Gold has been traded internationally for millennia. The international gold market today is, overall, an efficient and effective one that operates largely according to classical market principles, with price determined by supply and demand, and with little role, impact or influence on price or supply from state or inter-state regulations and restrictions.

This suggests that a major reason why most ASM gold is not directly refined by LBMA GDL refiners is because the status quo makes better business sense to them and to all the other market players. As matters stand, the output from ASM gold producers, however it is mined, has no difficulty getting to international markets in a cost-effective manner via other refiners and other routes (including recycling), where demand for this output is robust. The figures show clearly that LBMA members have only a limited incentive to refine ASM gold as market conditions currently stand, and indicate too that traders and aggregators of ASM gold having little to no incentive to meet the standards and requirements necessary for supplying them.

Some of the reasons why GDL refiners source the limited volumes of ASM gold that they have been succinctly laid out by the LBMA itself. The LBMA has identified seven reasons, most of which relate to GDL refiner reputational and compliance concerns. The LBMA’s seven reasons are:

1. The reputational risk GDL refiners are exposed to in sourcing ASM gold, including the threat to their GDL status, due to the poor environmental conditions under which ASM gold is often produced, and particularly the widespread use of mercury;

2. The reputational risk GDL refiners are exposed to because of the lack of traceability and due diligence in ASM gold supply chains;

3. The reputational risk GDL refiners are exposed to due to OECD Annex II risks associated with ASM, including smuggling, conflict and corruption;

4. GDL refiners declining to source ASM gold from countries that lack an appropriate legal framework;

5. The cost of securing and transporting responsibly mined ASM gold being too high, in the context of tight refiner profit margins;

6. The logistical difficulties, complexities and costs faced by GDL refiners because of the often small volumes produced at ASGM sites, and the generally unpredictable nature of fluctuations in ASM gold volumes;

7. ASM miners’ lack of access to formal financial structures, which leaves them obligated to access finance via less formal financial structures, in turn obliging or at least encouraging them to trade their gold via these networks rather than ones that would connect them to LBMA GDL refiners, and at the same time discouraging GDL refiners from sourcing from them.10

To this already daunting list, we have added a few more.

8. GDL refiners’ reluctance to endanger their GDL status by incurring avoidable reputational risk, and the perception that sourcing ASM is an avoidable source of reputational risk. Additionally, GDL refiners have told us that sourcing ASM invariably leads to additional, often time-consuming scrutiny of their business, and particularly their due diligence practices, by the LBMA. The result has been a trend among GDL refiners to “de-risk”, by declining to refine ASM gold.

9. The due diligence required for GDL refiners to ascertain with confidence that ASM gold is being mined sufficiently responsibly for those that refine it to meet the standards laid out in Version 9 of the LBMA’s RGG, thus enabling these refiners to demonstrate to the LBMA that they are sourcing responsibly, is typically more complex and costly than the due diligence required of them to source gold from LSM. This extra cost, in the context of the tight operating margins for refiners referred to earlier, is often not possible for GDL refiners to justify, particularly in the absence of a secondary market in responsibly mined artisanal gold in which the premium they have paid can be passed on to new buyers.

10. Using trading networks that link them to non-GDL refiners can often mean that ASM producers reduce their exposure to the multiple taxes and levies that their governments so often impose on the gold industry, while going the LBMA GDL route requires ASM miners’ legality and thus tax compliance. Given this list, it is perhaps a surprising matter that even 21 tonnes of responsibly mined ASM gold are refined directly by GDL refiners each year. Working, however, on the assumption that the international gold market is rational and operates according to market principles, our view is that reducing the magnitude and impact of these obstacles should result in more ASM gold being refined by LBMA GDL refiners. The following sections examine how this might be done, and what role the LBMA might play in doing so.

Given this list, it is perhaps a surprising matter that even 21 tonnes of responsibly mined ASM gold are refined directly by GDL refiners each year. Working, however, on the assumption that the international gold market is rational and operates according to market principles, our view is that reducing the magnitude and impact of these obstacles should result in more ASM gold being refined by LBMA GDL refiners. The following sections examine how this might be done, and what role the LBMA might play in doing so.

10 Presentation by Alan Martin of the LBMA to an LBMA Sustainability Summit, London, March 2022.