Unlike a formal commodity exchange, the London Bullion Market Association is a network of gold and silver bullion professionals such as banks, dealers, refiners, assayers, weighers, transporters and vaults.
Different areas of expertise are needed to execute high volumes of wholesale silver and gold bullion transactions from clients around the world ... while keeping the bullion secure and its integrity intact.
Who Can Participate?
Only firms involved in the bullion wholesale marketplace and listed by the association can directly participate in these over-the-counter transactions. Trading by individual investors is not permitted.
A majority of the world’s physical gold and silver trading occurs in an over-the-counter (OTC) environment.
An OTC agreement is an independent transaction between a buyer and seller. OTC contracts occur outside the governance of a major commodity exchange like COMEX.
The London Bullion Market Association was formed to capitalize on the experience, reputation and infrastructure established by members and associates over the course of several decades.
Therefore, settling contracts - which may include gold or silver delivery - is concentrated in London and executed by a relatively small number of professionals listed with the association.
Good Delivery Rules
Regardless of a bar’s status (i.e. bought, sold, in transit, in storage), it must stay within the London Bullion Association's chain of integrity to keep its “good delivery bar” rating.
Good delivery bar requirements include …
The application process to become a London Bullion Market Association refiner is arduous. A refiner’s competence to test bullion purity (assay) is determined by assaying samples issued by the association.1
1NOTE: Samples were previously tested by three other association
assayers, but the samples' purities are unknown to the applicant.
Then the refiner must submit good delivery bar samples to the association to prove that it can produce bullion bars within the specifications.
Allocated silver and gold bars must meet good delivery bar requirements including a uniform weight … approximately 400 oz. for gold and 1,000 oz. for silver.
Good delivery bar specifications allow for some variances in the weights of recently cast silver and gold bullion bars.
Smaller gold bullion bars ranging in size from one gram to one kilo are also traded within the London Bullion Market Association. However, these bars are not called good delivery bars since they do not meet weight and dimensional criteria.
A fineness of 995 (parts per thousand) for gold and a 999 (ppt) silver fineness are required to satisfy good delivery bar requirements.
A bar’s fineness, in combination with its actual weight, enables an investor to calculate the exact bullion cost.
For example, if the London Fix Price for one gold oz. is $1,500 and the actual weight of a gold bar is 398.075 oz. … the gold cost is $594,127 ($1,500 x 398.075 = $597,113 x .995 = $594,127).
By using the fineness in the last multiplier (.995 or 99.5%) the bar’s balance amount (.005 or .5%) is excluded since it consists of impurities. This calculation ensures gold investors are only paying for gold.
The calculation also illustrates why association-listed weighers are employed to weigh silver and gold bullion bars each time a bar is moved.
Handling or moving a gold bar can cause it to slough-off tiny amounts of gold reducing its weight. It’s also possible a small gold sample might be taken from a bar to assay its bullion purity.
Therefore, weights are not stamped on good delivery gold bars since their weights can change after leaving refineries.
A possible weight change is a key reason why the association has detailed procedures for weighing, packing, documenting and delivering good delivery bullion bars.
From “soup to nut” (beginning to end) the London Bullion Market Association's chain of integrity assures investors of the authenticity and security of their silver and gold bullion.
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