’s website for the most up-to-date information.

It will generally be a combination of their own domestic vaults, the Bank of England in London and the Federal Reserve in New York.

The USA held 8,133.50 tonnes of gold as of February 2017, according to data compiled by the WGC using information taken from the IMF’s International Financial Statistics (IFS) and other sources where applicable.

This is over twice as much as the second in the list, which is Germany’s Bundesbank with 3,380.20 tonnes.

Details are provided in section 21, also see the WGC’s website for the most up-to-date information.

AngloGold Ashanti’s Mponeng is one of the the world’s deepest of any type of mine, mining at depths of between 2,400m and 3,900m. To go any deeper produces further significant challenges. As AngloGold Ashanti notes:

• Increased costs: It would require more development work, including infrastructure at times, which increases costs.
• Low productivity: It poses increased distances to mine face which reduces productivity due to longer travel time before starting to do the actual work.
• Safety: the deeper we go the greater the technical difficulty – rock stress, ambient rock temperature, etc.
• The AngloGold Ashanti Technology Innovation Consortium is aimed at dealing with these challenges – specifically in the development of key technologies to achieve the project’s core objective to “Safely Mine, All the Gold, Only the Gold, All the Time” from our deep-level underground mines in South Africa.

The Loco London spot price is the standard for gold and silver. Metal to be delivered to any other date, bar size, purity or location will be quoted as a premium or discount to this price.

The picture for platinum and palladium is more nuanced between Loco London and Loco Zurich.

See sections 4 and 11 for more information.

The quality assurance work undertaken by the LBMA and the LPPM means that the maintenance and publication of the Good Delivery Lists for gold, silver, platinum and palladium are universally acknowledged as the de facto international standard for precious metals.

In the refining industry, accreditation to these Good Delivery Lists is globally recognised as the benchmark standard for bars, due to the stringent criteria that an applicant must satisfy. The Lists are also used by many precious metals exchanges around the world to define in whole, or in part, the refiners whose bars are accepted in their own markets.

See sections 5 and 6 for more details.

“The World Gold Council is the market development organisation for the gold industry. Our purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market. We develop gold-backed solutions, services and products, based on authoritative market insight and we work with a range of partners to put our ideas into action. As a result, we create structural shifts in demand for gold across key market sectors. We provide insights into the international gold markets, helping people to understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society. Based in the UK, with operations in India, the Far East and the US, the World Gold Council is an association whose members comprise the world’s leading gold mining companies.”

The World Gold Council website is: www.gold.org

“One of the Twelve Great Livery Companies of the City of London, the Goldsmiths’ Company received its first Royal Charter in 1327. The Company’s Assay Office has been responsible since 1300 for testing the quality of precious metals.

The Company is the principal patron of modern jewellers and silversmiths, continuing to play an important role in support of the craft, funding apprenticeships and assisting with the technical training of aspiring designer-makers. 2012 saw the opening of the Goldsmiths’ Centre in Clerkenwell, a state-of-the-art home for the Goldsmiths’ Institute comprising workshops, exhibition space and conference facilities. The Company supports a wide range of other charitable causes and pursues a number of educational projects with schools.

The Goldsmiths’ Company’s private collection of silver is one of the largest in the UK, comprising 8,000 items dating from 1300 to the present day. Its contemporary collections are world renowned.”

The Goldsmiths’ Company website is: www.thegoldsmiths.co.uk

“The GFMS metals research and analysis body has 50 years’ continuous experience in the bullion market, especially gold, dating back to the publication of the first annual “Gold Survey” by then mining giant Consolidated Gold Fields in 1967. Through careful handling of continuity the organisation has a reputation for integrity and confidentiality that gives GFMS unparalleled relationships with stakeholders across all levels of the global precious metals markets. GFMS was acquired by Thomson Reuters in 2011 and sits in the Financial & Risk division of the group, as distinct from the News gathering service.”

“Thomson Reuters is the world’s leading source of news and information for professional markets. Our customers rely on us to deliver the intelligence, technology and expertise they need to find trusted answers. The business has operated in more than 100 countries for more than 100 years. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges.”

The Thomson Reuters website is: www.thomsonreuters.com

Metals Focus is one of the world’s leading independent precious metals consultancies. We specialise in delivering research into the global gold, silver, platinum and palladium markets, producing short and long-dated forecasts, mine production costs as well as doré flows services. We also produce three annual reports in English (featuring country-by-country analysis) and, working with the China Gold Association, we also publish these three flagship reports in Chinese. In addition, Metals Focus provides the World Gold Council with the quarterly statistics for their Gold Demand Trends report. Finally, our historic supply/demand series, across the four precious metals, are all available on Bloomberg.

The Metals Focus website is: www.metalsfocus.com

At Johnson Matthey our history with Platinum Group Metals goes back more than 150 years. In that time we’ve innovated many products and technologies from these amazing metals – from catalysts that prevent toxic emissions and make processes more efficient to anticancer drugs and micromachined medical device components that improve lives. These innovations are underpinned by our ongoing investment in R&D. Around 13% of our people work in R&D and in 2015/16 we upped our R&D spend by 11% to £188 million. With the best scientists and world class facilities, we partner with customers to discover solutions to their challenges.

The Johnson Matthey website is: www.matthey.com

The Silver Institute is a non-profit international association that draws its membership from across the breadth of the silver industry. This includes leading silver mining houses, refiners, bullion suppliers, manufacturers of silver products and wholesalers of silver investment products. Established in 1971, the Institute serves as the industry’s voice in increasing public understanding of the many uses and values of silver.

The goals of The Silver Institute are to:

• Encourage the development and uses of silver and silver products
• Help develop markets for silver and its products
• Foster research and development related to the present and prospective uses of silver
• Collect and publish statistics and other information about production, distribution, marketing, consumption and the uses of silver and silver products
• Spread knowledge and understanding of the uses of silver
• Develop methods for improving the welfare of the silver industry.

The Silver Institute website is: www.silverinstitute.org