The London Bullion Market Association (LBMA) is the international trade association that represents the over the counter (OTC) gold and silver bullion market. This market encompasses trading and refining physical precious metals, primarily gold and silver, but also extends to other precious metals like platinum and palladium.
The LBMA was established in 1987 to set standards and develop market services to help ensure a high level of integrity, trust, and transparency within the global precious metals industry. As of 2023, the LBMA consists of 147 members from 22 countries. The members include financial institutions and mining, refining, trading, vaulting, transportation, and manufacturing companies.
Why the LBMA was Created
Starting in the 17th century, during the Brazilian gold rush, the Bank of England recognized that it needed a way to standardize the quality of the gold bars it held. This is when the first incarnation of the London Good Delivery List, called the List of Acceptable Melters and Assayers, was created. By 1850, the London Gold Market was formed of five companies responsible for overseeing the London gold market and maintaining the Good Delivery List.
In 1987, the Bank of England recognized the need to establish an independent organization to maintain the Good Delivery List separate from the London Gold Market.
Overall, each iteration was formed to control the quality of the gold entering the London gold market. Since 1987, LBMA has grown to serve more than just London but the global wholesale precious metals market. It also works closely with stakeholders like the London Platinum and Palladium Market, London Precious Metals Clearing Ltd, central banks, and regulatory bodies.
How Does the LBMA Support Investors?
As an investor, not living in the UK, you may be wondering how the LBMA helps you. Here’s why the LBMA matters to investors:
Standardization
The LBMA sets the standards for bullion. For example, its “Good Delivery List” specifies requirements for gold and silver bars, ensuring they meet purity and appearance standards. This standardization builds trust and ensures consistency in the products traded.
Price Discovery
While the LBMA does not set prices, its members play a significant role in price discovery. The LBMA Gold Price and LBMA Silver Price are crucial benchmarks used globally, affecting prices in downstream markets. Whether they deal in physical precious metals, ETFs (Exchange Traded Funds), or derivatives, investors often reference these benchmarks.
Transparency and Integrity
The LBMA seeks to ensure transparency and integrity in the OTC bullion market, which gives you confidence that they are participating in a regulated market.
Market Data
The LBMA provides data on trade volumes, vault holdings, and other critical metrics. This data can give insights into market trends and underlying demand and supply dynamics.
Liquidity
The London bullion market is one of the world’s most liquid physical gold and silver markets, which can reduce transaction costs for investors.
Credibility and Trust
Knowing that a bullion product meets LBMA standards can give investors’ confidence in its quality and authenticity. Refiners that produce bars compliant with LBMA standards are globally recognized, ensuring investors can easily sell or trade their holdings anywhere.
How Refiners Achieve Good Deliver Accreditation
The Good Delivery accreditation from the London Bullion Market Association (LBMA) is a hallmark of recognition in the global bullion market, specifically for gold and silver bars. It signifies the highest standards of quality, assurance, and integrity.
For investors, banks, governments, and other entities involved in the bullion market, the Good Delivery accreditation provides assurance regarding the quality and integrity of their gold and silver holdings. The LBMA’s rigorous standards ensure that accredited bullion is of the highest purity, ethically sourced, and accurately accounted for, making it easier and more trustworthy to trade on the global market.
Good Delivery List Considerations,
Good Delivery List
Refiners that meet the LBMA’s criteria for production quality, ethical sourcing, and other relevant factors are included in the Good Delivery List. This list is recognized globally as the benchmark for the quality of gold and silver bars.
Standards
To achieve Good Delivery status, a gold bar typically weighs 400 troy ounces, while a silver bar should weigh about 1,000 troy ounces. Both bars must meet strict purity standards: 99.5% for gold and 99.9% for silver. Additional criteria are also required to be met, such as maintenance of scales, packaging, delivery, dimensions of the bars, and more.
Provenance and Ethics
Beyond the physical characteristics of the bullion, the LBMA also requires refiners to ensure that their gold and silver are sourced responsibly. This means avoiding any bullion connected to conflict, human rights abuses, or other unethical practices.
Assaying and Branding
Refiners seeking Good Delivery accreditation undergo a rigorous testing process. This involves sending samples of their gold and silver bars to existing Good Delivery refiners, who test (or “assay“) the samples to ensure they meet the necessary purity standards.
Regular Audits
Even after achieving Good Delivery status, refiners are subject to regular, third-party audits to ensure they maintain the LBMA’s standards.
Chain of Integrity
The Good Delivery system ensures a chain of integrity for gold and silver bars. Only bars produced by listed refiners and kept within a recognized secure logistics chain since production can be sold on the OTC market without further assay.
The LBMA plays a pivotal role in the global bullion market by standardizing trade practices, ensuring product quality, and providing crucial market data. Its influence and the standards it set matter to investors because they ensure the integrity, transparency, and efficiency of the OTC bullion market. Investing in a market that is standardized and well-regulated can mitigate risks and ensure a fair playing field for all participants.
