An interesting view on the Gold Market5 Jun 2020 10:45
AP
Gold mines produce rough gold, called a dore bar. These bars are typically about 80 percent pure gold. The gold is then sent to a refinery, where it is refined into gold of different forms and purity.
Perhaps the most widely produced gold bars are the London Good Delivery bars. Under rules established by the London Bullion Market Association, LBMA, these bars — the gold standard of the gold world — must be at least 99.5 percent pure gold, weigh between 350 and 430 ounces (most weigh about 400 ounces), and be stamped with a unique serial number, the fineness, and the seal of the refiner.
Who can make these bars?
Only refiners approved by the LBMA. They have to maintain excellent laboratory and production facilities, and there is a proactive monitoring of these refineries on the good delivery list. These are usually the only bars that are used for vaulting and storing purposes by bullion banks.
Up until this point, the gold will likely be owned by the mining company (in some cases a gold bullion bank may finance the mine’s activities as well). Once the gold is refined, ownership is often transferred to gold bullion banks.
What happens from there?
Depending on where the gold is mined, it will typically be flown by plane to a bank vault in another country: the U.S., the U.K., Dubai, India, China, Australia, anywhere gold may be needed.
The role of bullion banks.
Bullion banks are the middleman of the gold world. Miners produce gold, but they might not produce it at the same time that consumers want to buy the metal. So the banks play a sort of clearing role: when producers want to sell, they can sell to the bank. When consumers want to buy, they can buy from the bank.
In a sense, a bullion bank does many of the things that a traditional bank does. They provide services to the entire wholesale gold industry: big miners, big consumers such as the jewelry and industrial businesses, central banks, and major investors like ETFs. They supply huge amounts of wholesale metal to the primary consumer markets: China, India, the Middle East, Turkey.
They provide, for example, financing and delivery of the physical metal. So if an Indian manufacturer is making a product in, say, Turkey or Switzerland, gold bullion banks can advance the metal in those locations for them.
The bullion banks provide many different types of trading services as well: spot trading, forwards, options, vaulting, etc.
Setting the price for gold.
The price of gold is determined by supply and demand. There isn’t one gold market; there are many. The most important include:
The primary over-the-counter market, OTC, where the “spot” or cash price of gold is determined, is in London, but there are also OTC markets in New York, Dubai, and even in Turkey. Much of the trading in gold occurs in the over-the-counter market on gold trading desks around the world. What do these desks do? They facilitate trading. They trade gold on behalf of their clients
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