Tag Archives: LBMA

The Gold Market – Where Transparency means Secrecy

The following speech, by BullionStar precious metals analyst Ronan Manly, was given to an audience during a Precious Metals Seminar held at BullionStar's shop and showroom premises in Singapore on 19 October 2016.





Good evening ladies and gentlemen, you are all very welcome to this event at BullionStar.

This evening, I will be discussing the topic of transparency versus secrecy in the gold market, and specifically looking at this transparency and secrecy by highlighting a number of areas of the gold market which claim to be transparent but which are in fact very secretive.

Transparency is an important concept in financial markets mainly because it encourages informational and market efficiency. Applied to the gold market for example, this would prevent larger gold traders having an information and trading advantage over the retail gold buying public such as ourselves. So transparency is not just an abstract concept, it has real world implications.

To illustrate this contradiction of transparency versus secrecy, I’ll look at two main sets of gold market participants:

- firstly the central bank or official sector, which includes central banks and organisations such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS),

- and secondly the wholesale London gold market as represented by the London Bullion Market Association (LBMA) and its bullion bank members.

I have chosen the official sector and the investment sector since together they represent two of the largest areas of gold ownership and gold activity globally, with central banks claiming to hold about 33,000 tonnes of gold, and bullion banks being the largest traders of gold globally.

The London gold market, which is a wholesale gold market dominated by bullion banks, is also arguably the most influential market for gold price discovery. And as Torgny explained just now, these bullion banks are generally defined as the large commercial or investment banks involved in the wholesale gold market.

Central banks and bullion banks also overlap in the gold lending market which is also centred in London, and which is an ultra-secretive market, probably the most secret market on the planet.

The title of my talk actually stems from a recent article that I wrote about the 2010 International Monetary Fund (IMF) gold sales and how those sales were marketed by the IMF as being transparent but which in actual fact were the exact opposite - they were highly secretive, and information about those sales even remains highly classified to this day, six years later.


But first, let's quickly define what we mean by transparency. We are talking here about financial market transparency. A Transparent financial market is one in which, simply put, much is known by many.

In a transparent market, the market institutions are also transparent, and importantly, the institutions can be held to account - i.e. accountability.

In a transparent market there is also open exchange of information between all market participants, and accurate information is freely available about price, supply, demand and market transactions.

And one last point, which is very important, is that in a transparent market, the market data of that market is available and open to independent verification by investors and analysts. Which is totally not the case in the gold market as we'll see shortly.

In short, a transparent market is one in which all relevant information is freely and fully available to the public (and to all participants).


The opposite of transparency is obviously secrecy, which comes from the Latin ‘Secretus’ meaning hidden, concealed, and private. Secrecy at the extreme allows collusion to occur between market participants.

So the extent of transparency in a market can be visualised as a spectrum with transparency at one end of the scale and secrecy, or opacity, at the other.

Lack of transparency in market structure also contributes to lack of transparency in the derivation of market prices, in other words lack of transparency stifles price discovery, and also causes associated higher trading costs for market participants than would otherwise be the case.

Market Efficiency

Transparency is also a prerequisite for market efficiency. Simply put, market efficiency is the degree to which financial asset prices reflect or embody all available information.

An efficient market is also informationally efficient. This information efficiency requires competition, low barriers to entry, and very importantly, it requires low costs of information gathering. i.e. 'transparency'.

Some of you might be familiar with the work that Nobel prize-winning financial academic Eugene Fama did on market efficiency. I used to work at Dimensional Fund Advisors (DFA) which is an investment firm that subscribes to market efficiency and which actually has Eugene Fama on its board of directors. So this market efficient view was drilled into me.

But you don’t have to agree with market efficiency theory to see how it's linked to transparency. The more transparent a market is, the more information is available in that market, and therefore the more likely it is to be an efficient market.

The opposite of this is inefficient markets which can allow a situation to develop known as asymmetric information. That’s where some market participants possess far more information than others, who then have an advantage over others in trading and transacting.


There are some markets such as the stock market where there is a relatively high degree of transparency since individual companies have to maintain high standards of investor relations, high standards of corporate governance, and proper corporate communication because of the intense scrutiny under which the market puts those companies and also the in-built checks and balances that exist in common equity such as company voting rights.

Similarly in bond markets, be it sovereign bonds or corporate bonds, there is a high level of available market data about those markets, and in-depth information on the mechanics and market mechanisms of those markets.

There is a debate as to whether it’s the army of equity and bond analysts and hedge fund analysts actually scrutinising stock and bond markets that keeps them efficient, or whether those markets are inherently structurally efficient, but whatever the answer, stock and bond markets are generally considered to be quite efficient.

So, when I turned my attention to looking at the gold market a few years ago, it was actually quite a shock, at least when looking at the central bank and London Gold Market segments of the market, that there is little information of real substance available about the workings of these areas of the gold market, and also, and this is a critical point, there is a culture of secrecy in the gold market that I had never witnessed before in other financial markets.

Perhaps as surprisingly, is the fact that the gold and commodity market analysts working in the major investment banks in places like London and New York don't seem to ask the simple questions, at least in public, as to how the central bank and wholesale London gold markets actually work. This lack of scrutiny also extends, in my view, to the London financial media, who as far as I can see, almost never question how the gold market really works or question why the gold market is so secretive. Whatever most of these financial reporters actually do all day, they don't investigate the gold market. That is for sure.

Back in 2011 and 2012, I visited the Bank of England archives in London and the Banque de France archives in Paris a number of times and read and photographed a lot of files about central bank gold operations and transactions that took place between the 1960s and early 1980s, which I then subsequently researched using file copies that I had made.

Those documents made me realise that central banks and the large bullion banks used to regularly discuss the gold market, and also operated within it, and often the discussions and memos were classified and even Top Secret. There are literally hundreds of these files and memos on gold markets in the archives, if not thousands. So, my view is that although 30-40 years has passed since the 1960s - 1980s, and although technology and products have changed, that behind the scenes, the physical gold market is still pretty much the same, and still generates a lot of discussion by central banks and their bullion bank counterparts.

So when I see an opaque contemporary gold market and knowing that central banks and bullion banks used to discuss this gold market in-depth, it motivated me to research this area and try to find out how the contemporary gold market works, how its infrastructure and its transactions work, because I still think that central banks and bullion banks regularly and frequently discuss the market, although never in public.

Transparency claims by Central Banks

There are many examples where central banks claim transparency in their operations and policies, but where these claims don’t stand up to scrutiny when applied to their operations in the gold market. Given this contradiction, the only rationale conclusion is that the central banking sector merely pays lip-service to operating with transparency.

Let’s look at a few examples:.


We'll start with The Bank of England, one of the largest gold storage custodians in the world, also custodian for the UK's gold reserves, and also heavily involved in the London Gold Market in conjunction with the clearing group London Precious Metals Clearing Limited (LPMCL), and also central to facilitating lending in the London gold lending market. The Bank of England actually established the LBMA in 1987. So what does the Bank of England say about transparency? The Bank of England says:

“A transparent, accountable and well-governed central bank is essential not only for effective policy, but also for democratic legitimacy”

This quote comes from a Bank of England report in 2014 titled  ‘Transparency and Accountability at the Bank of England’.

Next we have the transparency claims made by the European Central Bank.  

“Today, most central banks, including the ECB, consider transparency as crucial.”

This quote actually come from the ECB's web site from a page entirely devoted to describing the ECB's supposed transparency.

Then we have the International Monetary Fund, with a transparency claim that it pronounced in relation to its 2010 IMF gold sales:

“The need for transparency and evenhandedness, which is essential for an international financial institution, argues for providing as much information as possible to the public”

So how do these organisations respond when asked questions related to the gold market? I've asked the Bank of England a number of gold related questions over the years, and their answers are mostly classic deflection, i.e. not answering the question. As an example, the Bank of England is involved in gold clearing in the London gold market, where each of the 5 clearing members of LPMCL maintain gold accounts at the Bank, and where the Bank of England clears the net positions of the 5 clearers (from the AURUM system) each day using book entry transfers (BETs) at the Bank of England. In effect, the Bank of England is the London Gold Market's central clearer.

So I asked the Bank of England to explain its role in this gold clearing? The Bank of England's answer...

"The Bank is not a member of LPMCL and therefore has no links to AURM. The LPMCL website should be able to answer most of your questions."

However, the LPMCL website has zero information about this process. So, as you can see, the Bank of England is engaging in disinformation and deflection. And this is an institution which claims to be gold custodian for 4857 tonnes of gold held in its London vaults.


The UK Government also claims that all of its departments are transparent and it even launched a 'Public Sector Transparency Board" in 2010 at which time it stated:

We want transparency to become an absolutely core part of every bit of government business.”

However, the UK Treasury doesn't seem to have gotten this message about transparency, since Her Majesty's Treasury (HM Treasury), a UK government department, is even more uncooperative than the Bank of England in relation to gold market related questions. The UK's gold reserves are actually owned by HM Treasury and managed by the Bank of England in an account called the Exchange Equalisation Account (EEA).

I was recently writing an article about central banks that hold both gold bars and gold coins in their gold reserves. The UK holds some gold coins, including gold Sovereigns, in its gold holdings. These holdings of gold Sovereigns are actually mentioned in the UK National Archives files as well as in the Bank of England archives.

So I asked HM Treasury what any reasonable person would consider an innocuous question about HMT's gold coin holdings, and I even included the links to the Archive websites that discuss the HM Treasury gold sovereign holdings:

Can you clarify which gold coins are held as part of the EEA gold holdings, it is gold Sovereigns?"

Not surprisingly, HM Treasury replied:

“Data on the composition of the EEA’s gold is not disclosed due to its market sensitive nature

HM Treasury actually wrote an entire page to me as an answer while deflecting the question and padding it out with irrelevant material which had nothing to do with my question.

What about the ECB, an institution which holds over 500 tonnes of gold reserves. More transparency than the aloof British institutions? Actually, far from it. As preparation for this presentation, I sent a question to the media department of the ECB asking:

"Where is the ECB gold held, how is it audited, and can you send me a weight list?"

Answer? After two weeks, and 2 emails (including a follow-up), there is no answer from the ECB media team, i.e. complete radio silence.

[Note, since this presentation, the ECB responded after I sent additional emails to them. Their response said that the ECB gold is held in 5 locations in London, Paris, New York, Rome and Lisbon. The ECB hold is not physically audited at all since the ECB considers the central banks that hold it to be 'totally reliable, and no surprise, the ECB will not publish a weight list of the gold bars which it claims to hold since it says that "the weight of each gold bar is a technicality" and " does not warrant a publication“. See BullionStar blog "European Central Bank gold reserves held across 5 locations. ECB will not disclose Gold Bar List" for full details.]

Next we come to the Bank for International Settlements (BIS), the central bankers' central bank, based in Basel, Switzerland.


In a 2007 presentation, the BIS actually had a slide titled the ‘Golden Triangle of central bank autonomy’ where it links the concepts of Transparency, Accountability, and Autonomy and says that transparency is "important for holding central bank to account", while accountability is  the "crucial counterpart of autonomy in open society" as it "makes transparency more credible".

The BIS holds its own gold holdings on its balance sheet, as well as holding gold as a custodian on behalf of other central banks, and it also offers these banks a gold deposit taking service. Altogether these BIS holdings represent over 900 tonnes of gold.

So you may think maybe the BIS takes these transparency claims seriously, for example in the gold market, especially given its fondness for gold with the Golden Triangle analogy. However, unfortunately no.

Quite recently, I asked the BIS about its gold as follows:

:Can you confirm the storage locations of the BIS custody gold and the BIS’ own gold?"

The BIS answered:

'I regret that we cannot be of assistance with your query, as the information that you have requested is not made publicly available.

So it seems that the only gold that the Bank for International Settlements will talk about is the 'gold' in its ‘Golden Triangle’ gimmick of Transparency, Accountability, and Autonomy. In the real world, transparency does not apply to the BIS real gold. Another example of the fiction and deception practiced by central bankers.

IMF gold Sales

IMF Gold Sales

As mentioned earlier, the title of my talk is based on some research I did on the gold sales of the International Monetary Fund which I wrote about recently. Between November 2009 and December 2010, the IMF sold 403.3 tonnes of gold in a series of off-market and on-market sales. The off-market sales were direct sales to a number of central banks: 200 tonnes to India in November 2009, 10 tonnes to Sri Lanka, 2 tonnes to Mauritius, and later on in late 2010, 10 tonnes to Bangladesh.

Then 181.3 tonnes of gold were sold via ‘on-market’ transactions over 10 months between February to December 2010. You might think that "on-market" means that the gold was sold on a well recognised market somewhere, but this was not the case, or at least we don't know what market was used since the entire operation was and is still secret.

When these 'on-market' sales began in February 2010, the IMF came out with a statement saying  “A high degree of transparency will continue during the sales of gold on the market”.

Actually, the well-known gold investor and entrepreneur, Eric Sprott, was starting a gold fund at that time and went to the IMF saying that he was interested in buying the entire 181.3 tonnes of IMF gold, but the IMF quickly told him his money wasn't good with them. The well-known website Business Insider then asked the IMF a series of questions on why Sprott couldn't buy the IMF gold. These questions were also either arrogantly not answered or dismissed by the IMF’s external communications officer.

Last year, when looking at the IMF online archives for a different reason, I stumbled upon 3 IMF reports titled 'Monthly gold sales' which actually covered the first 3 months of these sales in 2010, i.e. Monthly reports on gold sales for February / March 2010, March / April 2010, and April / May 2010. These reports contained some, but not a lot, of information about the sales process and seemed to indicate that the BIS had been used as the sales agent. I wrote about these reports in my blog and you can find all the details on the BullionStar website.

But a footnote in the 3 monthly reports caught my eye since it referenced 2 further IMF papers as follows:

Modalities for Limited Sales of Gold by the Fund (SM/09/243, 9/4/09) and DEC/14425-(09/97), 9/18/09“.

SM stands for "Staff Memorandums" which are classed under the IMF's Executive Board Documents series. DEC stands for ‘Text of Board Decisions’, which are also Executive Board Documents. These 2 document titles looked interesting and relevant, however, when I checked, neither of these 2 documents appeared to be retrievable in the IMF archives. The IMF have a 3 year rule on releasing Executive Board Documents into their archives, so both of these documents should have been available by at least 2013, and definitely by 2015.

So I went to the IMF archives people with 2 sets of questions. Firstly, could they confirm where these 2 missing documents were, the staff memorandum about the IMF gold sales, and the text of the board decision about the same sales.

Secondly, in a separate question, I asked the IMF archives staff where the other 7 monthly gold sales reports that were missing were, since logically, as these gold sales were conducted over 10 months, one would expect 10 monthly reports in the IMF archives, not just 3 reports covering February to the middle of May 2010.

After a large number of email exchanges with the IMF Archives people about the staff memorandum and the text of the Executive Board decision, they ultimately responded and said:

these two documents are still closed because of the information security classification

“The decision communicated back to us is not to declassify these documents because of the sensitivity of the subject matter.

 On the 7 missing monthly gold sales reports, the IMF responded that:

"The reports after May 2010 haven’t been declassified for public access because of the sensitivity of the subject matter."

So as you can see from the slide, there is absolutely nothing transparent about these gold sales when the documents relating to them have not even been declassified due to the supposed "sensitivity of the subject matter".

So the IMF's claims that “The need for transparency and evenhandedness, which is essential for an international financial institution, argues for providing as much information as possible to the public” is actually a complete lie. And this is an institution which still claims to hold 2815 tonnes of gold.

Based on the IMF archive rules, these Executive Board Documents can only be declassified on the authorisation of the IMF Managing Director, who is currently MS Christine Lagarde. I'm not making this up. I did think of maybe sending her an email asking 'Please can you declassify these documents' but then I thought what's the point, it wouldn't be any use.

My personal theory is that some or all of these sales involved the IMF using the BIS to transfer gold to either the Chinese State (People's Bank of China), or else helping to bail out bullion banks by selling IMF gold to a set of bullion banks, or both of these scenarios.

It looks like we'll have to wait a long time to find out the exact answers, but this incident hopefully illustrates to you that in the official sector gold market, Transparency really does mean Secrecy. So, gold is not just a 'Pet Rock', as the Wall Street Journal would have you believe. In the IMF world, gold is a topic whose discussions remain highly classified due to the sensitivity of the subject matter.

The Secrecy of Gold Storage Locations

Last year in 2015 I did some research on which central banks stored gold at the Bank of England's vaults in London, and how much each bank stored there. This required asking a number of central banks, by email, about their gold storage locations. While a few such as the Bank of Korea told me that they store their gold at the Bank of England vaults, many central banks didn't divulge this information. Lets look at a few examples:

The Banca d’Italia, one of the biggest central bank gold holders in the world, which holds 2450 tonnes of gold, half of it in Rome, said “The Banca d'Italia will not be giving information in addition to the website note.

The Bank of Japan, which claims to hold 765 tonnes of gold: “We have nothing to comment on the matter”.

The South Africa Reserve Bank (or SARB), a holder of 125 tonnes of gold: “The SARB cannot divulge that information

The Spanish central bank claims to hold 280 tonnes of gold. They replied to me that: “The only information provided [to the public] on Banco de Espana's gold reserves is total volume [held]”

Between them, these 4 banks claim to hold more than 3,600 tonnes of gold, and they won't even provide a breakdown of where their gold is stored.

Since we happen to be in Singapore at the moment, what about the central banks in the local South east Asian region? Do you think these central banks would be more transparent than some of the examples we've just looked at, or less transparent, or about the same when it comes to gold storage locations?

As it turns out, they're pretty much the same, i.e. not transparent. The Bank of Thailand replied “I could not share that information as requested”.

The Malaysian central bank said “If the information you require is not on our website [which it's not], it may imply that the said information is not meant for public viewing / reference”. Since they knew that this storage information is not on their website (hence the question), this is a particularly lame response from Bank Negara Malaysia.

The Monetary Authority of Singapore, here in Singapore replied that “We are unable to share with you where we store the gold as the information is confidential.

The Bank of Thailand claims to hold 152 tonnes of gold reserves, Singapore 127 tonnes, and Malaysia 36 tonnes, that's 315 tonnes of gold where central banks in the region won't say where its held.

These central banks we've just looked at were actually some of the central banks which did bother to respond to me. Many central banks such as the central banks in Lebanon, Kuwait, Jordan, Morocco, Kazakhstan and Cambodia didn't even respond.

Where are the Central Bank gold bar Weight Lists?

Another huge area for central bank secrecy on gold is the topic of weight lists, or gold bar lists. A gold bar weight list is, as the name suggests, just an itemised list of all the gold bars held within a holding that uniquely identifies each bar. In the wholesale gold market, such as the London Gold Market, there are rules on the data that this list has to contain.

These rules are specified in the LBMA's "Good Delivery Rules", actually in Annex H which is titled "Sample Weight Lists". For each gold bar on a weight list, and these are the large variable weight bars which each roughly weighs 400 ozs, it must include the bar serial number, the refiner name, the gross weight of the bar in troy ounces, the gold purity of the bar and the fine weight of the bar (i.e. the gold content weight). The LBMA also state that "year of manufacture is one of the required ‘marks’ on the bar"

The Good Delivery Rules annex even states that “This Annex shows the form of weight lists that should accompany shipments of GD bars to London vaults”, which confirms that all gold bars entering and exiting the London vaults will be on such a list.

The large gold-backed Exchange Traded Funds (ETFs) such as the SPDR Gold Trust (GLD), which holds nearly 1,000 tonnes of gold, and the iShares Gold Trust (IAU), actually produce and publish weight lists of their gold bar holdings in pdf format each and every trading day. It's not a big deal and it doesn't take long to produce these lists because the process is automated from the vault to the custodian back office all the way to the ETF websites.

For example, here's a line item for an iShares gold bar weight list, where you can see the refiner name PAMP, the bar serial number, the purity, and the bar weight (gross and fine weight). It even says where the bar is stored, in JP Morgan's vault in London.

Brand            Bar No.    Assay    Gross Ozs         Fine Ozs       Vault

PAMP. SA.    TC7490    9998      413.425            413.342         JPM London V

A full weight list is also needed when completing a physical gold bar audit, which is something that the large gold-backed ETFs perform twice per year.

So you would think that since commercial gold-backed ETFs produce gold bar weight lists, then central banks should be able to also? And given that large central banks have large teams of technology staff, and good IT infrastructure, that it will not be a big issue for them to produce such a weight list, in either pdf or Excel format.

However, the reality is that not a single central bank, when asked, will produce and publish such a gold bar weight list.


Koos Jansen, precious metals analyst at BullionStar, recently asked the Dutch central bank, De Nederlandsche Bank (DNB), to provide a weight list.

 The De Nederlandsche Bank, which holds gold in Amsterdam, London (Bank of England), and New York, replied:

“We do not intend to publish a gold bar list. This serves no additional monetary purpose to our aforementioned transparency policy, however it would incur administrative costs.” 

Frankly, this reply from the Dutch is an absurd and infantile excuse and is implausible since gold-backed ETFs produce pdf versions of their gold bar weight lists on their websites each and every trading day which run into hundreds of pages in length.

In preparation for this presentation, I recently asked the Austrian central bank (the OeNB) the same question, could they provide a weight list. The Austrian central bank holds 280 tonnes of gold, 80% of which is currently stored in London at the Bank of England. The OeNB's response was:

 “We are sorry to inform you that the Oesterreichische Nationalbank (OeNB) does not publish a weight list of the gold reserves.”

Last year in October 2015, the German Bundesbank issued a useless list of its gold bar holdings, useless since the industry standard required refiner brand and bar serial number details were omitted from the weight list. As the Bundesbank, which claims to hold 3,378 tonnes of gold, stated at the time:

“Information on the refiner and year of production are not relevant for storage or accounting purposes and merely provide supplementary information.”

This continual accumulation of evidence that central banks refuse to issue industry standard gold bar weight lists suggests that there seems to be a coordinated campaign between central banks never to release this information into the public domain.


FOIA: Central Bank of Ireland

The Central Bank of Ireland holds 6 tonnes of gold, the majority of which, according to its annual report, is in the form of “gold bars held at the Bank of England”. In June 2015, I submitted a Freedom of Information Request to the Central Bank of Ireland asking for a weight list / bar list that identifies these bars of gold held on behalf of the Central Bank of Ireland by the Bank of England.

My request was refused by the central bank. The FOIA reply mentioned that the Central Bank of Ireland didn’t have a weight list, and couldn’t find one. Their exact reply was:

the record concerned does not exist or cannot be found after all reasonable steps to ascertain its whereabouts have been taken.

The only documentation the Central Bank of Ireland claimed to have was a statement from the Bank of England dated 2009 which listed a 'total' of the number of bars stored on behalf of the Central Bank of Ireland and an equivalent total in 'fine ounces', but they said that could not provide this statement to me on the basis that it could have “serious, adverse effect on the financial interests of the State”.

I followed up with a phone call to the FOIA officer who had handled my request (as is the procedure) and was told that the Central Bank of Ireland had conducted 2 conference calls with the Bank of England about my request, with the second conference call even including a 'chief security officer' from the Bank of England FOI office, and that the Bank of England told the Central Bank of Ireland that 'you absolutely cannot' send this statement out to this guy with bars total and fine ounces since its 'highly classified'.

While you will note the conflict that arises when a request made under the Freedom of Information Act of one country (Ireland) can allow interference from the central bank of another country (the Bank of England) in determining its outcome, the pertinent point here is that the Bank of England views the topic of gold bars as ‘highly classified’.

Given that the Central Bank of Ireland reports to the Minister of Finance who, as part of the Irish Government, works on behalf of the citizens of Ireland, this refusal shows that the Central Bank of Ireland is not in the least bit transparent or accountable to its citizens, especially about a topic as important as its gold bar holdings.

Fully Opaque - Central Bank Exemptions on Trade and Reporting

There are many other areas of central bank secrecy in the gold market that make a mockery of their transparency claims. The gold that central banks hold on their balance sheets as official reserves alongside major currencies and Special Drawing Rights (SDRs) is conveniently defined as by the IMF as a ‘financial asset’ and so is exempt from international merchandise trade statistics. Therefore, central banks can transport gold between countries and foreign locations and no on will ever know, since customs authorities are prohibited from reporting on these gold movements.

Central Bank accounting of gold holdings is another area of complete secrecy where the reporting does not follow international norms, and where for most central banks, ‘Gold and Gold Receivables' are reported as one line item. This ‘get out clause’ accounting rule for central banks arose from lobbying of the IMF at the BIS in Basel in 1999 by a group of European central banks including the Bank of England, Bundesbank and Banque de France when they forced the IMF to drop plans to split out gold receivables such as gold loans and gold swaps, since, in the words of the bullying central banks, the data was ‘highly market sensitive’.

As you can see, the words ‘highly classified’, ‘sensitivity of the subject matter’, ‘highly market sensitive’, ‘confidential’, and ‘not publicly available’ are all different forms of the same thing, i.e. they reflect a culture of secrecy, where aloof and arrogant central bankers think that they have a mandate to cover up market sensitive information and not allow free markets to operate efficiently nor allow free market price discovery to work.

This arrogant and misguided behavior by central banks is not surprising given their constant meddling and intervention in all things market related. Again, the mainstream financial media will never discuss this, preferring to be invited as ‘embedded reporters’ for freebies at events such as the LBMA conference that we’ve just attended here in Singapore.

LBMA - Issue 6 of Alchemist - 'Towards Transparency'
LBMA - Issue 6 of Alchemist - 'Towards Transparency', January 1997

London Gold Market and the LBMA

We now look at the London Gold Market, its industry representative body, the London Bullion Market Association (LBMA) and its bullion banking members. The LBMA has recently begun to make soundings that it wishes to improve transparency in the London bullion market, a desire which is partially in the context of a UK regulatory Fair and Efficient Markets Review (FEMR).

However, this newly found sense of duty by the LBMA for transparency is hard to believe when you realise that the gold market today is even less transparent than it was 20 years ago.

In January 1997, the LBMA published Issue 6 of its magazine ‘The Alchemist’ and devoted the entire issue to the theme of Transparency, even going so far as to title the cover page “Towards Transparency”. The very title of the publication, ‘Towards Transparency’, conceded that the London Gold Market was not transparent at that time and admitted that the bullion market was secretive and lacking in information and data.

There was an introduction to that issue written by the then chairman of the LBMA, Alan Baker, who worked at Deutsche Bank at the time. I want to share with you just the first few lines of that introduction since its quite eye-opening:

Alan Baker wrote:

The bullion market is often criticised by observers for being secretive and lacking in information and data. Unfortunately, to an extent, this is inevitable given the need for a duty of care to clients which dictates that a high level of discretion is an essential element in so much of the business that takes place in the market, particularly for gold.

While discretion and integrity will always be bywords in the London Bullion Market, the LBMA is nevertheless conscious of the general call for greater transparency. With this in mind we have considered ways in which to enhance transparency in the market while in no way compromising integrity, something perhaps of a delicate balancing act.”

Therefore, we have a situation where the ‘Towards Transparency’ era of January 1997 has not only not improved, but it's actually gone backwards. So if January 1997 was ‘Towards Transparency’ what exactly should 2017 be called, perhaps ‘Still Towards Transparency but quite a way to Go’?

There was also an article in Issue 6 of the Alchemist about GOFO, the Gold Offered Forward Rate (GOFO), which also had a notable quote about what the London gold forward market was like before GOFO was introduced in 1989. The author of that article, Martin Stokes of JP Morgan, quoted Winston Churchill, saying that before 1989, the gold forward market was “a riddle shrouded in mystery wrapped up in an emigma”, and that ‘transparency was non-existent’.

The January 1997 issue of the Alchemist covered 3 developments of the time which the LBMA considered as moves towards transparency:

  1. The launch of clearing statistics for the London gold and silver markets
  2. The publication of trading data from a 1998 survey by the Bank of England
  3. The launch of a London Gold Lease Rate page by the LBMA on the Reuters terminal to compliment the GOFO rates that the LBMA had begun publishing in 1989.

Now, fast forward nearly 20 years from January 1997 to practically January 2017, and what do we have? What we have is:

  1. The same high level practically useless rolled-up London gold and silver market clearing data each month which doesn’t really explain anything since it’s not granular enough, and which baffles people more than anything due to the phenomenally large clearing volumes stated in the data
  2. There was a trading survey in Q1 2011 but nothing since then, nothing in nearly 6 years
  3. GOFO has been discontinued since January 2015

So the question needs to be asked, what happened to this “general call for greater transparency” back in 1997?


Looking at the ‘London Gold Market’ in 2016, there is:

  • No trade reporting, physical or otherwise, Monthly Clearing data is practically meaningless
  • No data on the size of unallocated gold positions in the market
  • No confirmation of the identities of central bank & bullion bank customers at the Bank of England
  • Commercial gold vault locations in London are not published by the LBMA
  • No official data about the London Gold Lending Market. Zero!
  • GOFO and Forward Curve submissions were discontinued by January 2015
  • The LBMA ‘Moved the goalposts” – as they altered 2013 refining production figures from 6600 to 4600 tonnes after I had reported on the original numbers, thereby obscuring the fact that a few thousand tonnes of large bar wholesale gold left the London market for Switzerland, where it was melted down into kilobars and shipped to markets in Asia.

This list is just a sample. There are plenty of other areas where there is no transparency in the LBMA controlled London Gold Market.

As mentioned, the LBMA has recently been making soundings that it will improve transparency in the London bullion market, specifically in the context of trade reporting. There was even a slide titled “LBMA’s commitment to enhance transparency” in one of its Singapore conference presentations that addressed trade reporting and the appointment of BOAT Services and Cinnober as the planned provider of a London gold and silver market trade reporting service in the first quarter of 2017.

But this new awareness of transparency seems, in the first instance, to be being undertaken for regulatory reasons and to optimise something called the Net Stable Funding Ratio (NSFR) which is a Basle Committee concept for banking sector stability. So transparency for transparency's sake and for the benefit of the smaller participants in the global bullion market is not the raison d'être.

Furthermore, the LBMA has made it clear that central banks will be exempt from any 'transparency' that may arise out of the planned London bullion market trade reporting project in 2017. In a letter dated January 2015 to the Bank of England Fair and Efficient Markets Review, the LBMA wrote that:

"it is worth noting, that the role of the central banks in the bullion market may preclude ‘total’ transparency, at least at public level, but that transparency could be increased via post-trade anonymised statistical analysis of nominal volumes, provided by the clearing banks."

As to what exactly the role of central banks is in the bullion market, the LBMA did not say, nor did the Bank of England query. But I think we can conclude that this nudge-nudge wink-wink codespeak about central banks' operations in the bullion market is exactly as it appears to be, i.e. nefarious.

So here again we see that central banks are going to be given an exemption from transparency, i.e. central bank trading in the London Gold Market will remain opaque, with the blessing of the LBMA and the banking regulators. The post-trade anonymised statistical analysis unfortunately looks like it will be another stitch up and cop-out, and as useless a set of data as any data that gets deliberately rolled-up and masked.



In conclusion, why do central banks refuse to release details of the serial numbers of their gold bars Because after all, If the gold is allocated, then there shouldn't be an issue. This secrecy around weight lists appears to be deliberate.

In my view, the reason for non-publication of central bank weight lists is because of gold lending. If a gold bar serial number turned up in the weight list of an ETF, then it would become clear that the ETF was holding borrowed gold that the central bank still claimed to hold. And the more lent gold that appears in transparent gold holdings such as ETF weight lists, the more the wider gold market knows the extent of the gold lending market. The same would be true of gold for US dollar swaps.

Similarly, if a gold bar turns up in one central bank's list when it was previously in another central bank's holding, this could suggest undisclosed central bank gold sales or alternatively it could suggest a location swap, where gold was swapped between holdings at two different gold depositories / vaults.

Publishing a central gold bar list would forever more also allow those bars to be independently traced with a high accuracy due to the serial number - refiner brand - year of manufacture attributes.

So there appears to be a concerted and coordinated effort by central banks, most likely formulated and imposed by the large gold custodians, to absolutely prevent any central bank gold bar weight list from ever being published anywhere.

However, in my view, there are other reasons for the secrecy. Like major currencies, monetary gold is a reserve asset on the balance sheets of central banks, and like major currencies, gold can be used for international payments, gold swaps, and for interventions into fx and gold markets. Monetary gold is also a strategic asset, what the Bank of England called a ‘war chest’, or the ultimate store of value. The Bank of England also described the rationale for holding gold as an insurance policy against gold making a re-appearance at the centre of the international monetary system

There is also a general culture of secrecy in central banking and an aloofness where central banks don’t feel obliged to justify their policies and decisions due to an entitlement issue with ‘independence’.

Turning to bullion banks, and to put it simply, these large banks are commercial enterprises, and they wish to protect their status quo and also to protect their profit margins. This motivation goes back to asymmetric information, where one party possesses more information than the other.

However, for investment banks, some of the superior knowledge relative to the wider gold market is obtained, not because of superior skill, but because of being able to operate in an environment where secrecy is not just tolerated, but where secrecy is actively protected by the industry body (LBMA) and the regulators (the Financial Conduct Authority and the Bank of England).

Although central banks and large bullion banks often have different motives in the gold market, their motives align in protecting the market’s secrecy. Taken central bank secrecy and bullion bank secrecy together, the phrase ‘A riddle shrouded in mystery wrapped up in an emigma’ is unfortunately still an excellent description for the entire London Gold Market.

Thank You!

Bullion Banking 101 – Speech by BullionStar CEO, Torgny Persson

The following speech, by BullionStar CEO Torgny Persson, was given to an audience during a Precious Metals Seminar held at BullionStar's shop and showroom premises in Singapore on 19 October 2016.

BullionStars CEO Torgny Persson Precious Metals Seminar at BullionStarBullionstar shop during precious metals seminar Precious Metals Seminar at BullionStar


What have I got here?

It’s 87 grams of gold.

As many of you know, we have our own bullion vault integrated in BullionStar's bullion centre here in Singapore. What if I told you that every day we sell 6 kgs (6000 grams of gold), meaning that we sell about 1500 kgs gold per year to customers storing with us, but that we actually only keep 87 grams of gold in storage as reserves.

You would call it fraud and have me arrested, right? I’m obviously running a Ponzi scheme with very small fractionalised reserves backing up huge trading of unallocated paper gold.

Now, for clarity, that's not how we conduct business. When you buy and store bullion with BullionStar, your bullion is fully allocated and you can withdraw your metals at any time by just walking into BullionStar's bullion centre. You don’t even have to notify us beforehand.

What I just explained to you is something else - it’s bullion banking per definition - more precisely it’s unallocated gold trading by bullion banks.

As most of you know, the London Bullion Market Association (LBMA) has held its annual Precious Metals Conference in Singapore over the last two days. The LBMA is at the core of the world’s bullion trading system, a system which generates extremely large trading volumes every trading day. To understand the gold market, one has to understand the LBMA system as it is of great significance to both the price of gold and also to the physical movements of gold around the world. I will therefore provide you with an introduction to bullion banking and this LBMA system, and talk about how bullion banking operates.

Bullion Banking - Unallocated Gold

Almost all gold traded in the LBMA system today is in the form of unallocated gold which is accounted for in unallocated accounts. The definition of an unallocated gold account, as we can read on the LMBA’s website, is that the holder of such an account with a LBMA bullion bank does not have any ownership interest in any specific gold bars.

Instead, the account holder is merely an unsecured creditor of the bullion bank and holds a claim on the bullion bank for an amount of gold. At the same time, the bullion bank has a liability to this customer for this same amount of gold. Therefore unallocated gold is essentially paper gold. It is gold that doesn’t exist in the physical realm.

The creation of unallocated gold is in fact very similar to how fiat currency is created in the fractional reserve banking system. The fractional reserve banking system provides a good gateway into understanding bullion banking.

How is Fiat Money Created Today?

Let’s quickly recap on how fiat money is created in the fractional reserve banking system.

Money is created out of thin air. When a bank extends a loan, the money is created out of thin air.

Let’s take an example:

1) Robert plan to buy a house for $1 million.

2) Robert goes to a bank and the bank takes a look at Robert and deems him credible. With today’s low lending standards, it is rather easy for Robert to secure a loan. The bank deposits $1 million into Robert's account.

3) Where does this $1 million come from? The answer is 'nowhere'. It doesn't come from anywhere. The money is created out of thin air when loaned out to Robert.

This is easy to understand but hard to believe for some people. But it is true that this money is created out of thin air and lent into existence. About 92% of our money today is lent into existence in this fashion.

Banks keep a very small amounts of money in reserve to cover withdrawals, but they face liabilities which are far larger in size that their reserves.

The term "loan" as used in banking has been corrupted and twisted by banks. When a bank extends a loan, there is nothing loaned. To loan something you need to be in possession of it first, but when banks make loans, there is no countervailing transaction - The money is just created when the loan is extended.

How is Paper Gold Created?

Now, what about gold? How is gold created? You might say gold can’t be created, it has to be mined, right? Yes, you would be correct, physical gold cannot be created, but gold as an investment product definitely can be created and is created on a massive scale.

When a bullion bank customer goes to the bank and requests to buy gold, the standard procedure is for the bullion bank to create unallocated paper gold and credit this paper gold to the customer’s account. This ’gold’ is simply created out of thin air as a book-keeping entry in the bank’s accounting system.


Similarly, if actual physical gold is deposited into an unallocated account operated by a bullion bank, this deposit of gold is also in fact very similar to a deposit of fiat money. Just as a bank keeps deposited fiat money on its own balance sheet, a bullion bank keeps deposited physical bullion on its own balance sheet.

Bullion banks don’t generally safeguard or segregate gold deposited with them or held by them unless they are specifically instructed to do so if a customer opens an allocated gold account.

This means that depositors of gold into bullion banks' unallocated accounts are no longer the legal owners of the gold that they have deposited. Instead, they are just one of the general creditors to the bank, and they merely hold a claim for gold against the bank.

By depositing gold into an unallocated account at a bullion bank, you therefore lose ownership of your gold in return for a mere claim on gold.

Trading in unallocated gold by the bullion banks is thus based on book-keeping entries denominated in gold. The gold is fractionally reserved. Gold is created out of thin air as book-keeping entries in the banks' ledger systems, and even gold that is deposited into an unallocated account becomes the property of the bank.

LBMA Unallocated Gold Trading Volumes

From the LBMA’s published clearing statistics, which is one of the only transactional statistics that the LBMA does publish, we know that 600 tonnes of gold are "cleared" in the London Gold Market each and every trading day. Cleared means that it’s 600 tonnes of gold that's transferred between participants after netting out all trades between all trading participants.

According to a LBMA gold trading survey conducted in 2011 (the last such survey), the ratio between trading turnover and clearing on the London Gold Market was about 10 to 1. This means that the total amount of gold traded in the LBMA system each day is about the equivalent of 6,000 tonnes!

In other words, almost twice as much gold is traded in the LBMA system in a single trading day than is physically mined globally during an entire year.

LBMA Unallocated Gold Trading Volumes

But what is backing this 6,000 tonnes of unallocated gold traded each day, or 1.5 million tonnes of gold traded each year?

Let’s take a look at the reserve side of bullion banking in the LBMA system.

Bullion Bank Gold Reserves

The LBMA bullion banks' outstanding gold liabilities, and the unallocated trading system in the London Gold Market are ultimately backed by a quantity of 400 oz Good Delivery gold bars.

However, bullion banks don’t really want to hold physical gold. They will buy it if someone forces it on them but bullion banks have no real need for physical gold and are therefore incentivised to keep as little gold as possible in reserve, and lend out the gold they hold in reserve so as not to incur storage fees and handling costs. Banking reserves are looked upon as a dead asset so the banks minimise these reserves and try to make them into live assets by loaning them out.

When a bullion bank receives a gold bar by buying or borrowing it, it either sells, leases or allocates that bar elsewhere.

This sets a bullion bank apart from any other bullion entity because a bullion bank can hold deposits of gold on its balance sheet as assets even if it no longer has, or never had, the actual physical gold in its possession.

How much backing is there for all the unallocated gold traded in the LBMA-system?

We don’t exactly know as there are no reserve figures published but we can make an educated guess.

Vaulted Gold in London

How much gold is actually vaulted in London? The LBMA recently said on its website that there was approximately 6,500 tonnes of gold stored in London, about three-quarters of which was at the Bank of England. The Bank of England recently revealed that it was custodian for 4,734 tonnes of gold in its vaults.

This would leave 1,766 tonnes of gold privately stored in the LBMA vaulting system outside the Bank of England.

BullionStar research recently calculated (30 September 2016) that ETF gold holdings held in London accounted for 1,679 tonnes. This would mean that there are only 1,766 - 1,679 = 87 tonnes of gold in the LBMA system which is not allocated to ETFs!

Therefore, nearly all of the LBMA reserves are allocated to the ETFs with only 87 tonnes of gold left to back up the vast amorphous of unallocated gold trading amounting to 6,000 tonnes per day or 1.5 million tonnes per year!


Chart layout inspired by GoldChartsrus /Nick Laird. Data gathered by Goldchartsrus/BullionStar's Ronan Manly

Physical gold in the LBMA bullion banking system is therefore like physical cash in the monetary system. It is rarely seen!


Double-counted Reserves

LBMA is a banking system that by definition is based on fractional reserve banking.

HSBC, JP Morgan and ICBC Standard Bank are the only LBMA bank custodians with their own precious metals vaults in London. Most of the circa 42 LBMA bullion banks don’t even have their own gold vaults but still keep books denominated in gold ounces. A bullion bank without a gold vaults instead holds its gold reserves with a bullion bank that does have a gold vault.

For example, if Citibank keeps its reserves with a bank with a vault such as JP Morgan, then Citibank merely holds a gold claim for which JP Morgan has a gold liability. These unallocated gold reserves are therefore just pooled with the bullion banks that do have vaults.

The bullion banks without a vault never see or touch the metal they keep in reserves. If a bullion bank stores its gold reserves at another bullion bank’s vault, this means that the reserves are unallocated credits/claims which are standing behind the bank’s own liabilities. So even the reserves are fractionalised. So not only are bullion banks’ liabilities to their customers unallocated, even the reserves are unallocated inter-bank liabilities which are fractionalised.

Paper gold thus stands behind the liabilities of paper gold.

The LBMA system serves as a pool of reserves and uses coordinated reserve management where the different participating bullion banks can loan and lend to each other the few physical reserves that there are in the system so as to meet any demand for physical bullion.

Gold Bank Run

The bullion banks face massive liabilities in the form of unallocated gold credits. Bullion banks are thus, just like normal banks, susceptible to bank runs.


The difference between bullion banks and normal commercial banks is that whereas central banks are the ultimate lenders of last resort to commercial banks, most central banks no longer back-stop bullion banks as the lender of last resort because most central banks no longer sell or lease bullion that can be used to prop up bullion banks' reserves.

In case of the LBMA, the central bank is replaced by a private company called London Precious Metal Clearing Limited (LPMCL) which is run by 5 clearing bullion banks and whose clearing system AURUM nets out all gold claims and liabilities in the LBMA system. The clearing system functions as a pooled system in that only net balances are cleared and the bullion banks' gold reserves are essentially pooled and can be leased and double counted whenever necessary.

When they no longer have any physical gold to deliver, the ultimate rescue plan for bullion banks is to use cash settlement instead.

In the same way that banks increasingly promote cashless solutions as a means to reduce cash handling costs, earn credit card fees, reduce the risk of bank runs and lock in customers, LBMA system bullion banks promote gold-less gold transacting.

Just as the banking system inherently incentivises reckless debt behavior, the bullion banking system inherently incentivises the reckless creation of paper gold assets.

LBMA – The Paper Gold Protector

In creating artificial paper gold, bullion banking protects the fiat money system.

If even a small minority of the paper gold traded today was backed up by physical gold, the price of gold would have skyrocketed. A gold price significantly higher than today would point towards the inferiority of the fiat money system, and possibly the collapse or implosion of the current monetary system.


Bullion banks and gold industry organisations, such as the LBMA and the World Gold Council, which itself has developed and owns securitized gold products, can profit from gold trading volumes that are far higher than they would be if they were limited to the constraints imposed by the availability of physical gold to trade.

The bullion banks and the LBMA work hard to overcome the tangible limitations of physical gold mining. By promoting gold-less gold transacting, the LBMA unallocated system artificially increases the supply of gold, earning the banks higher fees from artificially large trading volumes.

To reiterate, the LBMA unallocated gold trading is a banking system based on fractional reserve banking which is all about exposure to the price of gold but not to gold itself.

The LBMA system is used to coordinate unallocated paper gold trading where ‘gold’ is created out of thin air, and the tiny physical reserves held are pooled and shared out among participants so as to minimise costly reserves and avoid gold bank runs.

When bullion banks need to allocate gold to the ETFs, such as to the SPDR Gold Trust (GLD) in London, they use credits from the same unallocated gold credit system as was previously used to offset other gold liabilities. Even though the ETF may own the gold outright, the gold is still being double counted within the system because its being allocated out of a bullion bank pooled systems of credits.

To summarize what the LBMA is all about, it is a paper gold protector for the bullion banks which allows the bullion banks to earn fees from an artificially high trade turnover while at the same time protecting the fiat currency system.

The Guarded Secret of no Gold

The fractionally-reserved bullion banking system is a fragile system. Many investors and savers holding paper gold believe that the gold they are holding is backed up by real physical gold. But if the bullion banking system implodes, which it will do if the high demand for real physical gold in Asia is sustained at anywhere near today’s levels, these holders of paper gold will at best end up holding paper claims which will be cash-settled, or at worst these paper gold holders will be empty-handed.

Demand for ETF’s and unallocated gold will likely not stress the system systemically since the pooled LBMA gold reserves are used for leasing and double counting. It is the demand for real physical gold, draining bank gold reserves, that stresses the system.

Many gold investors/savers buy various paper gold products as a means of protecting themselves against the fiat currency Ponzi scheme. It may therefore come as a surprise to some holders that these investments are no safer or even less safe than the fiat currency against from which they are seeking to protect themselves. Bullion banks give the impression that these investors into unallocated gold are actually holding gold, whereas in reality they are just unsecured creditors holding paper gold, gold that is created out of thin air, in a fractionally-reserved Ponzi scheme.

As long as everyone is happy to buy and sell ledger entries/book-keeping entries, this fragile system can continue to balance on a thin thread. The systemic problem arises when larger entities start to demand physical delivery, a trend which has been happening in the last few years, most notably in Asia and Russia. There is therefore an imminent risk of the bullion banking system collapsing in the next few years.


This is an accident waiting to happen, because when enough holders of paper gold ask for delivery, the default that will follow will trigger the biggest bank run for gold in history, which due to gold’s significance as a monetary proxy, will shake the entire monetary system.

When there is no longer any physical metal to deliver, the ensuing shortage will result in a disconnect between prices, in which paper gold will become worthless while the price of real physical gold will be revalued at a much higher level based on the market equilibrium for physical supply and demand of gold.

Thank you!

BullionStar attends LBMA Conference in Singapore, October 2016


This year, the well-known annual conference of the London Bullion Market Association (LBMA) was held in Singapore between Sunday 16 October and Tuesday 18 October at the impressive Shangri-La Hotel. The conference attracts delegates and speakers from across the world of bullion, with representatives from precious metals refiners, mints, bullion banks, brokers, trading and technology providers, bullion dealers and bullion wholesalers. This year over 700 delegates attended.

The main speaker sessions, presentation and panel sessions of industry representatives ran over two days, between Monday 17 October and Tuesday 18 October. Topics covered in the speaker sessions were numerous and varied and included the bullion market in China, developments in the Indian gold market, responsible gold guidance, LBMA updates and developments, a dedicated session on platinum group metals, and a session on the financing of refineries.

As interesting as the speaker sessions and presentations are, many of the conference attendees use at least some of their time at the LBMA conference to engage in meetings with each other on the sidelines. This explains the constant stream of small breakout meetings that took place in the hotel lobby's seating areas, as well as in dedicated meeting rooms around the hotel. BullionStar also used the occasion to meet with existing suppliers from the refining, minting and wholesaling world, as well as to discuss potential business opportunities with new suppliers.

There were also approximately 20 exhibitor stands at the conference, including stands hosted by CME Group, Brinks, the World Gold Council, IE Singapore (Singapore's trade development authority), Istanbul Gold Refinery (IGR), Metals Focus consultancy, Cinnober, and Nadir Refinery.

Shangri-La Hotel, Singapore

Hong Kong - Shenzhen Gold Connect

On the Sunday prior to the conference, the Chinese Gold and Silver Exchange (CGSE) and the Singapore Bullion Market Association (SBMA) co-hosted a pre-conference presentation titled “Building a physical gold corridor in Asia: Shanghai – Hong Kong / Qianhai – Singapore”, at the hotel, which featured a series of discussions about the CGSE’s new gold trading and vaulting project located in the Shenzhen free trade zone at Qianhai, just across the border from Hong Kong.

Haywood Cheung, Permanent President of CGSE, gave an introductory overview of the Qianhai project, showcasing it as part of China’s “One Belt, One Road” plan, after which Dong Feng, Ping An Commodities Trading in Shenzhen presented a detailed explanation of how the linkages between the CGSE’s trading platform in Hong Kong and Qianhai’s clearing and settlement will for the first time enable the trading of both onshore and offshore Renminbi and the trading of onshore and offshore gold. The Qianhai project integrates trading, clearing, settlement and vaulting, with a 1500 tonne capacity vault, and a trading hall. ICBC will provide settlement of both onshore (Shenzhen) and offshore (Macau) Renminbi as well as providing use of its Shenzhen gold vault (onshore gold settlement) until the CGSE Qianhai vault is completed.

This onshore and offshore trading and settlement of Yuan and physical gold will facilitate arbitrage trading, and is another step in China’s liberalisation of its currency and its gold market as it links the Chinese currency to physical settlement of gold inside and outside of China. This initiative is one to watch and will demonstrate the Chinese government’s gradual easing of cross-border restrictions on currency and gold flow. Next phase gold trading in Qianhai by CGSE member companies will commence on 7 December.

With the CGSE having already established a gold trading link with the Shanghai Gold Exchange (SGE) though its Shanghai-Hong Kong Connect, and with the Shenzhen (Qianhai) - Hong Kong Connect now coming on stream, the CGSE is also planning a Singapore - Hong Kong Connect, and a Dubai - Hong Kong Connect, which, if they materialise, will extend physical gold corridor (trading and vaulting connections) across the Asian region and beyond.

Albert Cheng, CEO of the SBMA, wrapped up the afternoon with an overview presentation of SBMA’s aspirations to evolve Singapore into a bullion market hub for the entire ASEAN region, including countries such as Indonesia, Vietnam and Myanmar. However, details of how this plan will be implemented were not addressed. Cheng also showcased the SGX gold contract which is backed by the SBMA, but which has yet to take off despite being launched over 2 years ago.

Singapore Skyline - Central Business District
Singapore Skyline - Central Business District

LMEprecious gold Futures

The first event we attended on Monday was an early morning presentation by the London Metal Exchange (LME) about LMEprecious, its new suite of spot, daily, and monthly gold and silver futures contracts to be launched in the first half of 2017, that will trade on LME’s trading platform, with market-making offered by 5 investment banks such as Goldman Sachs and ICBC Standard Bank. These futures are for delivery of unallocated metal in the London market and the contracts will still clear through the London bullion market's LPMCL unallocated bullion clearing system. In time, the LME plans to launch platinum and palladium futures contracts on LMEprecious, as well as options contracts on all 4 metals. The LMEprecious platform will also link into LBMA’s planned trade reporting system.

ICE gold Futures

On Monday morning, ICE Benchmark Administration (IBA), a direct competitor to LME in the precious metals trading and clearing space, used the LBMA conference to make a very well-timed announcement that it too will be launching a new gold futures contract for delivery of unallocated gold in London (loco London). The ICE contract will trade on the ICE US futures platform and will begin trading in February 2017, in advance of the LME contracts. This contract is being designed to be compatible for settlement within the LBMA Gold Price auction which IBA administers in London, and it will, according to IBA, allow the introduction of central clearing into the auctions, and thus facilitate wider auction participation. Currently,the direct auction is exclusively open  to a handful of large banks that have large bi-lateral credit lines with each other. At this stage it’s unclear how the connections between the futures contract and the LBMA Gold Price auction will work, but BullionStar plans to examine this development in future coverage.

Unallocated Gold, Gold Lending and Central Banks

Given that the LBMA Conference is attended by dozens and dozens of precious metals refineries and mints, it was notable that the subject of "unallocated gold" cropped up in the discussion of LMEprecious and ICE futures contracts, but that there was no discussion in the actual LBMA conference programme schedule of 'unallocated gold' as the term is used by the LBMA. An unallocated gold position in an account in the London gold market is merely a contractual claim for gold against the bank that the account is held with. As such, it is a synthetic gold position.

It was also odd in our view that there was no seminar or discussion about the London gold lending market within the conference programme. As gold lending is an important and influential area of the London gold market, it affects marginal gold supply, and it has an impact on gold price formation.  Notably, the topic of central bank activities in the gold market was completely missing from the conference schedule this year,  a notable omission compared to previous years.

Gold price benchmark for Singapore revisited

In another announcement on Monday morning at the conference, the Singapore minister for trade and industry announced that the SBMA in conjunction with the LBMA and ICE Benchmark Administration (IBA), they'll begin a feasibility study on launching a “pre-AM gold price” auction, which would serve as a benchmark for the Asian region and which would be held at 2pm Singapore time, in advance of the European trading day. This Singapore benchmark was already discussed and announced over 3 years ago, but has put on hold in 2014 due to European regulatory investigations at that time into manipulation of the London Gold Fix.

LBMA Trade Reporting

The conference speaker programme opened on Monday morning with introductory remarks from Lim Hng Kiang, Singapore Minister for Trade and Industry, outgoing LBMA chairman Grant Angwin, incoming newly appointed Chairman Paul Fisher who recently arrived from the Bank of England, Tim Pearce, the chairman of the London Platinum and Palladium Market (LPPM), and LBMA CEO Ruth Crowell.

The LBMA CEO’s introductory speech touch on the planned launch of trade reporting services for the London Gold Market. This trade reporting contract has been awarded to financial technology providers Cinnober – BOAT Services – Autilla, after those partners won the LBMA’s recent RfP tender which had been launched in October 2015. Ruth Crowell referred to trade reporting as ‘Phase 1’ of a new suite of technology services. Trade reporting  will be launched in Q1 2017, and will, according to the LBMA “demonstrate of the size and liquidity of the market for clients, investors and regulators”. Phase 2 of this project refers to services such as central clearing in the London bullion market.

Further background to the chosen trade reporting solution was provided by Jamie Khurshid, the CEO of BOAT Services. Surprisingly, even though this RfP took the LBMA over 1 year to complete, it will still now require a 'design phase' where BOAT/Cinnober needs to meet with LBMA member firms to discuss the scope of reporting, followed by a period of customisation and configuration of the implementation. Details on what exactly will be reported (the scope) remain sketchy, and since full London gold and silver trade reporting by all participants (including central banks) is not mandatory in a regulatory sense, it remains to be seen to what extent transparency will be improved.  Because if you don't have full mandatory reporting, you don't have transparency. In another related presentation, Sakhila Mirza, LBMA General Counsel stated that trade reporting will apply to loco London spot trades, forwards and options, but that "LBMA and its members retain control over the scope of reporting", which highlights the self-regulatory nature of the reporting, and again may suggest that the trade reporting may not be as granular or have as much informational value as some may think, especially given that central banks will be exempt from trade reporting.

The Shanghai Gold Exchange and Chinese Gold Market

Monday's schedule also included an  informative series of presentations titled "The Bullion Market in China" from an impressive list of experts. Jiao Jinpu, chairman of the Shanghai Gold Exchange (SGE), provided an overview of the latest developments from the SGE, which has a network of 61 vaults across 35 cities in China, and where physical trading volume reached 34,100 tonnes of gold in 2015. Jinpu revealed that the International Board of the SGE (known as SGEI) has, since launch in September 2014, traded 7,838 tonnes of gold, while the daily Shanghai Gold Price auction, only launched in April 2016, has already traded 384 tonnes, worth RMB 105.5 billion, giving it an average daily trading volume of 3.4 tonnes. Jinpu also vindicated BullionStar's estimates of 2015 SGE gold withdrawals, because, in the words of Jinpu, he sits on the SGE tap, and knows exactly how much gold has been withdrawn from the Exchange vaults.

In his speech, Jinpu announced that in the near future, the SGE and other exchanges will begin using the SGE Gold Price benchmark to develop gold price derivative products.

SGE Chairman Jiao Jinpu
SGE Chairman Jiao Jinpu

In another notable confirmation, Yang Qing, from the Bank of China, one of China's largest commercial banks involved in the global gold market, responding to a question posed by BullionStar, said that he thinks that in future, the Chinese currency, the Renminbi, should have an element of gold backing.

In what was probably one of the most interesting and revealing presentations from BullionStar's perspective, and which vindicates the extensive research and analysis that BullionStar's precious metals analyst Koos Jansen has done on the Chinese gold market, Matthew Turner from Macquarie Commodities Research in London gave a presentation about how to accurately capture and estimate the total trade flows of gold into China given that China does not publish this data itself.

One of Turner's approaches is to use the trade data of all other countries which do report gold exports to China. This approach reveals that China imported 1626 tonnes of gold in 2015 from a number of countries, primarily Hong Kong, Switzerland, the UK and Australia. Another more elegant Turner approach is to take China's total import figure which it does publish, as well as the summated figures of  all of China's other import categories of data, which China also does publish, and then derive the gold import quantities as the delta.

This approach yields a net gold import figure of 1693 tonnes in 2015. Both of these figures are very close to BullionStar's previously published Chinese gold import data estimates, as calculated by Koos Jansen. Adding 2015 Chinese gold mining production to imports gives total new supply coming into the Chinese market in 2015 in excess of 2000 tonnes, which is over 1000 tonnes higher than consumer gold demand as estimated by consultancies such as GFMS and the World Gold Council.

LBMA and SGE familiar with BullionStar's research

On the Monday evening we attended a dinner hosted by Australia and New Zealand Bank (ANZ) at Singapore’s famous Raffles Hotel. Just after arriving we had the privilege of chatting for a few minutes to Jiao Jinpu, chairman of the Shanghai Gold Exchange (SGE) via his colleague and interpreter Jess Yang, and we highlighted to him BullionStar’s extensive research from Koos Jansen on the China gold market and the SGE, which we were impressed that he was already familiar with. Dinner conservation was interesting and varied as we were seated at a table with representatives of the London Metal Exchange, ICE Benchmark Administration (IBA), the CME Group, GFMS, Metalor Singapore, and the Royal Canadian Mint.

During the conference, we also learned that the LBMA is familiar with BullionStar's research into the London gold market, another confirmation that the analysis that we publish is read widely within the bullion industry.

As the conference wrapped up on the Tuesday afternoon, delegates were asked to forecast what the US Dollar gold price will be this time next year. Audience members submitted their forecasts via a special handheld device in the auditorium, which resulted in an average forecast of US$ 1347.

BullionStar Seminar during LBMA Week

To coincide with the fact that the LBMA conference was located in Singapore this year, BullionStar hosted a number of events at its shop and showroom premises on New Bridge Road, Singapore. On the Saturday prior to the conference,  15 October, BullionStar held a 'meet and greet' morning, where customers and anyone in town for the conference could pop in and chat with BullionStar staff. On Wednesday 19 October, BullionStar held a precious metals seminar in its showroom premises at which BullionStar CEO Torgny Persson and Precious Metals Analyst Ronan Manly presented to an audience on the topics of Bullion Banking, and Transparency vs Secrecy in the gold market, respectively. The presentations and transcripts of the speeches will be published on the BullionStar website in the near future.

The World’s largest Precious Metals Refineries

There are many precious metals refineries throughout the world, some local to their domestic markets, and some international, even global in scale. Many, but by no means all, of these refineries are on the Good Delivery Lists of gold and/or silver. These lists are maintained by the London Bullion Market Association (LBMA) and they identify accredited refineries of large (wholesale) gold and silver bars that continue to meet rigorous proficient standards of refining and assaying, and that are, at the same time, financial viable and stable companies. Currently, there are 71 refiners on the LBMA’s gold Good Delivery List and 81 refiners on its silver Good Delivery List, or which just over 50 of these refineries are accredited to both the LBMA’s gold and silver lists.

But within the top echelons of the world’s precious metals refineries, a number of names stand out due to their sheer scale and pedigree, as well as their global brand recognition in the production of a wide range of investment grade gold and silver bullion bars. These names include PAMP, Argor-Heraeus, Metalor Technologies, Heraeus, Valcambi, Tanaka Kikinzoku Kogyo, and Rand Refinery.

5000 Tonnes of Gold

Together these seven refinery groups have a combined gold refining capacity approaching a mammoth 5000 tonnes per year. And that’s not even taking into account their refining capacity for other precious metals such as silver and platinum. Valcambi has a gold refining capacity of 1600 tonnes per annum, Metalor 800 tonnes, Heraeus 400 to 500 tonnes, PAMP over 450 tonnes, Argor-Heraeus over 400 tonnes, Tanaka 500 tonnes, and Rand Refinery 600 tonnes.

Notably four of these refineries are based in the gold refining powerhouse of Switzerland, of which three, PAMP, Valcambi and Argor-Heraeus, are clustered literally within a few kilometres from each other in the golden triangle of Swiss refineries centred within the very south of the Swiss canton of Ticino near the Swiss-Italian border. Metalor Technologies is the exception, as its Swiss headquarters facility is based in Neuchâtel, in the north-west of Switzerland. Of the non-Swiss refineries, Heraeus, Tanaka and Rand Refinery, these are headquartered in Germany, Japan and South Africa, respectively.

Gold Refineries, Heraeus, PAMP, Valcambi, Metalor, Argor-Heraeus, Tanaka, Rand Refinery

International in Scale and Ownership

Although three of the four giant Swiss refineries have historically each been owned by a Swiss bank, and although groups such as Heraeus and Tanaka are still privately owned and controlled by founding shareholders, its important to note that none of these giant refineries are purely local concerns, so their headquarters locations are to some extent a secondary concern. From operating facilities, to metal supplier networks, to customer bases, all of these refineries are now absolutely global in nature.

For example, Metalor operates four precious metals refineries globally, in Switzerland, Hong Kong, Singapore and Massachusetts (US). Heraeus runs gold refining and gold bar production facilities in Hanau (Germany), Hong Kong, and Newark (US). In addition to its Swiss refinery, PAMP, part of the Geneva-based MKS PAMP group, runs a joint venture refinery in New Delhi, in conjunction with MMTC, a large state-owned Indian trading company.

In many cases, the ownership of these refineries is international and cross-border in nature, and increasingly so over the last few years. Agor-Heraeus is owned by the Austrian Mint and two German entities Commerzbank and Hereaus. In 2015, Valcambi was acquired by Indian jewellery producer Rajesh Exports, with one of the selling shareholders being US-based gold mining giant Newmont. Indeed, just last month, Tanaka announced the acquisition of Metalor Technologies, a development which has initiated an upcoming major Japanese - Swiss precious metals refinery combination. Metalor was already international in ownership, as its controlling shareholders are French and Belgian private equity companies. While Rand Refinery of South Africa is  exclusively owned by five of the largest South African gold mining companies, some of these owners, such as Anglogold Ashanti and Goldfields, are vast international concerns. Rand Refinery has also increasingly had to cast its new wider for sourcing gold to process in its refinery as South African gold mining output has declined. Rand Refinery now refines over 75% of the gold mined on the African continent (excluding South Africa), and is also increasingly tapping into gold mining output from the US and Asia.

The World's Refinery Referees

Another indicator of the esteem within which these select refineries are held is their membership of the exclusively small panels of good delivery list referees which have been appointed to run the LBMA’s good delivery lists, and similar good delivery lists maintained by the London Platinum and Palladium Market (LPPM) for platinum and palladium bars.

The LBMA’s good delivery referee panel is a five refinery member panel made up of Argor-Heraeus, Metalor Technologies, PAMP, Rand Refinery and Tanaka Kikinzoku Kogyo. The LPPM’s referee panel also comprises five refiner members, namely Metalor Technologies, PAMP, Valcambi, Tanaka Kikinzoku Kogyo and platinum specialist Johnson Matthey. So not only are these refineries listed on these LBMA and LPPM good delivery lists, they actually help run the entire set of good delivery standards and processes. With the upcoming acquisition of Metalor by Tanaka, these LBMA and LPPM referee lists may need some adjustment, since Tanaka and Metalor are members of both referee panels.

Overwhelmingly, the gold and silver bars of these refiners are all also accepted as good delivery for the COMEX gold 100 oz and gold kilo futures contracts, the gold contracts of the Tokyo Commodity Exchange (TOCOM), the Dubai Good Delivery gold list maintained by the Dubai Multi Commodities Centre (DMCC), and the good delivery standards of the Shanghai Gold Exchange.

Investment bullion bars

Although all of these precious metals refineries, to various extents, supply semi-fabricated precious metals, alloys and industrial precious metals suppliers to a diverse set of industrial and jewellery sector clients, it is perhaps the investment grade bullion products of these giant refiners that they are best known to a global audience.

PAMP fabricates a vast range of cast and minted gold and silver bars which are extremely popular across Asia and the Middle East, in fact, the premier brand in those regions. Valcambi manufactures a wide range of gold, silver and platinum / palladium investment bars, as well as precious metal coins and medals, and has become well-known as the international supplier of Combibars. Heraeus, Metalor and Argor-Heraeus produce a wide selection of gold and silver bars ranging from large wholesale (good delivery) bars through to smaller cast and minted gold and silver bars. Tanaka’s gold bars dominate the Japanese market and notably, Tanaka is also the sole distributor in Japan of gold and silver bullion Maple Leafs coins from the Royal Canadian Mint and gold and platinum Philharmonic coins from the Austrian Mint. Tanaka's acquisition of Metalor will be interesting in terms of how the combined group markets and distributes its investment bullion products going forward.

It's also not widely appreciated that Rand Refinery has refined over 50,000 tonnes of gold since it first opened in 1921, which is a staggering nearly one-third of all the gold ever mined. Rand Refinery large gold bars are held widely by central banks across the world. Rand Refinery’s flagship gold bullion Krugerrand coin is also held very widely, with over 60 million Krugerrands minted since 1967.

This article has not touched on the Perth Mint, Royal Canadian Mint or Royal Mint, which its important to remember, each operates its own precious metals refinery facilities in addition to being a sovereign national mint.

In summary, the seven refineries featured above are truly giants of the industry, and their longevity and customer trust attest to the authenticity and quality of their investment bullion products.

To learn more about the world's top precious metals refineries featured in this article, please see the full refinery profiles which have now been published on BullionStar's Gold University pages:

Heraeus: https://www.bullionstar.com/gold-university/heraeus-refinery

PAMP: https://www.bullionstar.com/gold-university/pamp-refinery

Valcambi: https://www.bullionstar.com/gold-university/valcambi-refinery

Metalor: https://www.bullionstar.com/gold-university/metalor-refinery

Argor-Heraeus: https://www.bullionstar.com/gold-university/argor-heraeus-refinery

Tanaka Kikinzoku Kogyo: https://www.bullionstar.com/gold-university/tanaka-refinery

Rand Refinery: https://www.bullionstar.com/gold-university/rand-refinery

In addition, the refining activities of the Royal Mint, Royal Canadian Mint and Perth Mint can be consulted in their respective profiles, also on BullionStar's Gold University pages:

Royal Mint: https://www.bullionstar.com/gold-university/the-royal-mint

Perth Mint: https://www.bullionstar.com/gold-university/perth-mint

Royal Canadian Mint: https://www.bullionstar.com/gold-university/royal-canadian-mint


Infographic: London Gold Market

This London Gold Market infographic guides you through the secretive OTC wholesale gold market in London. The London Gold Market is the largest gold market in the world and the volumes traded are staggering.

The London Market serves as a price discovery market for the worldwide gold spot price and is home to the London Bullion Market Association (LBMA).

London is also a hub for gold storage with 6,500 tonnes of gold stored in gold vaults around London.

In this infographic you will learn about the importance of the London Gold Market considering

  • Trading Volumes
  • Fractionally Reserved Paper Gold Trading
  • Price Discovery for the Gold Price
  • Gold Vaults
  • Secrecy in the London Gold Market

You can learn more about the London Gold Market at the BullionStar Gold University

London Gold Market Infographic

Infographic London Gold Market

To embed this infographic on your site, copy and paste the code below

The Real Ponzi Scheme

BullionStar was founded on the belief that precious metals generally, and gold specifically, has a central role in the monetary sphere.

Gold is rare, beautiful and has superior metallic characteristics to other metals. Furthermore, gold is durable, portable, divisible, fungible and possesses intrinsic value.  This has led to gold being used as money throughout most of recorded human history. One of the strongest historical value propositions of gold as money is that gold naturally emerged as money in different civilizations and continents worldwide, without the civilizations being aware of each other.

Unbacked fiat/paper/credit, and nowadays electronic currency, has a poor track record. Every time it has been tried historically, it has vanished through hyperinflation, war or political decrees. The fiat currencies of today actually have comparatively good track records, but even so, most currencies in circulation a century ago are no longer in existence today and the ones that are have lost 99% or more of their purchasing power.

Still, there's a lot of gold bashing in the mainstream media as the gold price has fallen slightly over the last couple of years when priced in some of the fiat currencies. Measuring gold in something worthless (fiat currency) is upside down though. Gold has maintained and even increased its purchasing power in the last century, whereas all fiat currencies have lost 99% - 100% of their purchasing power.

Why are there no fiat currency bashing articles in mainstream media? 99% - 100% lost in a century - What a fraud!

Governments are keen, and rightfully so, about going after companies setting up Multi-Level Marketing (MLM) and Ponzi schemes, but always exempt themselves, and their buddies at the central bank, from the rules.

In an MLM scheme, the idea is to recruit downstream marketing participants, known as ‘downline’, so as to generate multiple levels of compensation for the recruiter. This form of pyramid scheme is exactly what we have today with our fiat currencies. Early receivers of newly printed money i.e. governments, central banks and commercial banks are gaining purchasing power, whereas late receivers, read: most normal people, are losing purchasing power.

Today's monetary system, built on the fragile basis of fractional reserves, is a system that is doomed to go bust. You just can't borrow forever and in the process create the money out of thin air with no intention of paying anything back.

For the last four decades, we have experienced tremendous monetary inflation and money printing. The worst villain, the United States, has hyperinflated its currency, and although we've seen substantial price inflation, it hasn't been as high as the monetary inflation. The reason for this is the exorbitant privilege the US is holding in terms of printing the reserve currency of the world, the US Dollar. The only reason the system is holding up is the promise of more and more easy credit to infinity.

However, in the end, the problem of too much debt can't be solved with more debt.

What we are witnessing now is the USD quickly losing structural foreign support as a reserve currency. This is one of the topics I recently covered at BullionStar's 3 year anniversary.

Governments and central banks around the world are no longer interested in increasing their holdings of US Dollar denominated debt. China, the largest sovereign holder of US debt, has not increased its holdings of US debt for four years and the pattern is the same for other surplus countries.


The only reason the system is still holding up is due to the increase in private non-US demand of US Dollar denominated debt. With many developing markets and their currencies crashing, and with people being conditioned to run to the US Dollar as a safe haven in the short-term, this is the savior for the time being.

The US has a national debt of USD 17,000,000,000,000 and unfunded liabilities of USD 100,000,000,000,000 - USD 200,000,000,000,000. How's that for a safe haven?

In reality, everyone knows that the US has no credibility, but it's when people start to act on the knowledge that the US has no credibility that we will see a loss of confidence triggering an avalanche of deleveraging. In previous instances when private support for US debt decreased, there was always foreign government support, but that's no longer the case.

We are at the beginning of the end. Everything today is pointing towards a deflationary depression, but it's when, in a deflationary depression, the government starts to buy debt/credit with cash at all costs coupled with a loss of confidence that we arrive at the end stage - hyperinflation. Policy has never and will never allow for deflation.

Why is the government protecting the most fraudulent schemes?

The Monetary Authority of Singapore recently announced plans for enhancements to its regulatory framework for safeguarding investors' interests.

This is likely an effect of several large MLM/Ponzi gold schemes, like those offered by Genneva Gold, The Gold Guarantee and Suisse International in Singapore, failing during the last 3 years. It's startling that people still fall for scam after scam with guaranteed interest payouts of 20 plus percent and/or guaranteed gold buy-back prices.

One of the suggested measures in Singapore to be tabled in Parliament during 2016 is that buy back schemes where a seller sells gold with a guaranteed buy-back at an agreed price will be regulated as debentures. This is a very good measure which will hopefully clear the Singaporean market from the scammers for good as it will then be clearly illegal to run unlicensed MLM gold schemes.

At BullionStar, we support these steps taken by the MAS.

A larger question however, is whether government authorities around the world are missing out on the really big Ponzi schemes.

The world's largest wholesale gold market is the London Gold Market. The London Gold Market is generally very opaque in nature and there isn’t any trade turnover data published, only net clearing volumes. The trend is unfortunately that transparency is decreasing as the London Bullion Market Association (LBMA) forward market makers have stopped publishing the interest rate for lending gold (GOFO), have ceased supplying data on gold forwards, and has chosen not to be transparent about the process used in the LBMA gold price auction.

To give a hint of the trading volumes at the London Gold Market, the most recent data available is from a survey conducted by the LBMA in the first quarter of 2011. 36 of LBMA's 56 participating members submitted trading statistics for the quarter in question. The average daily trading volume reported, after adjusting for double accounting, turned out to be 170,195 tons of gold for the quarter or 2,700 tons of gold per day. Albeit a staggering number, it's likely that the real volume is even higher as only 64% of the LBMA’s members participated in the survey.

In the survey, the LBMA stated that "it can also be seen that there is an approximately ten to one ratio between the turnover figures and the clearing statistics". 

Using the approximation that trade volume is approximately 10 times higher than net clearing volume (which is conservative as mentioned above) and looking at the LBMA clearing statistics since 2011, there was a slight surge in volume in 2013 inferring a daily average about 3,413 tons of gold traded per day after adjusting for double-accounting. For 2015, volumes have decreased slightly to 2,756 tons of gold traded per day equivalent to about USD 100 billion per day based on the current gold price.

Let's put this into perspective.

According to the World Gold Council's report on Gold Demand Trends for the second quarter 2015, the annual global gold mining production for 2014 was 3,133 tons.

The volume traded during one day on the London Gold Market is thus at least 88% of a whole year's gold mining production. Assuming about 250 trading days in a year, the volume traded solely on the London Gold Market is about 22,000% higher than the world's annual mining production. And this is a conservative estimation.

The clearing and turnover volumes are nothing short of shocking.

As the London Gold Market, together with the New York market, is the global price discovery market for gold, it's apparent that physical supply and demand of gold has nothing to do with the price of gold.

Which do you think carries a higher weight when it comes to influencing the price of gold; An increase or decrease of 10 tons of physical gold demand for the Indian wedding season in a quarter, or the 170,195 tons of paper gold changing ownership each quarter in the London Gold Market?

Factors like Indian wedding demand are often cited by media as a cause of price movements, whereas the London Gold Market volumes are never mentioned. Whether demand is high during the Indian wedding season or not does not matter one ounce in terms of price fluctuations. It totally misses the point as the London Gold Market, together with the US/New York market, dominates price discovery.

Physical demand matters in stressing and ultimately breaking the market structure but it does not matter for the (paper) price of gold today. The fundamentals for physical gold are completely separated from the paper price of gold. The paper price of gold has nothing to do with the physical market whatsoever.

The price for physical bullion products is never traded at parity with the paper price. There is always a price premium. When demand for physical gold is increasing, as we have seen over the last couple of months, price premiums are shooting up, diverging the physical price from the paper price even further.

BullionStar deals only in physical precious metals

When putting the above in perspective, it's clear that the paper trading of precious metals is irrelevant to physical gold and that it is unsustainable in the longer term.

That's why we at BullionStar have a strong aversion to all forms of paper trading of precious metals.

At BullionStar, we don't engage, trade or speculate on any paper markets, financial markets, commodity exchanges, commodity platforms or anything similar. We don't engage in forwards, futures, spot commodity trading or anything of the kind. We never in any capacity work with brokerages of any kind.

BullionStar merely purchases fabricated precious metals items, and to a smaller extent numismatics and jewellery, from wholesalers, mints and refineries and retails these items.

Physical precious metals decoupling

Prices for physical precious metals are in the process of decoupling from the paper price.

The first phase, in which we are now, is that we get shortages of physical bullion.

The second phase is that the physical flow completely dries up and the physical price resets based on physical supply and demand at a higher level few people can imagine today.

Paper gold trading needs to have a functional physical market in the background for keeping up the confidence in the paper trading. When gold supply dries up on the physical market, there will no longer be any confidence in the paper market as everyone will realize that the paper market consisted by nothing but paper gold created out of thin air. As a result the paper gold market will crash and the price of physical gold will reset higher.

When this happens, it's important that you deal with a bullion dealer without any exposure to paper commodity markets that only deals in physical precious metals.

BullionStar operates with the ideological belief that physical precious metals have important monetary properties and that paper trading is inherently risky. That is why we refrain from participating in the paper trading casino style market. The bullion we offer is physical in nature. We have never and will never offer any unbacked metal, collateralization of customers’ physical bullion, forwards, futures or leveraged trading. All bullion you buy from BullionStar is fabricated, unencumbered, and fully physically allocated bullion.

By Torgny Persson, CEO BullionStar