The LBMA was developed by the bank of England to ensure Good Delivery standards for the wholesale bullion industry are met by refineries. It manages a list of refineries who meet the requirements in terms of the purity, weight, shape and markings gold bullion bars should have. Since it began working with the Organisation on for Economic Co-Operation and Development (OECD) the LBMA added other non-physical rules to its standards. It demands that accredited Good Delivery refineries on its list run due diligence on suppliers and apply stricter money laundering checks.
Thanks to the US Dodd-Frank act, refineries and their suppliers are required to check and verify that they do not deal in “conflict minerals” and that their supply chain is not used to help finance any wars or acts of terrorism or organisations associated with terrorism. The US President, Donald Trump might be trying to repeal the act, the law remains in place. It also seeks to ensure permanent corporate asocial responsibility for the mining industry.
Companies that have global dealings find themselves having to spend more on due diligence. This puts the costs of high-purity gold bars higher. For the wholesale market of doré and scrap gold are refined to the status of the High Purity Good Delivery gold bars you make new chips and bonding wire used in smart phones as well as gold jewellery and bullion coins.
LBMA has a 10-person board with some representation from refining companies. However the organisation is looking at forming a new committees open to all Good Delivery Refiners. The challenge that the LBMA is facing is not only growth but profitability in the face of tighter restrictions.
The LBMA refining numbers might have grown in recent years but they haven’t kept up the pace with the global mining flows. The LBMA has made significant strides in keeling conflict, illegal and human-right abuse gold production from getting into the wholesale market. However even though the global mining output rose by a 1,000 tonnes this year, the annual Gold Delivery throughput only increased by half.
Switzerland continues to dominate as the leading bullion refining country which means that not all the gold goes through the London Gold Delivery system. That does not mean the country is less strict when it comes to due-diligence. The country has experienced a drop of about 12.0% in imports from developing countries which means that their regulations and systems have weeded out the bad suppliers.
More countries are competing with each other to source gold but China, the No.1 gold consuming country has a closed circuit market, gold bullion is not allowed. The no. 2 gold consumer in the world
Competition to source gold might have tightened but it should not be related to the chunk that has been added by the No. 1 gold consuming country, China because the Chinese gold market is a closed circuit where gold bullion is forbidden. On the other hand the No. 2 consumer of gold, India is improving its ability to refine gold but it still has only one LBMA accredited refinery, MMTC-Pamp. The country is looking at developing its own set of standards instead of matching or trying to achieve the London Good Delivery status.
India is committed to the OECD responsible sourcing standards and has aligned itself with the inter-governmental Financial Action Task Force (FATF). That is a good thing for a big democracy like Indias. This does not mean there will not be any illegal gold slipping in but in the long term it wouldn’t be commercially smart to refine gold bars outside the standards as those set by the LBMA.
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