A Guide to the Loco London Precious Metals Market
2. London Bullion Market Association (LBMA)
The LBMA is the international trade association that represents the market for gold and silver bullion, which is centred in London but which has a global client base, including the majority of the central banks that hold gold, private sector investors, mining companies, producers, refiners and fabricators.
Its membership numbers some 150 companies, which are actively involved in the Loco London bullion market or which provide services to the market, such as supervising, assaying and transportation, and indeed to the miners of the metals themselves.
The bullion market is a truly international market, in that although dealers in other bullion trading centres may trade in their local markets and on commodity exchanges, they also deal extensively in ‘Loco London’ metal. This term means that the gold or silver will be settled in London by a member of London Precious Metals Clearing Limited (LPMCL), either by way of book transfer or physically. The location of the underlying metal will be referred to within the contract with the customer, whether the trade is on an unallocated or allocated basis, but at all times, the metals remain under the physical control of the LPMCL member.
The on-going work of the Association covers quality assurance regarding market participants and refiners, setting and monitoring refining standards, creating trading documentation and fostering the development of good trading practices. The LBMA’s main role is acting as the voice of the precious metal market as well as being a contact point for regulators, investors and clients. It ensures the continued evolution and health of a marketplace for precious metals in which all participants can operate with confidence. Further, it co-ordinates market clearing and vaulting, promotes good trading practices and develops standard documentation. It also sets objective criteria for institutions wishing to enter the market as traders and as custodians. Additionally, during times of crisis, the LBMA is a key player to help avoid any potential market disruption. This was most notably demonstrated during the winding-down of the Silver Fixing in the first half of 2014, when the LBMA co-ordinated a market response in order to make sure there was continuity and the market retained a silver benchmark (now known as the LBMA Silver Price) – more details are provided in section 11.
Central to the LBMA’s quality assurance work is the maintenance and publication of the Good Delivery Lists for gold and silver, which are universally acknowledged as the de facto international standards. In the refining industry, accreditation to the LBMA Good Delivery List is globally recognised as the benchmark for the quality of gold and silver bars, due to the stringent criteria that an applicant must satisfy. The List is used by many precious metals exchanges around the world to define in whole, or in part, the refiners whose gold and silver bars are accepted in their own markets.
Total refined gold production by the refiners on the LBMA’s Gold Good Delivery List tends to be even higher than total world mine production, with the difference reflecting the recycling of material by LBMA Good Delivery refiners including converting 400 ounce bars (also known as ‘large’ or ‘market’ bars) or, indeed, scrap/recycled metal into kilobars. Newly mined gold handled by refiners on the List comprises approximately 85% – 90% of world production.
Additionally, in order to respond to US legislation such as Dodd Frank (signed into law by President Obama on 21 July 2010) and legislation concerning conflict minerals, the LBMA took its role as accreditor of the world’s gold refiners and expanded the scope of its requirements, to include corporate social responsibility, by the creation of the Responsible Gold Guidance (RGG). This framework, based on the OECD Due Diligence Guidance, gives assurance to investors and consumers that all London gold stocks are conflict-free as well as compliant with international anti-money laundering laws.
The LBMA’s office in the heart of the City of London
Without these efforts, there would have been serious disruption to the international gold market when US laws came into force. The notion of responsible metal sourcing has now been expanded into the other precious metals, and the wider category of Responsible Sourcing Guidance is discussed more fully in section 16.
Further, the LBMA promotes good trading practices and develops standard documentation as appropriate. The LBMA has always worked closely with London Precious Metals Clearing Limited (LPMCL), which organises and co-ordinates bullion clearing and vaulting in London, and develops standard documentation appropriate to those activities (more details are provided in section 7). However, in 2017 the LBMA assumed responsibility for the administrative functions of the LPMCL (see section 7 for further details). The LBMA also enjoys a close working relationship with the LPPM and, indeed, there is cross-representation on the Management Committees/Boards of each organisation.
Silver Good Delivery bars