Tag Archives: London Bullion Market Association

More Bad News for the LBMA Silver Price, but an Opportunity for Overhaul

On Friday 3 March 2017, in a surprise announcement with implications for the global silver market, the London Bullion Market Association (LBMA) informed its members that the current administrator and calculation agent of its recently launched LBMA Silver Price auction, Thomson Reuters and the CME Group respectively, will be pulling out of providing their services to the problematic London-based silver price benchmark within the near future. Thomson Reuters and the CME Group issued identical statements.

This is surprising because Thomson Reuters and the CME Group only began administering / calculating the LBMA Silver Price auction two and a half years ago in August 2014, when, amid much hubris, the duo were awarded the contract after a long-drawn-out and high-profile tender process. Notably, the Thomson Reuters  / CME contract with the LBMA was for a 5-year term running up to and into 2019. So the duo are now pulling out mid-way through a contract cycle.

More surprisingly, in their statements of 3 March, the LBMA / Thomson Reuters and CME allude to the European Benchmark Regulation being in some way responsible for the hasty departure. However, given that the units of CME and Thomson Reuters that are parties to the LBMA contract are their specialist benchmark units “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”, which specialise in administering and calculating benchmarks, this excuse makes no sense.

In essence, this development is an embarrassment for all concerned and could lead to further reputational damage for the parties involved. It also now re-focuses market scrutiny on an area which the LBMA and its associates could well wish to forget, i.e. the former London silver fixing run by the infamous London Silver Market Fixing Limited, a company which itself is still one of the defendants, along with HSBC, Bank of Nova Scotia and Deutsche Bank, in a live New York class action suit that is scrutinizing the manipulation of the London silver price.

LBMA Silver Price: A Regulated Benchmark

Note that the LBMA Silver Price benchmark is now a “Regulated Benchmark” under United Kingdom HM Treasury Legislation, and is one of 8 financial market benchmarks regulated by the UK’s Financial Conduct Authority (FCA). So this is not some backwater obscure benchmark that we are talking about here. This is a benchmark with far-reaching effects on the global precious metals markets and a sister of the LBMA Gold Price benchmark. The reference prices from these benchmarks are used from everything from valuing Exchange Traded Funds (ETFs) to being the price reference points in ISDA swaps and bullion bank structured products such as barrier options.

According to the LBMA’s usual public relations mouthpiece Reuters, which relayed the news to the broader market on 3 March, the LBMA will be:

“looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

This dramatic “exit stage right” by Thomson Reuters and the CME Group is a far cry from their initial and continued corporate spin of being committed to the silver price auction, which they claimed both at auction launch in August 2014, and also as recently as 2016 when they grovelled with promises of process improvement and wider participation in the auction in the wake of the silver price manipulation fiasco in the LBMA Silver Price auction on 28 January 2016.

It was on 28 january 2016 that the midday auction took a whopping 29 rounds to complete and the price derived in the auction was manipulated down by a massive 6% under where silver spot and silver futures prices were trading at that time. See the beginning of BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for further details about the 28 January auction.



Where is the Commitment?

On 15 August 2014, the day the LBMA Silver Price auction was launched, William Knottenbelt, MD at CME Group stated:

“Through our existing relationships with market participants and the broader silver marketplace we are uniquely positioned to provide a seamless transition for the spot silver benchmark in London.” 

“CME Group has a long and successful history of offering benchmark risk management and price discovery solutions for the global precious metals markets.” 

Then, on 22 March 2016, when CME and Thomson Reuters introduced some changes to the auction in the wake of the 28 January 2016 auction price manipulation, both parties released more spin on their continued commitment to the auction. Thomson Reuters’ Head of Benchmark Services, Tobias Sproehnle, in a statement that now looks to be hollow, said:

“these changes together with a comprehensive consultation with the broader silver community – producers, intermediaries and consumers - are a further demonstration of Thomson Reuters and CME Group’s commitment to providing innovative, market leading benchmarks for the Silver market.

While Gavin Lee, the head of CME Benchmark Services, led with an equally hubristic statement that:

“in consultation with Silver market participants, we are always looking for new ways to develop this benchmark further

These statements from CME and Thomson Reuters, less than a year ago, run totally contrary to the fact that the duo are now going to abandon the LBMA Silver Price auction ship, which will necessitate the appointment of a replacement administrator and calculation agent. Where is the continued “commitment” to the silver benchmark and the silver market that they were we eager to espouse last March?

Why the Hasty Departure?

According to the Reuters news report last Friday 3 March:

A spokesman for Thomson Reuters confirmed the company was stepping down from the process. CME could not immediately be reached for comment.

Not very informative or cooperative from either party when one of the providers was not even available to explain its exit rationale, and the other merely confirms a fact to its in-house news arm, a fact which the LBMA had already announced earlier that day to its members.

However, if you look at the CME Group website, a short announcement was added to its website on 3 March 2017, which states:

The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements and, in consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction.

This statement was also added to the Thomson Reuters website on 3 March.

Before briefly looking at the relevance of this “European Benchmark Regulation”, which the Reuters news article even failed to mention, its notable that the CME / Thomson Reuters early withdrawal was also covered on 3 March by the MetalBulletin website.

According to MetalBulletin (subscription site), the above statement by CME is apparently part of an identical statement which the LBMA released to it members on Friday 3 March (the LBMA statement).

MetalBulletin adds in its commentary that:

“CME is looking to streamline its precious metals division, with contracts in this area being its fastest growing asset. The exchange wants to focus on its core products, Metal Bulletin understands.”

What MetalBulletin means by this I don’t know. The logic doesn’t make any sense. The sentence doesn’t even make sense. Benchmarks are a core product of CME group. CME even states that it offers:

“the widest range of global benchmark products across all major asset classes”

CME Benchmark Europe Limited was specifically set up in 2014 to provide the calculation platform for the LBMA Silver Price. Furthermore, CME has just launched a suite of silver and gold futures contracts for the London market (launched in late January 2017), the silver contract being the “London Spot Silver Futures (code SSP)“. Even though these CME contracts have had no trading interest so far, the CME claims that it is currently “working with major banks to synchronize their systems to start trading” these contracts (London Spot Silver Futures and London Spot Gold Futures).

So why would CME want to voluntarily ditch the provision of a high-profile London silver benchmark, when it could attain trading synergies between the LBMA Silver Price and its new London silver futures contracts, or at the very least improve brand recognition in the market?  And not to forget CME and Thomson Reuters claim a”commitment to providing innovative, market leading benchmarks for the Silver market“.

European Benchmark Regulation

Turning to the new “European Benchmark Regulation”, what exactly is it, and why would it be relevant for the LBMA and CME and Thomson Reuters to mention the European benchmark Regulation in the context CME and Thomson Reuters pulling out of the LBMA Silver Price auction?

At its outset, the European Benchmark Regulation was proposed by the European Commission. The Commission’s proposal was also issued in coordination with a range of entities and initiatives such as MiFID, the Market Abuse Directive, the benchmark setting processes of the  European Securities and Markets Authority (ESMA) and European Banking Authority (EBA), and also the IOSCO financial benchmark principles.

According to law firm Clifford Chance:

The new [EU] Regulation is a key part of the EU’s response to the LIBOR scandal and
the allegations of manipulation of foreign exchange and commodity benchmarks

“The Regulation imposes new requirements on firms that provide, contribute to or use a wide range of interest rate, currency, securities, commodity and other indices and reference prices.”

“Most of the new rules will not apply until 1 January 2018″

“The new Regulation imposes broad ranging and exacting requirements
on a wide range of market participants. It may reinforce the trend to discontinue benchmarks and reference prices

According to law firm Simmons & Simmons:

The Regulation seeks to:

  • improve governance and controls over the benchmark process, in particular to ensure that administrators avoid conflicts of interest, or at least manage them adequately
  • improve the quality of input data and methodologies used by benchmark administrators
  • ensure that contributors to benchmarks and the data they provide are subject to adequate controls, in particular to avoid conflicts of interest
  • protect consumers and investors through greater transparency and adequate rights of redress.

The Regulation aims to address potential issues at each stage of the benchmark process and will apply in respect of:

  • the provision of benchmarks
  • the contribution of input data to a benchmark, and
  • the use of a benchmark within the EU.

All of these goals aspired to by the legislation of the European Benchmark Regulation seem reasonable and would benefit users of the LBMA Silver Price auction, so given the above, it seems very bizarre that CME and Thomson Reuters and the LBMA stated last Friday 3 March that:

The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements

Remember that the CME and Thomson Reuters service providers to the LBMA Silver Price are their specialist benchmark units “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”. That is what these units do, administer and calculate benchmarks. This European benchmark Regulation has been known about for a few years. Especially known about by the benchmark units of CME and Thomson Reuters. The Regulation didn’t suddenly appear out of nowhere last week, as the above statement is appearing to hint at.

And why such a brief and unclear statement from CME, Thomson Reuters and the LBMA? Is this European Benchmark Regulation just an excuse being thrown out to distract from other issues that might really be behind CME and Thomson Reuters stepping down.

Or perhaps CME and Thomson Reuters are aware of issues within the current administration of the LBMA Silver Price that would make it difficult to comply with the new legislation or that would make it too onerous to comply? But such rationale doesn’t make sense either because why are CME and Thomson Reuters not bailing out of the all the benchmarks that they are involved in? Furthermore, if the European Benchmark Regulation is a factor, why would any other benchmark service provider such as ICE Benchmark Administration (IBA) bother to pitch in the LBMA’s forthcoming tender process to find a replacement for Thomson Reuters and CME?

Perhaps CME and Thomson Reuters are worried about future reputation damage of being associated with the LBMA Silver Price due to some brewing scandal? Or perhaps the powerful bullion banks within the LBMA wanted to scupper any change that there will ever be wider participation or central clearing in any future version of the auction?

I will leave it to readers to do their own research on this and draw their own conclusions.

A Banking Cartel vs. Wider Auction Participation

One issue which has dogged the LBMA Silver Price auction since launch is that it never gained any level of “wider participation” or market representative participation. There are only 7 bullion banks authorised by the LBMA to be direct participants in the auction, and there are zero direct participants from the silver mining, silver refineries, and silver sectors.

This is despite the LBMA, CME and Thomson Reuters all misleading the global silver market on this issue on many occasions, and claiming that there would be very wide participation in the auction after it was launched. See BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for a huge amount of factual evidence to back up this statement, including webcasts by CME, Thomson Reuters and the LBMA, and an interview by Reuters with LBMA consultant Jonathan Spall, formerly of Barclays. Here are a few examples:

The LBMA’s Ruth Crowell was claiming back in July and August 2014 that they were interested in having 111 direct participants:

“clear demand for increased direct participation, and we had 25% of those 444 coming back saying they would be interested, and we’re still interested in having all of those participants on board”

“The advantage with centralised clearing, particularly for the pricing mechanism, is that we can really exponentially grow the amount of direct participants

Jonathan Spall, LBMA Consultant stated that:

“The hope of course is that we get many more participants in the new benchmark process….while it is likely that we will start by having banks involved it is ultimately hoped that the wider market will participate, be they refiners, miners etc.

“Ultimately – and as I said before – the intention is that there is much wider participation. So yes, refiners, miners etc.

Harriett Hunnable, then of the CME Group, stated:

“So this is really the new world, this is not the old fixing…..this is wider participation…and the London bullion market is really encouraging that…this is the new world, or the LBMA Silver Price!”.

According to the CME / LBMA / Thomson Reuters presentations, there was supposed to be a “phase 3 introduction of centralised clearing

Central counterparty clearing will enable greater direct participation in the London Silver Price

In summary, central clearing would allow direct participants to participate directly in the auction without the need for bi-lateral credit lines. However, the plan for central clearing was quietly dropped. The CME and Thomson Reuters have now had 32 months in which to introduce central clearing into the silver auction and it hasn’t happened. Nor will it now. The fact of the matter is that the LBMA banks do not want wider participation and they don’t want central clearing of auction trades either. These banks, which at the end of the day are just costly intermediaries, essentially want to monopolise the silver auction and prevent wider participation, and prevent true silver price discovery. Could it be the banks through their LBMA front that have sabotaged the contract with CME and Thomson Reuters so as to reset the contract and re-start another tender process that will ensure that no wider participation can ever see the light of day?

It’s also important to note that there is no way for miners and refiners to be direct participants in the auction. This is because the LBMA has designed the auction participant rules to keep out refiners and miners (and anyone else that is not a bullion bank). The rules are specifically designed so that only bullion banks can satisfy the LBMA’s Benchmark Participant criteria. See section 3.13 of the LBMA Silver Price auction methodology document accessible here.

Currently only 7 bullion banks are direct participants in the auction, namely HSBC, JPMorgan Chase, Bank of Nova Scotia (ScotiaMocatta), Toronto Dominion, UBS, Morgan Stanley, and China Construction Bank.  Most of these banks are very influential on the LBMA Management Committee. HSBC, Scotia and Mitsui were in the auction from Day 1 on 15 August 2014. UBS joined the auction on 26 September 2014, JP Morgan Chase Bank joined on 14 October 2014, Toronto Dominion Bank joined on 6 November 2014. Mitsui left in either late 2015 or January 2016 (the exact date is unclear). China Construction Bank only joined the auction on 6 May 2016.

Lastly, Morgan Stanley only joined the LBMA Silver Price auction on 25 October 2016 (which is just 4 months ago), at which point the LBMA / CME and Thomson Reuters had the audacity to spin that 7 LBMA bullion banks trading in a shadowy auction of unallocated silver accounts in London somehow represents the global silver market:

CME: “The addition of another member brings greater depth and diversity to the market and underlines the ongoing globalisation of the Silver Price as a leading, liquid precious metals benchmark.”

Thomson Reuters: “With the addition of Morgan Stanley to the panel, the LBMA Silver Price provides even deeper insight into the global silver market. We continue to welcome new participants to this essential mechanism for the markets.”

LBMA: “They [Morgan Stanley] add depth and liquidity to the auction and I look forward to other market participants joining in the future.”

LBMA Silver Price is NOT Representative of Silver Market

But, to reiterate (and as was stated previously in this blog), the LBMA Silver Price auction is not representative of the global Silver Market whatsoever, and it does not meet some of the simplest IOSCO benchmark requirements:

“IOSCO benchmark principles state that a benchmark should be a reliable representation of interest, i.e. that it should be representative of the market it is trying to measure. Interest is measured on metrics such as market concentration. In the Thomson Reuters methodology document (linked above), on page 11 under benchmark design principles, the authors estimate that there are 500-1000 active trading entities in the global silver market.”

The Thomson Reuters methodology document from August 2014 also admitted that “volumes in the LBMA Silver Price are a fraction of the daily volume traded in the silver futures and OTC markets”.

Why then are 7 LBMA bullion banks allowed to monopolize the representation of 500 – 1000 active trading entities from the global silver market within the auction, an auction that its worth remembering generates a silver reference price which is used as a global silver price reference and pricing source?

BullionStar investment silver bars and coins

Refiners and Miners

Based on the current rules, the vast majority of the world’s silver refiners cannot directly take part in the LBMA Silver Price auction.

Only 8 precious metals refiners are Full Members of the LBMA while 25 refiners are associates of the LBMA. Of the 8 full members, 5 of these refiners are on the LBMA refiner Referee panel, namely, Argor-heraeus, Metalor and PAMP from Switzerland, Rand Refinery from South Africa, and Tanaka Kikinzoki Kogyo from Japan. These refiners were added to the panel as LBMA Associates in 2003, and were only made Full Members in 2012. The only reason they happened to be fast-tracked as full members of the LBMA was due to their status as Referees for the LBMA good delivery list. Even the other major Swiss based refinery Valcambi is still not a full member of the LBMA.

Based on the current participant criteria of the Silver auction, where only full LBMA members could conceivably become direct participants, 25 of the refiners that are LBMA Associates cannot directly take part in the auction even if they wanted to. Candidates for Full LBMA Membership also have to jump through a number of hoops based on sponsorship by existing members, business relationships, due diligence, and involvement in the precious metals markets.

For a refiner to even become a LBMA associate, the refiner must have already attained Good Delivery Status for its silver or gold bars. There are about 80 refineries on the LBMA’s current Good Delivery List for silver. The chance of the vast majority of these refiners taking part in the LBMA silver auction is nil since not only are they not LBMA full members, they aren’t even LBMA associates.

Based on the current auction criteria, it’s without doubt literally impossible for nearly all silver producers / miners on the planet to directly participate in the LBMA Silver Price auction. Precious metal mining companies are not normally officially connected to the LBMA, and would more naturally be members of the Silver Institute or World Gold Council or another mining sector organization. So it’s confusing as to why the LBMA even mentions mining companies as possible auction participants since there are no mining companies that are Full Members of the LBMA, so they cannot be participants in the silver auction. The only mining companies that are even “Associates” of the LBMA are Anglogold Ashanti and Coeur Mining.

In 2014, Coeur Mining’s treasurer, referring to the LBMA Silver auction said:

“We hope to have the opportunity to become a direct participant down the road and look forward to working with the LBMA, CME and other silver producers to drive the evolution of this market.”

The unfortunate Coeur Mining now looks like it has been strung along by the LBMA with empty promises that it can somehow someday participate in the silver auction, but this is literally a fiction given the way the auction rules are currently set up.


In its announcement on 3 March, the LBMA said that it will shortly launch a tender process to appoint a replacement provider. The LBMA told Reuters News:

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

However, given the abysmal track record of the LBMA Silver Price, the question that should really be asked at this time is why is the bullion bank controlled LBMA even allowed to be in charge of such an important “Regulated Benchmark” as a global silver price benchmark, a benchmark that has far-reaching effects on global buyers and sellers of silver.

Take a brief look back at how the last tender process run by the LBMA for the London silver price was handled.

A Silver Price Seminar held by the LBMA on 19 June 2014 was not even open to the wider bullion market. As Ruth Crowell, CEO of the LBMA, told the publication MetalBulletin in an October 2014 interview:

“Not just our members, but ISDA members, and any legitimate members of the market were invited to the seminar. We also had observers from the FCA and the Bank of England. We wanted to keep [attendance] as wide-ranging as possible but to avoid anyone who perhaps would be disruptive

What is this supposed to mean? To prevent anyone attending the seminar who might have a different view on how the global silver price benchmark should be operated that doesn’t align with the view of the LBMA?

The actual process of selecting the winning bid from the shortlist of tender applicants was only open to LBMA Full members and Seminar attendees via a 2nd round voting survey. The independent consultant review that was part of the selection process, was conducted by someone, Jonathan Spall, who was not independent of the former fixings and so should not have been involved in the process.

Promises of wider participation involving refiners and miners were abandoned. Promises of central clearing of auction traded were thrown out the window. Prior to launch, the auction platform was hastily built by Thomson Reuters and CME without an adequate market-wide solution for clearing silver trades. Another of the bidders, Autilla/LME, had a working auction solution which would have allowed wider market participation at August 15 2014 go-live, but this solution was rejected by the LBMA Management Committee, LBMA Market Makers and the LBMA Data Working Group, the groups which had the ultimate say in which applicant won the tender.

There were only 3 participants in the LBMA Silver Price auction (all of them banks) when it was launched in August 2014, and two of which, HSBC and Scotia, were parties to the former London Silver Fixing. The LBMA Silver Price auction was therefore an example of same old wine in a new bottle. The same 2 banks, HSBC and Scotia are now defendants in a silver price manipulation class action suit in New York. There are now only 7 direct participants in the LBMA Silver Price. These are all bullion banks. This is 32 months after the auction has been launched. The LBMA accreditation process specifically prevents refiners and miners from joining the auction. As there are 500 – 1000 trading entities of silver globally, the LBMA Silver Price mechanism is totally unrepresentative of the silver market.

The defection of CME and Thomson Reuters now provides a one-off opportunity for the global silver market to insist that the current scandal ridden current auction be scrapped and taken out of the hands of the bullion bank controlled London Bullion Market Association (LBMA). It is also an opportunity to introduce a proper silver price auction in its place that is structured to allow direct participation by hundreds of silver trading entities such as the world’s silver refiners and miners, an auction that employs central clearing to allow this wider participation, and an auction that is based on trading real physical silver and not the paper credits representing unallocated claims that the participating London bullion banks shunt around between themselves. This could help lead to real silver price discovery in the global silver market. However, the chances of this happening with the LBMA still involved in the new tender process are nil.

A Chink of Light into London’s Gold Vaults?

On 5 February, the Financial Times of London (FT) featured a story revealing that the London Bullion Market Association (LBMA) plans to begin publishing data on the amount of real physical gold actually stored in the London precious metals vaulting network. The article titled “London gold traders to open vaults in transparency push” can be read here (accessible via FT subscription or via free monthly FT read limit).

This new LBMA ‘monthly vault data’ will, according to the FT’s sources, be published on a three-month lagged basis, and will:

show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s, which are also members of the LBMA.”

The shadowy source quoted in the FT article is attributed to “a person involved in setting up the programme”, but at the same time, although “the move [to publish the data] is being led by the LBMA“, the same LBMA ”declined to comment” for the FT story. This then has all the hallmarks of a typical authorised leak to the media so as to prepare the wider market for the data release.

On 16 February, the World Gold Council in its “Gold Investor, February 2017″ publication featured a focus box on the same gold vault topic in its “In the News” section on page 4, where it states:

“Enhanced transparency from the Bank of England

The Bank of England is, for the first time, publishing monthly data revealing the amount of gold it holds on behalf of other central banks.

 As a leading custodian of gold, with one of the largest vaults in the world, the Bank of England’s decision is highly significant. Not only will it enhance the transparency of the Bank’s own gold operations; it will also support the drive towards greater transparency across the gold market.

The data reveals the total weight of gold held within the Bank of England’s vaults and includes five years of historical data.”

The Proposed Data

Based on these two announcements, it therefore looks like the gold vault data release will be a combined effort between the LBMA and the Bank of England, the blood brothers of the London Gold Market, with the Bank of England data being a subset of the overall LBMA data. While neither of the above pieces mention a release date for the first set of data, I understand that it will be this quarter, i.e. sometime before the end of March. On a 3 month lagged basis, the first lot of data would therefore probably cover month-end December 2016, because that would be a logical place to start the current dataset, rather than, for example, November 2016.

While the Bank of England data looks set to cover a 5 year historical period, there is no indication (from the FT article) that the wider LBMA vault data will do likewise. From the sparse information in the FT article, the LBMA data will “show gold bars held“. Does it mean number of gold bars, or combined weight of gold bars? What exactly it means, we will have to wait and see.

The Bank of England data will capture “total weight of gold held“. Notice that in the above World Gold Council piece it also states that the data will cover the amount of gold that the Bank of England “holds on behalf of other central banks.” There is no mention of the amount of gold that the Bank of England holds on behalf of commercial bullion banks.

Overall, this doesn’t exactly sound like it is “enhancing the transparency of the Bank’s own gold operations” as the World Gold Council puts it. Far from it. Enhancing the transparency of the Bank of England’s gold operations would require something along the lines of the following:

  • Identities of all central banks and official sector institutions (ECB / IMF / BIS / World Bank) holding active gold accounts at the Bank of England. Active gold accounts meaning non-zero balances
  • Identities of all commercial / bullion banks holding active gold accounts at the Bank of England
  • A percentage breakdown between the central bank gold held in the Bank of England vaults and the bullion bank gold held in the Bank of England vaults
  • An indicator for each gold account as to whether it is a set-aside earmarked custody account or whether it is a fine troy ounce balance account
  • Information for each central bank and official sector institution as to whether any of “its” gold is lent, swapped or repo’d
  • Information for the bullion bank gold accounts as to whether the gold recorded in those accounts is borrowed, sourced from swaps, sourced from repos, or otherwise held as collateral for loans
  • Information on the gold accounts of the 5 LPMCL clearing banks showing how much gold each of these institutions holds each month and whether the Bank of England supplies physical gold clearing balances to these banks
  • Information on when and how often the London-based gold-backed ETFs store gold at the Bank of England, not just using the Bank of England as sub-custodian, but also storage in their own names, i.e. does HSBC store gold in its own name at the Bank of England which is used to supply gold to the SPDR Gold Trust
  • Information on whether and how often the Bank of England intervenes into the London Gold Market and the LBMA Gold Price auctions so as to supply gold in price smoothing and price stabilisation operations in the way that the Bank of England’s Terry Smeeton seems to have been intervening into the London Gold Market in the 1980s
  • Information on the BIS gold holding and gold transactions settlements accounts at the Bank of England and the client sub-account  details and central bank identities for these accounts
  • Information on gold location swaps between gold account holders at the Bank of England and gold accounts at the Federal Reserve Bank of New York, the Banque de France, and the Swiss National Bank, and BIS accounts in those locations
  • Gold for oil swaps and oil for gold swaps

Anything less is just not cricket and does not constitute transparency.

And its important to remember that any publication of gold vault data by the LBMA and Bank of England is not being done because the LBMA suddenly felt guilty, or suddenly had an epiphany on the road to Damascus, but, as the FT correctly points out:

“the LBMA, whose members include HSBC and JPMorgan, hopes to head off the challenge and persuade regulators that banks trading bullion should not have to face more onerous funding requirements.”

Bank of England

The Current Data

As a reminder, there is currently no official direct data published on the quantity of real physical gold bars held within the London gold vaulting system. This vaulting system comprises the vaults of eight vault operators (see below for list).

Once a year in its annual report, the Bank of England provides a Sterling (GBP) value of gold held by its gold custody customers, while the LBMA website states a relatively static total figure of “approximately 6,500 tonnes of gold held in London vaults” that it claims are in the vaults in its network. But beyond these figures, there is currently no official visibility into the quantity of London Good Delivery gold bars held in the London vaults. There are, various ways of estimating London gold vault data using the Bank of England annual figure and the LBMA figure together with Exchange Traded Fund gold holdings and central bank divulged gold holdings at the Bank of England.

These approaches have been documented in BullionStar articles “Central bank gold at the Bank of England” and “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“, both from September 2015, and more recently “Tracking the gold held in London: An update on ETF and BoE holdings” from September 2016.

The September 2015 estimates calculated that there were 6,256 tonnes of gold in total in the London vaults, with 5,134 tonnes at the Bank of England (as of end February 2015), and 1,122 tonnes in London “not at the Bank of England“, all of which was accounted for by gold-backed ETFs which store their gold in London. These calculations implied that there was nearly zero gold stored in London outside the Bank of England that was not accounted for by ETF holdings.

The “Tracking the gold held in London” estimates from September 2016 used a figure of 6,500 tonnes of gold in total in the London vaults, and showed that there were 4,725 tonnes inside the Bank of England vaults, of which about 3,800 tonnes was known to be held by central banks (and probably a lot of the remainder was held by central banks also) and that there were 1,775 tonnes of gold outside the Bank of England. The article also calculated that there were 1,679 tonnes of gold in the gold backed ETFs that store their gold in London, so again, there was very little gold in the London vault network that was not accounted for by ETFs and central bank gold.


The Vaults of London

Overall, there are 8 vault operators for gold within the LBMA vaulting network. These 8 vault operators are as follows:

  • The Bank of England
  • HSBC Bank plc
  • JP Morgan Chase
  • ICBC Standard Bank Plc
  • Brink’s Limited
  • Malca-Amit Commodities Ltd
  • G4S Cash Solutions (UK) Limited
  • Loomis International (UK) Ltd

HSBC, JP Morgan and ICBC Standard are 3 of the London Gold Market’s clearing banks that form the private company London Precious Metals Clearing Limited (LPMCL). The other two member of LPMCL are Scotia Mocatta and UBS. Brink’s, Malca-Amit, G4S and Loomis are the aforementioned security companies. The LBMA website lists these operators, alongside their headquarters addresses.

Bizarrely, the FT article still parrots the LBMA’s spoon-fed line that the vaults are “in secret locations within the M25 orbital motorway”. But this is far from the truth. Many of the London vault locations are in the public domain as has been covered, for example, on this website, and the FT knows this:

JP Morgan: https://www.bullionstar.com/gold-university/jp-morgan-gold-vault-london

Malca-Amit https://www.bullionstar.com/gold-university/malca-amit-london-gold-vault

G4S: https://www.bullionstar.com/gold-university/g4s-london-gold-vault

And perhaps HSBC: https://www.bullionstar.com/gold-university/hsbc-gold-vault-london

G4S location https://www.bullionstar.com/blogs/ronan-manly/g4s-london-gold-vault-2-0-icbc-standard-bank-in-deutsche-bank-out

Malca-Amit location https://www.bullionstar.com/blogs/ronan-manly/gold-vaults-london-malca-amit

HSBC possible location https://www.bullionstar.com/blogs/ronan-manly/hsbcs-london-gold-vault

And obviously, the Bank of England vaults are where they always have been, under the Bank’s headquarters in the City of London: https://www.bullionstar.com/gold-university/bank-england-gold-vaults

It’s slightly disappointing that we spend time and effort informing the London financial media where some of the London gold vaults are, and then they continue to parrot the LBMA’s misleading “secret locations” line. I put this fake news down to a decision by the FT editors, who presumably have a stake in playing along with this charade so as not to rock the boat with the powerful investment banks that they are beholden to.

The FT also reminds us in its article that “last year a gold vault owned by Barclays, which can house $80bn of bullion, was bought by China’s ICBC Standard Bank.

This Barclays vault in London was built by and is operated by Brink’s, and presumably after being taken over by ICBC Standard, it is still operated by Brink’s. Logistically then, this ICBC Standard vault is most likely within the Brink’s complex, a location which is also in the public domain, and which even hosts an assay office as was previously mentioned here over a year ago. The Barclays vault (operated by Brink’s) is even mentioned in a Brink’s letter to the SEC in February 2014, which can also be seen here -> Brinks letter to SEC February 2014.


Brink’s letter to SEC, February 2014

Given the fact that there are eight sets of vaults in the London vault system (as overseen by various groups affiliated to the LBMA such as the LBMA Physical Committee, the LBMA Vault Managers Working Party,  the gold clearers (London Precious Metals Clearing Limited), and even the LBMA Good Delivery List referees and staff, then one would expect that whatever monthly vault data that the LBMA or its affiliates publishes in the near future, will break out the gold bar holdings and have a distinct line item in the list for each vault operator such as:

  • HSBC – w tonnes
  • JP Morgan – x tonnes
  • ICBC Standard – y tonnes
  • Brink’s – z tonnes



At the LBMA conference in Singapore last October, there was talk that there were moves afoot for the Bank of England to begin publishing data on the custody gold it holds on a more regular basis. It was also mentioned that this data could be extended to include the commercial bank and security carrier vaults but that some of the interested parties were not in favour of the idea (perhaps the representative contingents of the powerful HSBC and JP Morgan). Whatever has happened in the meantime, it looks like some data will now be released in the near future covering all of the participating vaults. What this data will cover only time will tell, but more data than less is always welcome, and these data releases might also help show how near or how far we were with earlier estimates in trying to ascertain how much gold is in the London vaulting system that is not accounted for by ETF holding or central bank holdings.

Revealing the extent of the gold lending market in London is critical though, but this is sure to remain a well-kept secret, since the LBMA bullion banks and the Bank of England will surely not want the general market to have any clue as to which central banks don’t really have any gold while still claiming to have gold (the old gold and gold receivables trick), in other words, that there is serious double counting going on, and that some of the central bank gold has long gone out the door.


Lukewarm start for new London Gold Futures Contracts

The second half of 2016 saw announcements by three exchange providers for plans to compete in the London Gold Market through offerings of exchange-traded London gold futures contracts.

First off the mark was the London Metal Exchange (LME) in conjunction with the World Gold Council with a planned platform called LMEprecious. There were rumblings of this initiative in the London financial media from as early as January 2015,  but concrete details for the actual platform were only announced on 9 August 2016. See LME press release “World Gold Council, LME and key market participants to launch LMEprecious.” The LME plans to call its gold futures contract LME Gold. There will also be an “LME Silver”. Each is a suite of contracts of varying lengths including a daily futures (spot settlement) contract. See also BullionStar blog “The Charade Continues – London Gold and Silver Markets set for even more paper trading” from August 2016 which took a first look at the LMEprecious suite.

Two months after the LME announcement, during the annual conference of the London Bullion Market Association (LBMA), Intercontinental Exchange (ICE) announced on 17 October that it too planned the launch of a gold futures contract in the London market. See Bullion Desk’s “ICE to launch gold futures in 2017, competition in gold market grows” as well as the ICE press release. The ICE contract is named “Gold Daily Futures” and resides on the ICE Futures US platform. It too is a daily futures contract.

Not to be outdone, the CME Group then followed suit on 1 November 2016 and it too announced plans for a “London Spot Gold Futures contract” as well as a “London Spot Silver futures contract”. See CME press release “CME Group Announces New Precious Metals Spot Spread” from 1 November 2016, and “CME to launch London spot gold, silver futures for spot spread” from the Bullion Desk, 1 November 2016. The CME contract was to trade on COMEX (Globex and Clearport) as a daily futures contract, and was devised so as to offer traders a spot spread between COMEX and London OTC Spot gold.

As of August 2016, the LME’s target launch date was said to be “the first half of 2017”. ICE was more specific with a target launch of February 2017 (subject to regulatory review). In it’s announcement, CME went for an even earlier planned launch date of 9 January 2017 (subject to regulatory approval).

cme ice lme

Two Launches – No Volume

Why the update? Over the 2 weeks, there have been a number of developments surrounding these 3 contracts. The CME and ICE gold futures contracts have both been launched, and additionally, LME has provided more clarity around the launch date of its offering.

Surprisingly, while there was plenty of financial media coverage of these 3 gold futures contracts when their plans were initially publicised from August – November 2016, there has been little to no financial media coverage of the contracts now that 2 of the 3 have been launched.

On 25 January, I took a look at the CME website to see what the status of the CME gold futures contract might be. Strangely, the contract itself was defined on the CME website (with a code of GSP) but it had no trading volume. From the website, it was not clear when the contract actually launched, but it looked to be sometime during the last week of January.

On 25 January, I also sent a short email to CME asking:

“Has the London Spot Gold contract started trading yet?


It doesn’t look like it has, even though the contract is defined on your website. Could CME confirm when it will start trading?”

Next day on 26 January, I received this response from the CME:

“Thank you for reaching out to the CME Group with your query.  The London Spot Gold and Silver products are available to trade but at this time no trades have been made in the listed contract months.”

Fast forward to end-of-day 7 February. From the CME website, I still cannot see that there have been any trades in this gold futures since it was launched. The volumes are all zero. The same applies to the London Spot Silver futures contract (code SSP).

Next up the ICE gold futures contract (AUD). Upon checking the ICE website under section “Products”,  the new ICE Gold Daily Futures contract has been defined, and the description states “The Daily Gold Futures contract will begin trading on trade date Monday, January 30, 2017“.

Turning to the ICE reporting section of the website for futures products, and selecting the end of day ICE Futures US report page, and then selecting the reports for AUD, there are 6 daily reports available for download, namely, from 30 and 31 January, and 1, 2, 3 and 6 February. Again, looking at each of these reports, there are varying prices specified in the reports but there are no trading volumes. All of the volumes are zero.

Therefore, as far as the CME and ICE websites show, both of these new gold futures contracts have been launched and are available to trade, but there hasn’t been a single trade in either of the contracts. Not a very good start to what was trumpeted and cheer-led as a new dawn for the London Gold Market by outlets such as Bloomberg with the article “Finance Titans Face Off Over $5 Trillion London Gold Market“.

LMEprecious – To Launch Monday 5 June 2017

Finally, possibly so as not to be forgotten while its rivals were launching their London gold futures offerings, the LME on Friday 3 February announced in a general LME and LME Clear update memo that the planned launch date of its LMEprecious platform is now going to be Monday 5 June, i.e. 4 months from now.

LME update header

LME footer

As a reminder, the LMEprecious contracts will be supported by a group of market maker investment banks, namely Goldman Sachs,Morgan Stanley, Société Générale, Natixis and ICBC Standard Bank.

It’s also important to remember that all 3 of these gold futures contract product sets are for the trading of unallocated gold, (i.e. claims on a bullion bank for gold, aka synthetic / fictional gold). All 3 contracts claim to be physically-settled but this is essentially a play on words, because in the world of the London Gold Market, physically-settled does not mean physically-settled in the way any normal person would define it. LBMA physically-settled just means passing unallocated balances around, a.k.a. pass the parcel. To wit:

ICE London gold futures settle via unallocated accounts:

“The contract will be settled through unallocated loco London gold vault accounts using LBMA Good Delivery Rules.”

CME London gold futures settle via unallocated accounts:

London Spot Gold futures contract will represent 100 troy ounces of unallocated gold

And for LMEprecious, settlement will be:

“Physical settlement one day following termination of trading. Seller transfers unallocated gold to [LME Clearing] LMEC account at any LPMCL member bank, and buyers receive unallocated gold from LMEC account at any LPMCL member bank.”


With neither the CME nor the ICE gold futures contracts registering any trades as of yet (according to their websites), it will be interesting to see how this drama pans out. Will they be dud contracts, like so many gold futures contracts before them that have gone to the gold futures contracts graveyard, or will they see a pick up in activity? All eyes will also be on the LME contract from 5 June onwards.

The lack of coverage of the new CME and ICE London gold futures contracts is also quite unusual. Have the London financial media already forgotten about them? According to Reuters it would seem so. On 22 January, Reuters published an article titled “LME’s pitch for share of gold market faces bumpy ride” which exclusively questioned whether the LME gold contract would be a success, while not even mentioning the CME and ICE contracts. Given that 22 January was right before the CME and ICE contracts were about to be launched, this is quite bizarre. Presumably Bloomberg will come to the rescue of its ‘financial titans’ heros, and will write glowing tributes about the new contracts, but this will be tricky given the zero trade volumes. We await with bated breath.

Guest Post: How to Trigger a Silver Avalanche by a Pebble: “Smash(ed) it Good”

UBS and other precious metals traders on how to wreak havoc in silver markets

Written by Allan Flynn, specialist researcher in aspects of gold and silver.


“An avalanche can be triggered by a pebble if you get the timing right” 

Earlier this year at April’s hearings for London Silver and Gold Fix lawsuits, the judge and defendant’s attorney quipped about trader chats named “the mafia” and “the bandits” published in prosecutors findings of Forex investigations but conspicuously absent from precious metals investigation findings, and the silver and gold antitrust lawsuits under consideration.

THE COURT: “Those were bad facts for the defendants.”

LACOVARA: “I think, your Honor, that if we had chat rooms that said “The Cartel”, we might be having a different focus to oral argument today.”

THE COURT: “I think that is correct.”

Given the judges skepticism of the allegations described in an earlier article, it came as a surprise early October when the banks listed were ordered by magistrate Valerie E. Caproni to face charges. More surprising perhaps was the exemption granted Swiss bank UBS, which despite having been found guilty and fined for “precious metals misconduct” by the Swiss Financial Market Supervisory Authority FINMA in November 2014, was granted motion to dismiss from both silver and gold lawsuits.

All that may be about to change according to documents filed in a New York district court December 7th, where plaintiffs claim that transcripts showing conspiracy to manipulate silver, provided by Deutsche Bank as part of an April settlement agreement, includes extensive smoking gun evidence involving UBS and other banks. Plaintiffs describe a “multi-year, well-coordinated and wide-ranging conspiracy to rig the prices of silver and silver financial instruments that far surpasses” that of the previous complaint, including potentially incriminating evidence of UBS precious metals traders allegedly conspiring with other banks.

Five additional banks to the remaining defendants HSBC and Bank of Nova Scotia are mentioned including Barclays Bank, BNP Paribas, Standard Chartered Bank, Bank of America and Merrill Lynch. The Memorandum of Law signed by Vincent Briganti on behalf of Lowey Dannenberg Cohen & Hart for plaintiffs on Wednesday 7th December seeks leave to amend the existing complaint filed with the United States District Court Southern District of New York.

Included in the memo are numerous astounding transcripts indicating coordination between UBS and other banks of “pushing,” ”smashing,” ”bending,” ”hammering,” ”blading,” ”muscling,” and “ramping” the prices of silver and silver financial instruments.

In support of claims of conspiracy to manipulate the price of silver downward the following gem is attributed to UBS Trader A: “so we both went short” “f*cking hell it just kept going higher” “63,65, then my guy falls asleep, it goes to 69 paid!” “then finally another reinforcement came in.

Discussions supposedly of coordination between UBS and their competitors about fixing the price of physical silver by offering only wide spreads between the bid and ask (where a “lac” is reference to an Indian measure equaling 100,000 units) go like this:

UBS Trader B: “what did u quote let me check”

Deutsche Bank Silver Fix Trader-Submitter A: “44/49”

UBS Trader A: “just quote wider if they call me in 1 lac I will quote 7-8 cents”

Deutsche Bank Trader B: “how wide u making 1 lac today 5 cents?”

UBS Trader A: “silver actually steadier than gold i would make 5-6 cents wide in silver”

UBS Trader A: how wide would you quote 5 lacs silver?”

Deutsche Bank Trader B: “10cu>?”

Deutsche Bank Trader B:”how wide u quote for 3 lacs?”

UBS Trader A: 10 cents”).

Manipulation of the Silver Fix price to benefit their silver trading positions in derivatives by UBS is claimed in the following exchanges:

Deutsche Bank Trader B: “u guys short some funky options” “well you told me to no one u just said you sold on fix”

UBS Trader A: “we smashed it good.”

Deutsche Bank Silver Fix Trader-Submitter A: “UBS boring the market again”…”just like them to bid it up before the fix then go in as a seller…they sell to try and push it back.”

It’s further alleged by plaintiffs that UBS implemented an “11 oclock rule” where both UBS and Deutsche Bank would short silver at 11A.M.

As examples of the comparative ease by which UBS moved the silver market the memo reveals Deutsche Bank Trader B added UBS Trader A to a chat with HSBC Trader B, which UBS Trader A deemed “the mother of all chats,” and leading to the trader’s own analysis:

UBS Trader A to Deutsche Bank Trader B: “if we are correct and do it together, we screw other people harder”

UBS Trader A: “an avalanche can be triggered by a pebble if you get the timing right” and “silver still here, u can easily manipulate silver”, and in reference to UBS supposed manipulative influence by an unnamed party: “u guys WERE THE SILVER MKT.”


UBS intended to reap financial rewards by manipulation of the price of physical silver and associated financial instruments, the memo says as UBS Trader A suggested: “go make your millions now jedi master…”pls write me a check when u aer a billionare,” and “i teach u a fun trick with silver” to which Deutsche Bank Trader B replied: “show me the money.

Confident of their ability to manipulate UBS made bold predictions according to the following alleged extracts:

UBS Trader A: “gonna bend this silver lower”; “i will bend it lower told u”; ”hah cool its gonna get ugly”; “use the blade on silver rg tnow it’ll hold it up,

Deutsche Bank Trader B: “yeah,

UBS Trader A: “gona blade silver now.

Of course all the secrecy in the world about the operations was required of the chat groups by UBS Trader A stating: “pls keep all these trick to yourself,” “btw keep it to yourself…,” and “ok rule of thumb EVERYTHING here stays here.

Examples of other banks alleged transcripts are included in the following:


Deutsche Bank Trader B instructing Barclays trader A: “today u smash,

Barclays Trader A: “yeah” and “10k silver” “im short.

It’s alleged that Barclays and Deutsche Bank shared information so often that Barclays Trader A remarked “we are one team one dream.”

Materials in the memo even include the Deutsche Bank and Barclays precious metals traders agreeing at one stage to “stay away” from silver for a week.

The traders of course knew it was terribly wrong with Barclays Trader A responding to Deutsche Bank’s Trader B instruction to “push silver”: “HAHAHA lol i don’t think this is politically correct leh on chat.

Merrill Lynch

Allegedly fixing the bid-ask spread they offered clients on silver:

Merrill Lynch Trader A: “How wide r u on spot? Id assume 10 cents for a few lacs?

Deutsche Bank Silver Fix Trade-Submitter A: “im getting ntg but stops”

…Merrill Lynch Trader A: “we had similar” “I sweep them…Fuk these guys.

Showing disregard to global regulators even after noting their activities the two continued to “sweep” the silver market, allegedly observing at one stage: “Someone got stopped messily.


BNP Paribas Fortis

Fortis Bank Trader B allegedly conspired with Deutsche Bank to manipulate silver prices, using what he termed a “bulldozer” on the silver market.

Standard Chartered

Conversations between Deutsche Bank Silver Fix Trade-Submitter A and Standard Chartered Trader A as follows:

 “Yeh” “small long out of the fix…” “ok where to sell sivler then?

23.40 thru that use it as a stop profit and let it runnnnnnnnnnnnn

were on the same wavelength

im long silver”…”ilke both [silver and gold] to get the absolute sht squeezed out of them” “im longer silver than i am gold


Assuming the transcripts submitted are accepted and plaintiffs are permitted to file their Third Amended Complaint, the possible pending “avalanche” of settlements in silver lawsuits will speak volumes for the investigative prowess of the CFTC and the DOJ, both of which were commissioned to investigate long running allegations of silver and precious metals market manipulation over recent years, and came up completely empty.

It appears Judge Caproni, former FBI General Counsel, was on the money when considering the potential of ineptitude in government investigations of precious metals markets at April’s gold hearing: “I don’t put a lot of stock in the fact that there are investigations because I was a government lawyer for a long time and I know what you need to open an investigation. By the same token, the fact that they closed it without charging anybody doesn’t mean that everybody is innocent. So I don’t put a lot of stock in it one way or the other.”

The CFTC proudly announced in September 2013 they had spent five years and seven thousand enforcement hours investigating complaints of manipulation in the silver market, including with assistance by the Commission’s Division of Market Oversight, the Commission’s Office of Chief Economist, and outside experts, but yet found nothing.

The Department of Justice Antitrust Division which were so confident of their investigation of collusion in precious metals they went to the extraordinary lengths in January of this year of providing a letter to silver and gold lawsuit defendants advising they had closed their investigation without findings of wrongdoing.

The Swiss Financial Services watchdog FINMA investigated, published and prosecuted UBS for forex and precious metals trading misconduct but yet said so little about precious metals findings in their November 2014 investigation report, it was impossible for the court to withstand UBS motion to dismiss in both metals.

And finally of the ability of authorities to reign in rogue banks in the precious metals or any other markets, the memorandum flags a fact that should draw the attention of those trying to figure out if they can indeed trust that their bullion bank has their best interests at heart simply by banning participation in trader chat rooms.

“The chats contained in the DB material are just the tip of the iceberg, as evidence suggests that Defendants intentionally communicated in undocumented ways to keep their manipulation hidden.”

For example the memo includes the salient reminder that banks will always find a way “to evade detection,” in this case where two traders are described as also communicating “via email and personal cell phone.”

The above article was first published at Allan Flynn’s website here.

Allan Flynn is a specialist researcher in aspects of gold and silver. He is currently investigating for future publication on the same topic and works in property and commercial architecture when he needs to eat. He holds shares in precious metals producers and banks.


Bullion Banks pass the parcel on El Salvador’s gold reserves

Eighteen months ago I wrote a short synopsis of a gold sales transaction by the central bank of El Salvador wherein it had sold 80% (about 5.5 tonnes) of its official gold reserves. The title of the post was “El Salvador’s gold reserves, the BIS, and the bullion banks“. If you thought, why the focus on the Banco Central de Reserva de El Salvador (BCR), it’s not a major player on the world gold market, you’d be correct, it’s not in its own right that important.

However, the point of the article was not to profile the gold transactions of a relatively obscure central bank in Central America, but to introduce the topic of central bank gold lending to LBMA bullion banks, and the use of short-term ‘gold deposits‘ offered by these bullion banks. The reason being is this is a very under-analysed topic and one which I will be devoting more time to in the future.  Gold loans by central banks to bullion banks are one of the most opaque areas of the global gold market. The fact that I’m using the central bank of El Salvador as the example is immaterial, it’s just convenient since the BCR happens to report the details of its gold lending operations, unlike most central banks.

A Quick Recap

At the end of September 2014, the BCR claimed to hold 223,113 ozs of gold (6.94 tonnes), of which 189,646 ozs (5.9 tonnes) was held in the form of “deposits of physical gold” with the Bank for International Settlements (BIS), and 33,467 ozs (1.04 tonnes) which was held as “time deposits” of gold (up to 31 days) with 2 commercial bullion banks, namely Barclays Bank and the Bank of Nova Scotia.

The following table and all similar tables below are taken from the BCR’s ‘Statement of Assets backing the Liquidity Reserve’, or ‘Estado de Los Activos Que Respaldan la Reserva de Liquidez’, which it publishes every 3 months.

BCR gold position as of 30 September 2014

In November 2014, the BCR executed a small sale of 5007 ozs of its gold from its quantity held with the BIS, leaving a holding of 218,106 ozs (6.784 tonnes) as of 31 December 2014, comprising 184,639 ozs held in “deposits of physical gold” with the BIS, and 33,467 ozs of “time deposits” (of between 2 and 14 days duration) with 2 bullion banks, namely BNP Paribas and the Bank of Nova Scotia. Notice that as of the end of 2014, BNP Paribas was now holding one of the time deposits of gold, and that Barclays was not listed.

BCR gold position as of 31 December 2014

Notice also in the above table the tiny residual time deposit gold holding attributed to Standard Chartered Bank Plc. Rewind for a moment to 30 June 2014. At the end of June 2014, the BCR’s gold deposits were placed with 3 LBMA bullion banks, namely, Barclays, Bank of Nova Scotia, and Standard Chartered.

This is the way short-term gold deposit transactions work. A central bank places the short-term gold deposit with one of a small number of bullion banks, most likely at the Bank of England, and when the deposit expires after e.g. 1 month, the central bank places the deposit again, but not necessarily with the same bullion bank. The deposit rates on offer (by the bullion banks) and the placements by the central banks are communicated over a combination of Bloomberg terminals, or by phone and then the transactions are settled by Swift messages. More about the actual mechanics of this process in a future article.

BCR gold position as of 30 June 2014


BCR sold its gold at the BIS, put the rest on deposit

In March 2015, the BCR sold 174,000 ozs (5.412 tonnes ) of gold, which left El Salvador with 44,000 ozs. When I wrote about this transaction 18 months ago I had speculated that:

“Since the Salvadoreans had 189,646 ozs on deposit with the BIS and needed to sell 179,000 ozs, the gold sold was most definitely sold to the BIS or to another party with the BIS acting as agent.

It would not make sense to sell some or all of the time deposits that are out with the bullion banks such as Barclays and Scotia, since a large chunk of the BCR gold at the BIS would have to be sold also. It would be far easier to just deal with one set of transactions at the BIS

The above would leave the time deposits of 33,467 ozs (and accrued interest) out with the bullion banks, rolling over each month as usual. The other roughly 11,000 ozs that the BCR held with the BIS could be left with the BIS, or else this too could be put out on deposit with the bullion banks.”

This speculation turns out to have been correct. By 31 March 2015, the BCR held 10,639 ozs of gold “deposits of physical gold” with the BIS, and the same 33,467 ozs of “time deposits“, but this time split evenly between BNP Paribas and Barclays. The entire 174,000 ozs of gold sold came from the “deposits of physical gold” that El Salvador held with the BIS.

BCR gold position as of 30 March 2015

By 30 June 2015, the central bank of El Salvador had moved its remaining 10,639 ozs of “deposits of physical gold” from the BIS, and placed it into “time deposits” with bullion banks, with the entire 44,106 ozs being evenly split across Bank of Nova Scotia, BNP Parias and Standard Chartered, each holding 14,702 ozs.

BCR gold position as of 30 June 2015

Over the 12 months from end of June 2014 to 30 June 2015, a combination of at least 4 LBMA bullion banks, namely, Barclays, Bank of Nova Scotia, Standard Chartered and BNP Paribas were holding short-term gold deposits on behalf of the central bank of El Salvador. I say at least 4 banks, because there could have been more. The snapshots every 3 months only reveal which banks held gold deposits on those dates, not the full list of deposits that could have been placed and matured over each 3 month period.

These time deposits are essentially obligations by the bullion bank in question to repay the central bank that amount of gold. The original gold which was first deposited into the LBMA system could have been sold, lent or otherwise encumbered. It has become a credit in the LBMA unallocated gold system. Ultimately it needs to be paid back to the central bank by whichever bullion bank holds the deposit when the central bank decides that it no longer wants to roll its short-term deposits. This is why the anology of pass the parcel is a suitable one.

Looking at the more recent 3 monthly snapshots from September 2015 to June 2016, the same 4 LBMA bullion bank names were still holding the BCR’s gold deposits, namely Bank of Nova Scotia, Barclays, Standard Chartered and BNP Paribas.

As of 30 September 2015 – Bank of Nova Scotia, Barclays and BNP Paribas, evenly split between the 3 of them.

BCR gold position as of 30 September 2015

On 31 December 2015 – Bank of Nova Scotia, BNP Paribas, and Standard Chartered, evenly split between the 3 of them.

BCR gold position as of 30 December 2015

On 30 March 2016 – Bank of Nova Scotia and BNP Paribas, evenly split between the 2 of them.

BCR gold position as of 30 March 2016

On 30 June 2016, the BCR gold deposits were held by Bank of Nova Scotia and BNP Paribas, evenly spilt between the 2. The 30 June 2016 file on the BCR website doesn’t open correctly so this data was taken from the Google cache of the file.

IMF Reporting standards

Finally, let’s take a quick look at what monetary gold and gold deposits actually are, as defined by the International Monetary Fund (IMF).

“Monetary gold is gold owned by the authorities and held as a reserve asset.  Monetary Gold is a reserve asset for which there is no outstanding financial liability”, IMF Balance of Payments Manual (BPM)

In April 2006, Hidetoshi Takeda, of the IMF Statistics Department published a short opinion paper on the ‘Treatment of Gold Swaps and Gold Deposits (loans)‘ on behalf of the Reserve Assets Technical Expert Group (RESTEG) of the IMF Committee on Balance of Payments (BoP) Statistics. The paper was called “Issues Paper (RESTEG) #11“. In the Issues paper, Takeda states:

“monetary authority make  gold deposits ‘to have their bullion physically deposited with a bullion bank, which may use the gold for trading purpose in world gold markets‘”

“‘The ownership of the gold effectively remains with the monetary authorities, which earn interest on the deposits, and the gold is returned to the monetary authorities on maturity of the deposits'”

 ” Balance of Payments Manual, fifth Edition (BPM5) is silent on the treatment of gold deposits/loans. However, the Guidelines states that, “To qualify as reserve assets, gold deposits must be available upon demand to the monetary authorities” 

You can see from the above that once the gold balance that is represented by the gold deposit is under the control of a bullion bank as a unallocated balance, then it becomes an asset of the bullion bank and can be used in subsequent bullion bank transactions, such as being lent again,  or used to support its trading book, etc.

The big question is whether the gold as represented by the gold deposit is available on demand by the central bank which lent it. For ‘available on demand’ think using an ATM or walking into your local bank and withdrawing some cash from your account. It’s as simple as that.

Takeda said:

“Regarding the statistical treatment of gold deposits/loans, keeping the status quo is suggested. That is, if the deposited/loaned gold is available upon demand to the monetary authorities, it can be included in reserve assets as monetary gold. However, if the gold is not available upon demand, it should be removed from reserve assets

Takeda’s paper also covers the topic of “Double counting of gold from outright sales of gold acquired through gold swaps or gold deposits/loans” where he says logically:

“double counting of gold can occur when a bullion bank sells outright gold acquired through gold deposits/loans from… monetary authorities”

If the gold sold is not removed from the central bank’s balance sheet, it could:

“pose a problem when international statistical standards allow swapped/deposited gold to remain in the reserve assets of the gold provider.”

Given that nothing has changed in the IMF’s reporting standards since 2006, i.e. the IMF did not take on board Takeda’s recommendations on gold loan accounting treatment, and given that all central banks still report gold as one line item of “gold and gold receivables”, then you can see how these gold deposits that are being continually rolled over by central banks using a small number of LBMA bullion banks based in London a) are being double counted if the gold involved has been sold, b) only represent claims by a central bank on a bullion bank, and c) allow bullion banks to increase their unallocated balances which can then be used in myriad leveraged and hypothecated ‘gold’ trading transactions

If you think 4 LBMA bullion banks passing a parcel of central bank gold claims around between them is excessive, wait until you see 28 bullion banks doing the same thing! Coming soon in a future article.

Tracking the gold held in London: An update on ETF and BoE holdings

Just over a year ago, gold researchers Nick Laird, Bron Suchecki, Koos Jansen and myself took a shot at estimating how much physical gold was accounted for in London within the gold-backed ETFs and under Bank of England custody. The results of that exercise are highlighted in September 2015 articles “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults”, and “Central Bank Gold at the Bank of England”, and also on Nick Laird’s website in a post titled “The London Float” which contains some very impressive charts that visualize the data. Some of the latest updated versions of these charts from www.goldchartsrus.com are featured below.

Given that it’s now just over a year since that last set of calculations, it made sense at this point to update the data so as to grasp how many Good Delivery golds bars held in London is spoken for in terms of ownership, versus how much may be unaccounted for. Estimating gold held in London vaults is by definition a tricky exercise, since it must rely on whatever data and statements are made available in what is a notoriously secret market, and there will usually be timing mismatches between the various data points. However, using a combination of published sources from the Bank of England, the London Bullion Market Association (LBMA), the Exchange Traded Fund websites, and UK gold import/export data, it is possible to produce some factual numbers.

In the Bank of England vaults

Exactly once per year, the Bank of England publishes a snapshot of how much gold it is holding in custody for its central bank and commercial bank customers. This snapshot is featured in the Bank’s annual report which is usually published around July each year, and reports on its financial year-end, as of end of February. In its 2016 Annual Report, the Bank of England states (on page 31) that:

“At end-February 2016, total assets held by the Bank as custodian were £567 billion (2015: £514 billion), of which £135 billion (2015: £130 billion) were holdings of gold”

With an afternoon LBMA Gold Price fix of £888.588 on Monday 29 February 2016, this equates to 151,926,427 fine troy ounces of gold, or 4725 tonnes held in custody at the Bank of England. This equates to approximately 380,000 London Good Delivery gold bars, each weighing 400 fine troy ounces.

The corresponding figure for end of February 2015 was £130 billion, which, valued at the afternoon fix on that day of £787.545 per ounce, equalled 5,134 tonnes. Therefore between the end of February 2015 end of February 2016, the amount of gold held in custody by the Bank of England fell by 409 tonnes. Since, according to World Gold Council data, there were no central bank sellers of gold over that period apart from Venezuela whose gold was predominantly held in Venezuela at that time, then most of this 409 tonne decline must be either due to unreported central bank sales, central bank gold repatriation movements, London bullion bank sales, or some combination of all three.

The year-on-year drop of 409 tonnes came after a previous decline of 350 tonnes to end of February 2015, and before that a drop of 755 tonnes between February 2013 and February 2014. So overall between February 2013 and February 2016, the amount of gold held in custody in the Bank of England’s vaults fell by 1,514 tonnes.

LBMA Ballpark: 6,500 tonnes in London

Up until at least October 2015, the vaulting page on the LBMA website stated that:

“In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”

This is based on a Wayback Machine Internet Archive page cache from 9 October 2015.

The current version of that page on the LBMA website now states:

In total it is estimated that there are approximately 6,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.

The earliest Internet Archive page cache mentioning 6,500 tonnes is from 8 February 2016. So sometime between October 2015 and February 2016, the LBMA changed its ballpark figure, revising it down by 1000 tonnes. Wayback Machine Archive web crawlers usually update a web page following a change to that page, so its likely that the revision to 6,500 tonnes was done nearer February than October. Using a figure from a LBMA website page is admittedly quite general, but at least it’s an anchor, and someone at the LBMA saw fit to make that actual change from 7,500 tonnes to 6,500 tonnes. In June 2015 (as some readers might recall), the LBMA had said that there were 500,000 Good Delivery gold bars in all the London vaults, which is approximately 6256 tonnes, so perhaps the 6500 tonne estimate was partially based on this statistic from mid-year 2015 that the LBMA was playing catch-up with.

With 6,500 tonnes in London vaults, ~ 75% of which is at the Bank of England, this would mean 4,875 tonnes at the Bank of England, and another 1,625 tonnes at other (commercial) gold vaults in London, mostly at HSBC’s and JP Morgan’s vaults. As per the Bank of England’s annual report as of 29 February 2016, we know now that there were 4,725 tonnes in custody at the Bank, so the LBMA ballpark of 4875 is actually very close to the actual 4725 tonnes reported by the Bank, and the difference is only 150 tonnes. Lets’s move on to the vaulted gold held in London but held outside the Bank of England vaults.

ETF Gold held in London

In the September 2015 calculation exercise, we estimated that there were 1,116 tonnes of gold held in the London vaults within a series of gold-backed Exchange Traded Funds.

The known ETFs and other companies that hold their Good Delivery bar gold in London are as follows:

  • SPDR Gold Trust: GLD. Custodian HSBC London, all GLD gold held at HSBC vault
  • iShares Gold Trust: IAU. Custodian JP Morgan, majority of IAU gold held in London
  • iShares Physical Gold ETC: Custodian JP Morgan, code SGLN
  • ETF Securities: Six separate ETFs – their short codes are PHAU, GBS, ASX GOLD, HMSL, PHPM, and GLTR. Custodian HSBC London
  • SOURCE: Custodian JP Morgan, all gold held in London
  • Deutsche Bank: There are 5 Deutsche Bank ETFs that store gold in London. Custodian is JP Morgan London
  • ABSA/NewgoldCustodian Brinks, London
  • BullionVault: Some of BullionVault customer gold is held in London
  • GoldMoney: *It’s not clear how much gold Goldmoney stored in London so the previous figure from September 2015 is used again
  • VanEck Merk Gold Trust: Custodian JP Morgan London
  • Betashares: Custodian JP Morgan, London
  • Standard Bank AfricaGold ETF: Custodian JP Morgan London

The 1,116 tonnes of gold ETF holdings in London, calculated in September 2015, were as follows, with the SPDR Gold Trust accounting for the largest share:

2015: Vaulted gold held by gold-backed ETFs in London

The total figure for all gold held in London that we used in September 2015 was the 6,256 tonne figure implied by the LBMA’s 500,000 gold bars statement from June 2015. With 6,256 tonnes in total, and 5,134 tonnes at the Bank of England (as of end February 2015), this left 1,122 tonnes in London but “not at the Bank of England“, which implied that there was nearly no gold in London outside the Bank of England that was not accounted for by ETF holdings. in other words the ‘London Gold Float’ looks to have been near zero as of September 2015.

Assuming 6,500 tonnes of gold held in London in February 2016, and with 4,725 tonnes at the Bank of England in February 2016, we can repeat this exercise and say that the would leave 1,775 tonnes of gold in London but “not at the Bank of England“, as the following chart shows:

2016 – LBMA vaulted gold held in London: Outside vs Inside Bank of England

Its well-known by now that the tide of significant gold ETF outflows that occurred in 2015 suddenly turned to very strong inflows into gold ETFs beginning in early 2016. Although our gold ETF holdings data was updated using holdings information as of 30 September 2016, it’s still worth seeing how well the latest London holdings of the gold ETFs help to explain this 1775 tonnes “not in the Bank of England” figure. As it turns out, as of the end of September 2016, the above ETFs collectively held 1,679 tonnes of gold, so right now, if there were 1775 tonnes of gold in London outside of the Bank of England, the ETF holdings would explain all but 96 tonnes of this total.

2016: 1679 tonnes held in ETFs in London – Yellow Bar
2016: Vaulted gold held by gold-backed ETFs in London

Taking a quick look at some of the individual ETF holdings, the massive SPDR Gold Trust is currently holding around 950 tonnes of gold in London. The iShares figure reported in the charts of 214.89 tonnes comprises 2 components a) the London held gold within IAU (which can be seen in this daily JP Morgan weight list), and b) the gold bars held in iShares trust SGLN. The bulk of the ETF Securities figure of 276.68 tonnes represents gold held in PHAU (over 150 tonnes), and GBS (over 100 tonnes). The Deutsche Bank total is quite hard to calculate and comprises gold held in 5 Deutsche bank ETFs. Nick Laird receives daily holdings files for these ETFs from Deutsche Bank and performs a number of calculations such as fractional ounces per ETF unit to arrive at a total figure of 88 tonnes. The SOURCE and ABSA ETFs make up the vast majority of the remainder, with the other entities listed, such as BetaShares and Standard Bank ETF, being immaterial to the calculation.

Central Bank gold at the Bank of England

For the purposes of this exercise, data on central bank gold holdings at the Bank of England does not need to be updated since there hasn’t been any reported gold buying or selling activity by any of the relevant central banks since September 2015 (except for Venezuela), so the ‘known figure’ of 3779 tonnes attributed to identified banks in September 2015 remains unchanged. If anything, since the Bank of England revealed last February that its gold under custody fell to 4,725 tonnes, it means that there are now approximately 946 tonnes of gold at the Bank of England that are not explained by known central bank holders.

Totoal gold held at the Bank of England, February 2016: 4725 tonnes
Total gold held in custody at the Bank of England, February 2016: 4725 tonnes

Given that many central banks around the world will not cooperate in confirming where they store their foreign stored gold, then there are definitely additional central banks storing gold in the Bank of England vaults which would reduce this 946 tonnes of gold with unknown ownership. Therefore some of this total is unknown central bank gold holdings. Some is presumably also gold and borrowed gold held by bullion banks that have gold accounts at the Bank of England. Given that the Bank of England and the LBMA bullion banks maintain a total information blackout about the real extent of the gold lending market out of London, it is difficult to know how much borrowed gold is being held at the Bank of England by bullion bank account holders.

Some of the growth in the SPDR Gold Trust gold holdings this year looks to have been sourced from gold originating from the Bank of England, as was detailed in a July BullionStar article “SPDR Gold Trust gold bars at the Bank of England vaults“, which highlighted that the Bank of England was a subcustodian of the SPDR Golf Trust during Q1 2016. As a SPDR Gold Trust filing stated:

During the quarter ended March 31, 2016, the greatest amount of gold held by subcustodians was approximately 29 tonnes or approximately 3.8% of the Trust’s gold at such date. The Bank of England held that gold as subcustodian.

Bank of England vaulted attributed to individual central banks

Year to Date ETF changes and UK Gold Imports

It’s important to highlight that the 6,500 tonnes figure reported by the LBMA and the 4,725 tonne figure reported by the Bank of England relate to the February 2016 period, while the ETF gold holdings totals calculated above are from the end of September 2016. So there is a date mismatch. Nick Laird has calculated that during the February to September 2016 period, the London gold ETFs added 399 tonnes of gold, and during the same period the UK net imported (imports – exports) more than 800 tonnes of non-monetary gold. Given the apparent low float of gold in London late last year, its realistic to assume that gold inflows into the London-based ETFs this year were mostly sourced from non-monetary gold imports into the UK because there was apparently no other gold at hand from which to source the ETF gold inflows. ETF demand would also help explain the drivers of UK gold imports year-to-date. Note that monetary gold imports (central bank gold trade flows) are not reported by the respective trade bodies since the opaque basket of deplorables (i.e. central bankers) get an unfair exemption, therefore the 800 tonnes of net gold imports into the UK refers to non-monetary gold imports.

UK gold imports to July 2016
Net UK gold imports to July 2016: 735 tonnes 

According to the latest comprehensive trade statistics, from January to July 2016 inclusive the UK net imported 735 tonnes of gold from the Rest of the World. To this figure we can add another 84.6 tonnes of gold that the UK net imported from Switzerland in August 2016. This gives total UK gold imports up to August 2016 inclusive of 819.6 tonnes, hence the statement, the UK net imported over 800 tonnes of gold year-to-date.

UK gold imports from Switzerland, August 2016: 84.6 tonnes
UK gold imports from Switzerland, August 2016: 84.6 tonnes

If 399 tonnes of the 800 tonnes of non-monetary gold imported into the UK during 2016 was channeled into the holdings of gold-backed ETFs, this would still mean that the ‘London Float’ of gold could have been augmented by approximately 400 tonnes year-to-date. However, since most non-monetary gold imports into the UK are for bullion bank customers such as Scotia and Barclays, some of these extra imports could have been for repaying borrowed gold liabilities to central bank customers, and the quantity of gold now held at the Bank of England may be higher than reported by the Bank last February.

Full Overview chart courtesy of Jesse’s Café Américain, highlighting ETF and Bank of England gold holdings – Click the above chart to enlarge it

In summary, given the large UK gold imports year-to-date, there may now be over 7,000 tonnes of Good Delivery gold bars held in London vaults. But the fact that very large quantities of gold bars had to be imported into the London market during 2016 does suggest that our calculations from September 2015 were valid and that there was a very low float of gold in the London market. This float may now be a few hundred tonnes higher given the imports, but there is still an unquantifiably large number of claims in the form of ‘unallocated gold’ holdings in the London market which are liabilities against the LBMA bullion banks.

Remember that the London Gold Market trades nearly 6000 tonnes of predominantly paper gold each and every day. The latest LBMA ‘gold’ clearing statistics show that on average, 18.8 million ounces (585 tonnes) of ‘gold’ was cleared per trading day in September 2016 which on a 10:1 trading to clearing ratio equates to 5,850 tonnes traded per day, and 128,000 tonnes traded during September. So the LBMA administered market nearly trades as much ‘gold’ connected transaction per day as is held in the entire London vaulting network.

If gold demand from the Rest of the World ticks up, such as from India, then the London market will not have the luxury of being able to import large quantities of gold in the absence of that excess demand putting upward pressure on the gold price. Until then, the London Gold Market looks likely to continue its physical re-stock with one hand, while trading leveraged paper gold with the other hand, all the while rolling over outstanding borrowed central bank gold obligations, such as the short-term gold deposits held by Banco Central de Bolivia, which will be the subject of an upcoming case study into the hidden London gold lending market consortium.

From Bank of England to LBMA: The ‘independent’ Chair of the LBMA Board

In a recent article titled “Blood Brothers: The Bank of England and the London Bullion Market Association (LBMA)“, I charted the extremely close historical and contemporary relationship between the LBMA and the Bank of England. This article highlighted that:

  • the LBMA was established in 1987 by the Bank of England
  • the original bullion bank founding members and steering committee members of the LBMA represented 6 commercial banks active in the London Gold Market, namely, N.M. Rothschild, Mocatta & Goldsmid, Morgan Guaranty Trust, J. Aron, Sharps Pixley (former Sharps Pixley), and Rudolf Wolff & Co.
  • the Bank of England has been involved in the affairs of the LBMA from Day 1 in 1987, and continues to this day to have observer status on the LBMA Management Committee
  • the Bank of England has observer status on not just the LBMA Management Committee, but also on the LBMA Physical Committee and in the LBMA Vault Managers group
  • the Financial Conduct Authority (FCA) also has observer status on the LBMA Management Committee
  • although there are 2 other London financial market committees closely aligned with the Bank of England, and populated by bank representatives, that publish the minutes of their regular meetings, namely the Foreign Exchange Joint Standing Committee, the Sterling Money Markets Liaison Committee, the LBMA Management Committee does not publish the minutes of its meetings, so the public is in the dark as to what’s discussed in those meetings

Note that “observer status” does not mean to sit and observe on a committee, it just means that the observer has no voting rights at committee meetings. Note also that the structure of the LBMA Management Committee has recently changed to that of a Board, so the Committee is now called the LBMA Board.

One of the most interesting points in the previous article referred to the very recent appointment of a very recently departed Bank of England senior staff member, and former head of the Bank of England Foreign exchange Division, Paul Fisher, as the new ‘independent‘ chairman of the LBMA Management Committee / ‘Board’. Paul Fisher has also in the past, been the Bank of England’s representative, with observer status, on this very same LBMA Management Committee (now LBMA Board) that he is now becoming independent chairman of. Fisher is replacing outgoing LBMA Board chairman Grant Angwin, who if from Asahi Refining (formerly representing Johnson Matthey).

‘Independent’ Non-Executive Chairman

This article continues where the above analysis left off, and looks at the appointment of Fisher as the new ‘independent’ Non-Executive Chairman of the LBMA Board, considers the ‘independence’ of the appointment given the aforementioned very close relationship between the Bank of England and the LBMA, and examines the chairman’s appointment in the context of the UK Corporate Governance Code, which now governs the Constitution and operation of the LBMA Board.

As I commented previously:

Arguably, the pièce de résistance of these Bank of England / FCA relationships with the LBMA Management Committee, is the fact that Paul Fisher, the newly appointed ‘independent‘ Chairman of the LBMA Board, a.k.a. LBMA Management Committee, has already previously been the Bank of England’s “observer” on the LBMA Management Committee.”

This was confirmed in Fisher’s speech to the 2004 LBMA Annual Conference in Shanghai, Fisher, when then Head of Foreign Exchange at the Bank of England, he stated:

I am glad to be invited to the LBMA’s Management Committee meetings as an observer.”

Fisher was Head of Foreign Exchange Division at the Bank of England from 2000 to 2009, so could in theory have been a Bank of England observer on the LBMA Management Committee throughout this period. The Foreign Exchange Division of the Bank of England is responsible for managing the Sterling exchange rate, and for managing HM Treasury’s official reserves held in the Exchange Equalisation Account (EEA), including HM Treasury’s official gold reserves. One would think that when the LBMA announced in a press release in July of this year that Fisher was being appointed as the new LBMA chairman, that the fact that he had previously attended the LBMA Management Committee meetings would be a fact of relevance to the appointment. However, surprisingly, or maybe not so surprisingly, this fact was omitted from the press release.

The LBMA press release, titled “Dr Paul Fisher to be the new LBMA chairman“, dated 13 July 2016, begins:

The LBMA is delighted to announce the appointment of Dr Paul Fisher as the new Chairman of the Association, effective from 5 September, 2016. Paul is due to retire from the Bank of England at the end of July.”

The press release goes on to say:

“Paul brings with him a wealth of financial market experience following his 26 years at the Bank of England. Prior to joining the LBMA, his last role was as Deputy Head of the Prudential Regulation Authority. Paul was selected by the LBMA Board following an independent Executive search procedure.”

“Previously, from 2002, he [Paul Fisher] ran the Bank’s Foreign Exchange Division where he had a constructive relationship with the LBMA and developed a working knowledge of the bullion market.”

Notwithstanding the capability of the appointment, there is absolutely zero mention in this press release of the fact that Paul Fisher used to be the Bank of England observer on the LBMA Management Committee, a committee that he is now being made chair of. Why so? Was it to make the relationship appear more distant that it actually was, thereby reinforcing the perception of ‘independence’?

In addition, the recently added bio of Paul Fisher on the LBMA Board listings features text identical to the press release, with no indication that Fisher previously attended the LBMA Management Committee meetings.

Notice also the reference to an “Executive search procedure” being used to support the new chairman’s appointment.

LBMA Board

At this point, it’s instructive to examine what drove the re-definition of the LBMA Management Committee to become the LBMA “Board”, and the appointment process to that board of an ‘independent‘ Non-Executive Chairperson. It can be seen from the LBMA website archive that until July of this year, the entity providing oversight and strategic direction to the LBMA was the ‘LBMA Management Committee':


Only in July following a LBMA General Meeting on 29 June did the website description change to LBMA Board:



The new Board structure of the LBMA allows it to have 3 representatives from LBMA Market Making firms, 3 representatives from LBMA Full Member entities, 3 ‘independent’ non -executive directors (inclusive of the ‘independent’ chairman), and up to 3 representatives from the LBMA Executive staff, including the LBMA CEO.

One of the first references to a future change in governance structure at the LBMA came in October 2015 at the LBMA annual conference, held in Rome. At this conference, Ruth Crowell, CEO projected that in the future:

“To enhance its governance, the new Board will include for the first time Non-Executive Directors whilst giving more power to the Executive so as to ensure any conflicts of interest are eliminated.”

On 29 April 2016, a LBMA “Future Events” summary document confirmed that a General Meeting (akin to an EGM) of LBMA members would be convened on Wednesday 29 June 2016 in London so as to “update the LBMA’s legal structure and governance“.  The same “Future Events” summary also highlighted a change in schedule to the LBMA’s Annual General Meeting (AGM), which due to the 29 June General Meeting, would now be held on 27 September 2016 with an agenda item to “incorporate, into the constitution of the LBMA, the governance and legal structure changes agreed at the General Meeting in June“. 

It would be quite presumptuous for any normal organisation of members, in the month of April, to not only assume that resolutions that were only being put to its membership in the month of June would be passed, but to also actually hard-code these assumptions into the agenda of a scheduled September meeting. However, this was what was written in the “Future Events” document and appears to be the pre-ordained roadmap that the LBMA Management Committee had already set in stone.

On Thursday 30 June, the day after its General Meeting in London, the LBMA issued a press release in which it confirmed (as it had predicted) that “Members of the LBMA approved by an overwhelming majority a number of important changes to its Memorandum & Articles of Association“.

As well as endorsing the LBMA’s expansion to acquire the responsibilities of the London Platinum and Palladium Market (LPPM), which was the first motion for consideration at the meeting, the press release confirmed that the membership had endorsed the appointment of an independent Non-Executive Chairman:

“The second change was to further enhance the governance of the Association. The UK Corporate Governance Code was incorporated and will govern both the Constitution as well as the operation of the Board. While it is vital for the Board to have a strong voice for its Members, it is important that any actual and perceived conflicts between these parties are balanced by having independence on that Board. This independence protects the interests of the wider membership as well as the individuals themselves serving on the Board. To address this, the LBMA has added an independent Non-Executive Chairman as well as two additional Non-Executive Directors (NEDs).”

Notice the reference to 2 other independent non-executive directors. Nine business days later, on 13 July 2016, the LBMA issued a further press release revealing that ex Bank of England Head of Foreign Exchange and former observer on the LBMA Management Committee, Paul Fisher had been appointed as the “independent Non-Executive Chairman“.

Executive Search Procedure

Recall also that the 13 July press release stated “Paul was selected by the LBMA Board following an independent Executive search procedure.””

Nine days is an extremely short period of time to commence, execute, and complete an ‘independent Executive search procedure‘.  It immediately throws up questions such as which search firm was retained to run the independent Executive search procedure?, which candidates did the search firm identify?, was there a short-list of candidates?, who was on such a short-list?, what were the criteria that led to the selection of the winning candidate above other candidates?, and how could such a process have been run and completed in such a limited period of time when similar search and selection processes for chairpersons of corporate boards usually take months to complete?

How independent is it also to have a former divisional head of the Bank of England as chairman of the London Gold Market when the Bank of England is the largest custodian of gold in the London Gold Market, and operates in the London Gold Market with absolute secrecy on behalf of its central bank and bullion bank customers.

Since the LBMA voluntarily incorporated the UK Corporate Governance Code into the operations of its Board following the General Meeting on 29 June, its instructive to examine what this UK Corporate Governance Code has to say about the appointment of an independent chairman to a board, and to what extent the Corporate Governance Code principles were adhered to in the LBMA’s ‘independent‘ chairman selection process.

 UK Corporate Governance Code

The LBMA is a private company (company number 02205480) limited by guarantee without share capital, with an incorporation filing at UK Companies House on 14 December 1987. Stock exchange-listed companies in the UK are required to implement the principles of the UK Corporate Governance Code and comply with these principles or else explain (to their shareholders) why they have not complied (called the “comply or explain” doctrine). In the world of listed equities, monitoring and interacting with companies about their corporate governance is a very important area of  institutional and hedge fund management. It has to be so as the share owners are able to monitor and grasp if any governance issues arise at any of companies held within their institutional / hedge fund equity portfolios.

Non-listed companies in the UK are also encouraged to apply the principles of the Code, but are not obliged to. When a private company chooses to incorporate the UK Corporate Governance Code to govern its Constitution and operation of its Board, one would expect that it would also then ‘comply’ to the principles of the Code or else ‘explain’ in the spirit of the Code, why it is not in compliance.


The UK Corporate Governance Code is administered by the Financial Reporting Council (FRC). The April 2016 version of the Code can be read here. The main principles of the Code are divided into 5 sections, namely, Leadership (section A), Effectiveness (section B), Accountability (section C), Remuneration (section D), and Relations with Shareholders (Section E).

One of the main principles of Section B is as follows:

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. “

Section A also addresses the independence of the chairman, and Section A.3.1. states that:

“The chairman should on appointment meet the independence criteria set out in B.1.1″

Section B.1.1, in part, states that:

“The board should determine whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement. The board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director:

  • has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company;
  • represents a significant shareholder;”

It goes without saying that the Bank of England has a material business relationship with the commercial banks which are represented on the LBMA Board, and I would argue that although the LBMA has no share capital, because the Bank of England has a material business relationship with the LBMA, and because since Paul Fisher was a senior employee of the Bank of England until July of this year, then the LBMA should “state its reasons as to why it determines that this director is independent“.

Furthermore, although the Bank of England is not a ‘significant shareholder’ of the LBMA, it is the next best thing, i.e. it has a significant and vested interest in the workings of the LBMA and interacts with LBMA banks through the London vaulting system, the gold lending market, and in its regulatory capacity of the LBMA member banks. The Bank of England also established the LBMA in 1987 don’t forget, so the extremely close relationship between the two is of material concern when a senior employee of the former suddenly becomes chairman of the latter.

Section B.2 addresses ‘Appointments to the Board':

“Main Principle

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board

Section B.2.1.:

“There should be a nomination committee which should lead the process for board appointments and make recommendations to the board. A majority of members of the nomination committee should be independent non-executive directors.

The nomination committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. [7]

[Footnote 7]: The requirement to make the information available would be met by including the information on a website that is maintained by or on behalf of the company.

Was there a nomination committee? As of the time of appointing the new chairman to the LBMA Board, there were zero independent non-executive directors on the Board. And, excluding the newly appointed chairman, there are still zero other independent non-executive directors on the LBMA Board.

If there was a nomination committee, notwithstanding that it couldn’t by definition have a majority of independent non-executive directors when overseeing a search process for an independent chairman, then did it “make available its terms of reference” “on a website that is maintained by or on behalf of the company.” Not that I can see on any part of the LBMA website.

Section B.2.4. of the UK Corporate Governance Code includes the text:

Where an external search consultancy has been used, it should be identified in the annual report and a statement made as to whether it has any other connection with the company.

The company here being the LBMA (which is a private company). There has been no public identification as to the identity of the external search consultancy that the LBMA state was used in the appointment of Paul Fisher as ‘independent’ non-executive chairman.

Section  B.3.2. states:

“The terms and conditions of appointment of non-executive directors should be made available for inspection.[9]

[Footnote 9]: The terms and conditions of appointment of non-executive directors should be made available for inspection by any person at the company’s registered office during normal business hours and at the AGM (for 15 minutes prior to the meeting and during the meeting).

There is no reference on the LBMA website as to the terms and conditions of appointment of non-executive directors being made available for inspection by any person at the company’s registered office, nor was this communicated in the LBMA’s press release wherein it announced the appointment of the ‘independent’ non-executive chairman. It is one thing to claim to incorporate the UK Corporate Governance Code into a Board’s operations, but an entirely different matter to actually implement the principles into the operations of the Board. Given the above, I can’t see how the LBMA has done much of the latter.

Bank of England

Further ‘Independent’ Non-Executive Director Appointments

Given the opacity in the appointment of the Bank of England’s Paul Fisher as the new ‘independent’ non-executive chairman, it is therefore not unreasonable to suggest that the entire appointment process was a pre-ordained shoo-in. Without substantially more transparency from the LBMA, this view is understandable. Nor have there been any announcements about the appointment of “two additional Non-Executive Directors (NEDs)” that was claimed in the LBMA’s 30 June press release.

The LBMA held its Annual General Meeting this past week, on Tuesday 27 September. During the AGM, the outgoing chairman, Grant Angwin commented in his speech that:

I’m delighted to have by my side Dr. Paul Fisher who will be replacing me as the first Independent Non-Executive Chairman of your Association – Paul will introduce himself to you in a moment. Paul and I will Co-Chair the Board until the end of this year. This is the first major step to making the Board more independent, Paul will be joined by up to 2 other Independent Directors in the near future.

“The Board will now comprise of 6 representatives from the market – three each in the categories of Market Markers and Full Members, up to 3 Independent Non-Executive Directors (of which one will be the Chairman) and up to 3 LBMA Executive Directors. We expect to make further announcements on these roles very shortly.”

Given that the new chairman has been appointed, it is odd, in my view, that the 2 other independent directors have yet to be appointed and their identities announced. Likewise, for the 2 new directors from the LBMA Executive, who, if and when they join the Board, will give the LBMA Executive 3 seats on the Board.  Surely the AGM would have been the ideal venue in which to make these announcements, since other board changes were being voted on at this meeting.

The New Board Profile

For completeness, the changes to the LBMA Board’s composition that did take place at the AGM, based on Board member resolutions that were put to a vote, are explained below:

Prior to the AGM last week, the LBMA Board consisted of the following members:

  • Grant Anwin – Asahi Refining (co-chairman of Board)
  • Paul Fisher (new chairman of Board)
  • Ruth Crowell – Chief Executive of LBMA
  • Steven Lowe – Bank of Nova Scotia-ScotiaMocatta (and vice-chairman of Board)
  • Peter Drabwell – HSBC Bank
  • Sid Tipples – JP Morgan Chase
  • Jeremy East – Standard Chartered
  • Robert Davis, Toronto Dominion Bank
  • Philip Aubertin – UBS (‘Observer’ status)
  • Alan Finn, Malca-Amit
  • Mehdi Barkhordar, PAMP

Notice that there were 5 LBMA Marking Making reps on the Board, namely from HSBC, JP Morgan, Scotia, Standard Chartered and Toronto Dominion Bank. There was also an ‘observer’ from full LBMA Market Maker UBS. There were 3 Full Member representatives, namely from PAMP, Malca-Amit (the security carrier), and Asahi Refining.

At the AGM on 27 September, there was a vote on the Full Member reps to the Board, of which there are 3 positions in the new Board. The existing Full Member reps had to stand down and they, and other Full Member candidates, could re-stand for election:

The voting results elected / re-elected the following:

  • Grant Angwin, Asahi Refining (and co-chairman of the Board)
  • Mehdi Barkhordar, PAMP
  • Hitoshi Kosai, Tanaka Kikinzoku Kogyo

Because there were 5 Market Maker reps already on the Board, and the new Board structure only allowed 3, there was also an election on which 3 of the 5 would remain: The results were:

  • Steven Lowe, Bank of Nova Scotia-ScotiaMocatta
  • Peter Drabwell, HSBC Bank
  • Sid Tipples, JP Morgan Chase

Noticeably, these 3 remaining reps represent what are probably the 3 most powerful bullion banks in the LBMA / LPMCL system, HSBC,  JP Morgan and Scotia, two of which, HSBC and JP Morgan, operate large commercial gold vaults in London, and all 3 of which operate large commercial COMEX approved gold vaults in New York City. The reps from HSBC and Scotia have also been very long serving members of the LBMA Management Committee / Board, having been re-elected in 2015.

The AGM voting results press release also added that:

“The other two Non-Executive Directors of the LBMA Board will be announced in the near future.”

Given the aforementioned profile of the new ‘independent’ LBMA Board Chairman and ex Bank of England senior staffer Paul Fisher, it will be intriguing to examine the new independence credentials of these 2 new Non-Executive Directors who will be announced in the near future. Will they be truly independent, or will they be former bullion bankers previously affiliated with the LBMA and the London Gold Market, or ex FCA people previously affiliated with the LBMA, or maybe a combination of the two.

As per the UK Corporate Governance Code:

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board”. The board should also “state its reasons if it determines that a director is independent“. If an external search consultancy is used in finding either of the 2 new non-executive directors, there should be a “statement made as to whether it [the search consultancy] has any other connection with the company [the LBMA]“.

If 2 extra executive directors are also added to the Board from the LBMA’s staffers, to bring the number of Board directors up to 12, who will these 2 people be? My money in the first instance would be on the LBMA’s senior legal counsel (for regulatory reasons) and the LBMA’s communications officer. Whether the minutes of future or past LBMA Board meetings will ever be made public is another matter, but given the persistent secrecy that surrounds all important matters in the London Gold Market, it would probably be very naive to think that real LBMA communication via, for example LBMA Board meeting minutes, will ever see the light of day.

Blood Brothers: The Bank of England and the London Bullion Market Association (LBMA)

The London Bullion Market Association (LBMA) is a London-based, globally active, trade association for “the promotion and regulation of commerce relating to the London Bullion Market”. The “London Bullion Market” here collectively refers to the London Gold Market and the London Silver Market. The remit of the LBMA has very recently also been extended to cover the London Platinum and Palladium Market (LPPM).

While it is generally known to many, vaguely or otherwise, that the Bank of England has a vested ‘interest’ in the London gold market, the consistently close relationship between the Bank of England and the LBMA tends not to be fully appreciated. This close and familial relationship even extends to the very recent appointment of a very recently departed Bank of England senior staff member, and former head of the Bank of England Foreign exchange Division, Paul Fisher, as the new ‘independent‘ chairman of the LBMA Management Committee (a committee which has recently been rechristened as a ‘Board’). Note that at the Bank of England, the Bank’s gold trading activities fall under the remit of the ‘Foreign Exchange’ area, so should be more correctly called Bank of England Foreign Exchange and Gold Division. For example, a former holder of this position in the 1980s, Terry Smeeton, had a title of Head of Foreign Exchange and Gold at the Bank of England.

What is also unappreciated is that the same Paul Fisher has in the past, been the Bank of England’s representative, with observer status, on this very same LBMA Management Committee that he is now becoming independent chairman of. This is an ‘elephant in the room’ if ever there was one, which the mainstream financial media in London conveniently chooses to ignore.

As you will see below, the UK’s Financial Conduct Authority (FCA) also has a close, and again, very low-key but embedded relationship with this LBMA Management Committee.


At the ‘Behest’ of the Bank of England

The LBMA states in one of its Alchemist magazine articles, that its Association “was established at the behest of the Bank of England” in 1987, with Robert Guy of N.M. Rothschild, the then chairman of the London Gold Fixing, spearheading the coordination of the Association’s formation. Elsewhere, in a recent summary brochure of its activities, the LBMA states that it was “set up in 1987 by the Bank of England, which was at the time the bullion market’s regulator”, while a recently added historical timeline on the LBMA website, under the year 1987, states “LBMA established by the Bank of England as an umbrella association for the London Bullion Market.”

Established at the behest of“, “set up by” or “established by“, take your pick, but they all clearly mean the same thing; that the Bank of England was the guiding hand behind the LBMA’s formation.

Prior to the formation of the LBMA, and before a change of regulatory focus in 1986, the London Gold Market and London Silver Market had primarily followed a model of self-regulation, but the Bank of England had always been heavily involved in the market’s supervision and operations, especially in the Gold Market. Even reading a random sample of the Bank of England’s archive catalogue material will make it patently clear how close the Bank of England has always been to the commercial London Gold Market. For scores of years, the London Gold Market to a large extent merely constituted the Bank of England and the five member firms of the London gold fixing,  namely NM Rothschild, Mocatta & Goldsmid, Sharps Pixley, Samuel Montagu, and Johnson Matthey.

According to the 1993 book, “The International Gold Trade” by Tony Warwick-Ching, a combination of the advent of the Financial Services Act of 1986 which introduced supervisory changes to the UK’s markets, and the growing power of other bullion banks and brokers in the London precious metals market in the 1980s, acted as a combined impetus for the LBMA’s formation in 1987.

As Warwick-Ching stated:

“The LBMA was partly a response to a growing demand of concerns who were not members of the [gold] fixing for a greater involvement at the heart of the bullion market.” 

Morgan and J.Aron join the Party

Specifically, according to its Memorandum of Association, the LBMA was formed into a Company on 24 November 1987 by N.M. Rothschild & Sons Limited, J.Aron & Company (UK) Limited, Mocatta & Goldsmid Limited, Morgan Guaranty Trust Company of New York, Sharps Pixley Limited, and Rudolf Wolff & Company Limited. This company is “a company limited by guarantee and not having a share capital”. Given their participation from the outset, presumably J Aron (now part of Goldman Sachs) and Morgan Guaranty (now part of JP Morgan Chase) were members of the ‘growing demand of concern‘ contingent alluded to by Warwick-Ching, who wanted a bigger say in the gold market’s inner sanctum.

Signatories to the original LBMA Memorandum of Association

The authorising subscribers of the original Memorandum, on behalf of their respective companies were, Robert Guy (Rothschild), Neil Newitt (J. Aron), Keith Smith (Mocatta & Goldsmid), Guy Field (Morgan Guaranty Trust), Les Edgar (Sharps Pixley), and John Wolff (Rudolf Wolff & Company), and they requested that “We, the subscribers to the Memorandum of Association, wish to be formed into a company pursuant to this Memorandum.” The original steering committee of the LBMA comprised five of the above, Robert Guy (Chairman), Guy Field (Vice Chairman), Keith Smith, John Wolff, Neil Newitt, as well as Jack Spall of Sharps Pixley, the father of Jonathan Spall (current consultant to the LBMA). Note that the incorporation filing at UK Companies House for the LBMA is dated 14 December 1987, about 3 weeks after the date listed on the original Memorandum of Association.

As early as April 1988, there were 13 “Market Maker” members and 48 ‘Ordinary’ members in the LBMA. The market maker members had to be ‘listed money market institutions’, which meant that they were institutions listed under section 43 of the Financial Services Act 1986 (on a list actually maintained by the Bank of England) who conducted  various transactions, including bullion market transactions, which were exempt from authorisation.

The Shadowy Observers: Bank of England

According to the LBMA website:

“The Bank of England has been intrinsically linked with the London bullion market since its foundation in 1694.” 

“Although the Bank isn’t a member of the LBMA, members of the LBMA hold gold custody accounts with the Bank”

“The Bank’s vaults hold approximately two-thirds of all the gold held in London vaults and as such plays a significant role in the liquidity within the London gold market. Customers are able to buy or sell gold to other customers, by making or receiving book entry transfers, with ownership transferred in the Bank’s back office system… The service provides a very important element of the gold market infrastructure in London, helping LBMA members and central banks to trade in a secure and efficient way.”

A Bank of England presentation to the 2013 LBMA conference in Rome, titled the-bank-of-englands-gold-vault-operations, gives a good overview of the Bank’s provision of book entry transfers to its central bank and bullion bank clients for the smooth running of the London Gold Lending Market, a market which is totally opaque and completely undocumented. In fact the Bank of England sits at the heart of this gold lending market.

Furthermore, on the clearing side,

“The London bullion clearing members role involves a considerable degree of direct client contact, electronic interfaces between the clearing members and close liaison with the Bank of England…”

From its very foundation in late 1987, the Bank of England was involved in the first steering committee of the LBMA and the activities of the Association. And to this day, Bank of England ‘observers’ attend LBMA Management Committee monthly meetings.

As a historical account of the LBMA’s 1987 formation states:

“From the Steering Committee’s inception, The Bank of England, which held responsibility for the supervision of the wholesale bullion market, was involved in the Association’s affairs and assisted in the drafting of the relevant Code of Conduct. Observers continue to attend Management Committee Meetings to the present day.”

This steering committee ultimately became the LBMA Management Committee, and, in the last few months, has become the LBMA ‘Board’. So the Bank of England is, for all intents and purposes, a highly active partner within the LBMA’s governance structure. As a confirmation of this point, at the LBMA annual general meeting in July 2014, the then chairman of the LBMA Management Committee chairman, David Gornall, of Natixis stated in his speech that:

“The LBMA is also privileged in having an observer from the Bank of England on the Management Committee. The Bank’s presence is of inestimable benefit to us.”

As to what inestimable benefit David Gornall was referring to, or in what way a Bank of England observer participates on the LBMA Management Committee, was not elaborated on. Nor can it be gleaned from any meeting minutes from LBMA Management Committee meetings, because such minutes are not made publicly available (See below).

For anyone not familiar with the concept of an observer on a corporate committee or board, it does not refer to someone who just sits there and observes, as the name may suggest. An observer refers to an attendee at the committee / board meetings who actively participates in discussions but who has no voting rights on committee / board resolutions. Observers can and do fully participate in meeting apart from voting. When voting occurs, they may (or may not) be asked to leave the room.

At the LBMA annual general meeting in June 2013, David Gornall, also chairman of the LBMA Management Committee at that time, revealed that not only was there a Bank of England observer on the Management committee, but there was also an observer from the UK financial regulator, the Financial Conduct Authority (FCA), on the same committee:

“The LBMA is also privileged in having observers from both the Bank of England and the FCA on the Management Committee. Their presence is of inestimable benefit to us.”

In fact, there are many such references within various LBMA related speeches. At the LBMA Precious Metals Conference in September 2013, Matthew Hunt of the Bank of England stated:

“More specifically on gold, even though we are not active traders in the market but we are a large custodian, some of the people in our team responsible for gold observation sit on the LBMA Management Committee and the LBMA Physical Committee as observers. Thus we retain a significant engagement with the gold market via that route.” 

Notably the Bank of England has a team of people responsible for gold observation, but not for the observation of other commodities such as zinc, lean hogs, live cattle, heating oil, soybeans, sugar, beaver pelts etc etc.

In March 2013, Luke Thorn of the Bank of England, while addressing a LBMA Assaying and Refining Seminar, stated:

“We are not a member of the LBMA, but we continue to play a key role in the London market. We have observer status on the Management, Physical and Vault Committees.” 

There are therefore Bank of England observers on 3 LBMA Committees. So, who are these Bank of England and FCA observer representatives? That is not an easy question to answer. There is no mention on the LBMA website’s committee page, and has never been any mention, of any Bank of England observers or FCA observers on the LBMA Management Committee (now Board). Nor are there any published minutes on the LBMA website of any LBMA Management Committee meetings, or the meetings of any of the other five LBMA sub-committees, such meeting minutes as would generally list the attendees of such meetings. More about the lack of minutes below.

Turning briefly to the physical and vault committees, the LBMA website has a listing for its physical committee and does mention that a Bank of England observer called Jennifer Ashton currently is on this committee.

According to the LBMA’s good delivery summary:

“The Physical Committee is made up of industry experts from the physical bullion market. It is responsible for monitoring, developing and protecting the Good Delivery List and works closely with sub-Groups such as the LBMA Referees and the LBMA’s Vault Managers Working Party

There is however, no formal listing of the Vault Manager ‘s group as a LBMA committee within the LBMA’s committee listings section. The only informative reference to such a committee on the LBMA web site is in the good delivery rules explained section, which states:

 “The Vault Managers Working Group, comprising the Bank of England and representatives from those LBMA members with their own vaulting facilities in London, meet regularly to consider issues relating to bar quality and vault procedures. Vault Managers are required to document every case of bar rejection and provide the associated information to the LBMA Executive”

Who is on this committee from the Bank of England, let alone from any of the other committee member companies is not disclosed.

Turning again to the identities of LBMA Management Committee observers, and going back slightly further to the LBMA Annual General Meeting on 20 June 2012, the Chairman, the omnipresent David Gornall of Natixis London Branch, stated:

“Talking of the Management Committee, let me remind you that we are very fortunate to have observers from both the Bank of England and the FSA on the committee. I would like to thank Trevor Stone and Don Groves for their participation in our affairs”.

From a speech at the 2009 LBMA annual conference by Michael Cross, the then Head of Foreign Exchange at the Bank of England, we learn that the Bank of England’s Banking Services area:

“is where Trevor Stone and his colleagues, who will also be known to many of you, work. The Banking Services area provides wholesale banking and custody services to a wide range of bank customers”

These ‘Banking Services’ functions at the Bank of England are similar to Central Bank and International Account Services (CBIAS) services offered to central bank customers by the New York Fed, and include gold custody services.

fca stairs

The Embedded Observers – FCA, Don Groves

On 30 September 2013, the ever-present David Gornall in another speech, this time to the LBMA annual conference in Rome, had this to say:

“We are grateful for the communication and feedback on our work from regulators, particularly that of own regulator the FCA. We are delighted to be joined by Don Groves of the FCA during tomorrow’s financial market regulation session. Don is a long-time observer on the LBMA Management Committee and we thank him for his participation and continued dialogue on our regulatory questions facing the London Market.”

The next day, on 1 October 2013, at the same conference, Ruth Crowell, the then Deputy CEO of the LBMA (and current LBMA CEO) introduced Don Groves as follows:

“With that, I am going to turn it over to Don Groves from the Financial Conduct Authority. Don is a technical specialist in the market contact area of the FCA’s Market Monitoring Department, where he is responsible for reviewing allegations of market misconduct, including market abuse and insider dealing.

Don specialises in the UK commodity markets and has been in market conduct for a number of years. We are also very privileged to have Don as an observer on the LBMA’s Management Committee.

Groves joined the FCA in 1999, and left the FCA in March 2015. While his LinkedIn profile has very detailed listings of his duties while at the FCA, there is no reference to the fact that he ever sat on the LBMA Management Committee, which strikes me as odd, unless that is a deliberate omission.  A previous version of Groves’ LinkedIn profile states:

I am considered to be an expert in Market Conduct matters and market abuse in the UK. I conduct project work pertaining to market conduct issues, contribute to the drafting of European legislation pertaining to market abuse and am an experienced public speaker. My main area of interest is the UK’s commodities markets.

Is it not odd that a FCA regulator was a long-time observer sitting on the LBMA Management Committee, but that the FCA has never had anything to say about the London Gold Market. Perhaps it’s because of the following, which gives the impression of a compliant and embedded regulator. As the FT wrote in October 2013 in an article titled “Gold and oil benchmarks face tighter regulation“:

“I don‘t want to give the impression that the UK is picking on the bullion market or anything else,” Mr Groves told the London Bullion Market Association precious metals conference in Rome. “But a consumer focus is what politicians are looking at…so there’s going to be more focus from us as regulators, on consumer issues.”

“However, [Groves] admitted the regulator did not know enough about physical markets and had launched a project to increase its knowledge. “We are going out as the FCA and learning about those markets,” he said.

What exactly the FCA was doing sitting on the LBMA Management Committee remains unclear, because, to reiterate, there are no publicly available minutes of the Committee’s meetings. At a guess, perhaps Groves was “learning about physical markets“, specifically the physical gold market.

Its also relevant to note that the Bank of England and FCA both crop up as observers when the LBMA holds various seminars, such as the seminar it held in the City of London on 24 October 2014 to showcase various solution providers that were competing to provide the infrastructure for the LBMA Gold Price fixing auction competition that was running at that time:

According to the LBMA press release, “Both the Bank of England and the Financial Conduct Authority attended the seminar as observers.


Where are the LBMA Mgt Committee Meeting Minutes?

Through the Non-Investment Products Code (NIPs), the Bank of England interfaces closely with the UK’s foreign exchange, money and bullion markets. The Bank of England explains NIPs as follows:

“The Non-Investment Products Code

This Code has been drawn up by market practitioners in the United Kingdom representing principals and brokers in the foreign exchange, money and bullion markets to underpin the professionalism and high standards of these markets.[1]

It applies to trading in the wholesale markets in Non-Investment Products (NIPs), specifically the sterling, foreign exchange and bullion wholesale deposit markets, and the spot and forward foreign exchange and bullion markets.”

Footnote [1]: Co-ordinated by the Foreign Exchange Joint Standing Committee, the Sterling Money Markets Liaison Group and the Management Committee of the London Bullion Market Association

Of the three, the  Foreign Exchange Joint Standing Committee is chaired and administered by the Bank of England. The Sterling Money Markets Liaison Group (now known as the Sterling Money Markets Liaison Committee) is also chaired and administered by the Bank of England.

On the Bank of England’s web site, there are very extensive informational resources about the Foreign exchange Joint Standing Committee and the Sterling Money Markets Liaison Committee, but surprise, surprise, there is nothing about the LBMA Management Committee. The Bank of England website offers publicly accessible documents of all meeting minutes of the FX Joint Standing Committee, including the representatives names of attendees and the banks and institutions represented at each meeting. These meeting minutes are highly detailed. See May 2016 FX Joint Standing Committee minutes as an example. Likewise, for the Sterling Money Markets Liaison Committee, the minutes of every meeting have been uploaded to the Bank of England website and are publicly accessible. These minutes are highly detailed. See for example the February 2016 Sterling Money Markets Liaison Committee meeting minutes.

However, the only tiny piece of information offered about the LBMA on the Bank of England website is as follows:

“The Bullion element of the NIPs Code is being replaced by a new code which will be established by the London Bullion Markets Association (LBMA). Further information on the bullion code can be found on the LMBA website.” 

Conveniently, the Bank of England passes the buck back to a web site (LBMA’s website) which is notoriously bereft of any information about the meetings of the LBMA Management Committee, the agendas of such meetings, the minutes of such meetings, and the attendees at these meetings. Why is this opacity allowed by the FCA and Bank of England when the foreign exchange and money market brethren have to submit to published minutes of their meetings, which in many cases involve the same banks and institutions? Could it be that discussion of the London Gold Market is highly secretive and a no-go area, and that the institutions involved have a free pass from the Bank of England and FCA to continue their discussions in private, away from the public eye?

Mark Carney and Paul FIsher
Mark Carney and Paul FIsher

 Pièce de Résistance

Arguably, the pièce de résistance of these Bank of England / FCA relationships with the LBMA Management Committee, is the fact that Paul Fisher, the newly appointed ‘independent‘ Chairman of the LBMA Board, formerly known as the LBMA Management Committee, has already previously been the Bank of England’s “observer” on the LBMA Management Committee.

In his speech to the 2004 LBMA Annual Conference in Shanghai, Fisher, the then Head of Foreign Exchange at the Bank of England, while discussing the “Non-Investment Products Code”, a code which regulates the bullion market, the foreign exchange market, and the wholesale money market, stated that:

“In the bullion section, the work is led by the LBMA and the whole is coordinated by the Bank of England. Partly on that basis, I am glad to be invited to the LBMA’s Management Committee meetings as an observer. I’d just like to pay tribute to the professionalism and integrity with which I see the Management Committee operating for the best interests of the global marketplace for bullion.”

One of the more bizarre parts of Fisher’s appointment, in my view,  is that when the LBMA announced in a press release last July (2016) that Fisher was being appointed as the new LBMA chairman, there was no mention of the fact that he had previously attended the LBMA Management Committee meetings. One would think that this would be a very relevant when considering the ‘independence’ of the appointment?

On hearing the news on 13 July about the appointment of the Bank of England’s Paul Fisher as ‘independent’ non-executive chairman of the LBMA Board, James G Rickards, the well-known gold author and commentator, tweeted the below, which succinctly sums up the elephant in the room, which the mainstream media chooses to ignore.

This appointment reinforces the link, or bridge, between the two entities, which is now even more set in stone than previously. It’s as if the Bank of England, at this time, has felt the need to put it’s man directly at the head of the LBMA. The timing may be relevant, but in what way is not yet clear.

A forthcoming article looks at this appointment of a former Bank of England Head of Foreign Exchange as the new ‘independent’ Non-Executive Chairman of the LBMA Board, considers what, if anything, is independent about the appointment given the extremely close relationship between the Bank of England and the LBMA, and examines the appointment in the context of the UK Corporate Governance Code, which now governs the Constitution and operation of the LBMA Board.

Chinese Gold Bar Photos – Lost in Translation

China is now in pole position as regards annual global gold mining output. Much if not all of Chinese domestic gold mining output is refined into standard gold by Shanghai Gold Exchange (SGE) approved refiners and then sold through the SGE.  A lot of recycled gold in China also flows through the same refineries. As of 2013, there were at least 35 refiners across China accredited by the SGE to deliver gold ‘Ingots’ (bars of weights 12.5 kg, 3 kg and 1 kg) on the Exchange. The list is probably longer now, and although the sheer scale of the Chinese gold refining sector is hard to keep track of, you get the picture as to its size.

It was therefore surprising that recently, while working on a particular task that required images of gold bars produced by Chinese refiners, I found that the selection of Chinese branded gold bar images on ‘the web’ (i.e. Google.com) seemed extremely limited. As it turns out, there are many many images of Chinese brand gold bars, you just need to know how and where to look. Nearly all of these images have never been seen before in “Western search engines”.

Who makes the most bars – The Top Refiners

Some of the large Chinese gold refineries are owned by, or affiliated with, large Chinese gold mining companies. My first approach was to determine the largest gold mining companies in China. These gold mining companies are:

  • China National Gold Group Corporation, also known as China Gold or CNG. CNG’s major gold mining asset is Zhongjin Gold. CNG also has a 39% stake in “China Gold International Resources Corporation” which is basically its international arm (it also mines gold in China).

The 3 next biggest Chinese gold mining companies are as follows. I’m not sure about how they rank in terms of positions 2-4, but probably in this order:

Using the names of these gold mining companies, we can see which of them refine their own bars. Taking a look at some of the main Chinese gold refineries reveals the following refining companies are owned by the miners, so its looks like they all refine their own gold bars, as would be expected:
  • Zhongyuan Gold Smelter of Zhongjin Gold Corporation, Sanmenxia City [owned by China Gold Corp]
  • Zijin Mining Group Company, Shanghang
  • Shandong Gold Mining Company, Laizhou City
  • Shandong Zhaojin Gold and Silver Refinery Company, Zhaoyuan City

There are 9 Chinese gold refineries accredited to the London Bullion Market Association’s (LBMA) Good Delivery List for gold. This list, which is analogous to an A-List, includes gold refiners around the world which produce large gold bars (400 oz), and whose production meets the very high quality standards laid down by the LBMA. Only Japan, with 11 gold refineries on the LBMA list, has a higher number than China. Russia has 8 of its gold refineries on the LBMA gold list. The above refineries of Zhongyuan, Zijin, Shandong Gold, and Shandong Zhaojin are on this LBMA Good Delivery list.

Cross-referencing these names with a list such as the top refinery suppliers of gold bars to the Shanghai Gold Exchange (see table below) also validates that the refineries of (Henan) Zhongyuan, Zijin Mining, Shandong Gold, and Shandong Zhaojin are amongst China’s largest gold refiners.


Shanghai Gold Exchange – 2011 Top 10 gold refiners supplying SGE


The ‘limited results’ Search – Google.com

With 4 accredited refineries on the LBMA list, one might think that photos  / images of the gold bars output by these refineries are easy to find. Next step is to see if any images of these refiners’ gold bars are available “on the web”. The short answer is that a few images are available (see below), but they seem to be very rare and not saved very widely ‘on the web’ (Google.com).

1. Zhongyuan Gold Smelter

LBMA bar mark description – “Current Bar Mark: Circular logo round Chinese character with CHN GOLD below.


‘China Gold’ brand bars (i.e. Zhongyuan Gold Smelter bars) are not widely found by Google image search. The above image that Google does find is sourced from page 10 of a Gold Bars Worldwide brochure, which is titled “Shanghai Good Delivery Gold Ingots and Bars“, published by Grendon International Research Pty Ltd in November 2014.

(Notice the bar mark in the image says CHNGOLD and the SGE marking).

2. Zijin Mining Group Company

LBMA bar mark description – “Current Bar Mark: Double crescent logo with ZIJIN MINING in Roman and Chinese characters. Circular assay mark with ZIJIN MINING in Roman and Chinese characters.



This image is a ZIJIN ‘double cresent’ bar. Notice the SGE marking. Again, Google finds this image by sourcing it from page 10 of the same GoldBars Worldwide brochure here, as it only seemed to be found by Google.com at that source. The photographs in this brochure were actually supplied to Grendon by the refineries, so without this brochure, Google would even have one less source to use.

Note: if you look in the pdf in the above link, the Gold Bars Worldwide brochure actually labels this bar image as a Henan Zhongyuan bar which looks wrong. The double crescent insignia shows that it’s actually a ZIJIN bar, as per another Zijin bar on page 9 of the same brochure.

3. Shandong Gold Mining Company

LBMA bar mark description – “Current Bar Mark: Circle surrounded by TAISHAN in Roman and Chinese characters within a square comprising four stylised S’s.”

During the test, Google didn’t find any images of Shandong Gold Mining gold bars, However, conveniently, a Shandong Gold bar is on the BullionStar site here, which Koos Jansen used to illustrate SGE bar markings.
Notice the circle, the SGE marking, and the ‘Taishan’ marking in the above image.

4. Shandong Zhaojin Gold

LBMA bar mark description - “Current Bar Mark: Triangle with two interlocking half circles and ZHAOJIN in Chinese characters within the triangle.”

The only images I could find of Shandong Zhaojin gold bars using Google.com were these ones, which are on the actual Shandong Zhaojin Import and Export Co Ltd website



Notice the SGE markings. Notice also the Shandong Zhaojin bar logo is the same as the Shandong Zhaojin company logo.


As an aside, on its website, Shandong Zhaojin Import and Export Co Ltd claims to export gold. I find this surprising due to China’s strict gold export rules. Perhaps they mean gold exports as part of the processing trade gold exports.
In conclusion, the above Google.com search exercise of 4 refineries led to the conclusion that Chinese gold bar photos are very hard to find…at least on English-speaking internet sites.
Note that since the publication of this article that you are reading, Google has started to find the images that you see here and the images listed below. That’s the beauty of the web, in that the more links to pages and images that exist, the easier it is for web bots to find and index said pages and images. Therefore, if you test Google.com now for these gold bar brands, Google finds more gold bar images of the refineries described here, precisely because thats the way Google works.

The ‘Motherlode results’ Search – Baidu.com

The very limited search results above suggested a different approach was needed. Like a lot of people, I’d heard about the Google Chinese site http://www.google.cn, and its re-consolidation to operate from http://www.google.com.hk a few years ago, as Google scaled back its CHinese presence. I had also vaguely heard of Baidu.com, the Chinese search engine, but I had never had the need to use it before.

The first port of call was to consult with Koos Jansen, resident China gold expert here at BullionStar.  Koos advised the following approach: “Get the Chinese names of the refineries, and search Baidu“. Seems pretty obvious in hindsight…:)
For non-Chinese speakers, like myself, there are 2 ways to establish the Chinese names of the refineries. The first is to use a refinery’s website. This works most conveniently with dual-language websites (since you can toggle between the Chinese and English names of the company to establish what the Chinese characters are), and it goes without saying that it only works if the Chinese refinery (or mining company) actually has a website, which isn’t always the case. The second approach is to use a Shanghai Gold Exchange list of SGE members names which includes their English names alongside the Chinese names (in Chinese characters). Such a list can be seen here.
Not to put too fine a point on it, but the results of using this approach in Baidu are astounding compared to using Google.com. There are huge amounts of gold bar image results for the Chinese refiners. Here’s a flavor:

Zhongyuan Gold Smelter – owned by Zhongjin Gold

China Gold aka Zhongjin Gold = 中金黃金
gold bar = 金條
Search in Baidu image search (http://image.baidu.com) for “中金黃金” 金條
LBMA description – Circular logo round Chinese character with CHN GOLD below

Zijin Mining

Zijin Mining = “紫金矿业”

gold bar = 金條

Search in Baidu for “紫金矿业” 金條
LBMA description  – Double crescent logo with ZIJIN MINING in Roman and Chinese characters.
These Zijin Mining gold bar images were sourced from here.

Shandong Gold

Shandong Gold “山东黄金”

gold bar = 金條

Search for “山东黄金” 金條
Baidu image search for Shandong Gold Group mostly retrieves gold bars for a brand called SD Gold, which is a ‘Shandong Gold’ bar brand:
To retrieve images for the Shandong Gold Mining Company bars with the “Taishan” design, you need to search for:
Shangdong Gold Mining Company “山东黄金矿业股份有限”
Gold Bar 金條
Taishan 新寧
Search Baidu for  “山东黄金矿业股份有限”  金條  新寧
This image is sourced from Chinese gold site http://ccne.mofcom.gov.cn, which is a Ministry of Commerce site called ‘China Commodities’ which looks like a reseller site, which contains various listings of different gold bars such as this list.

Shandong Zhaojin

Shandong Zhaojin “山东招金”

gold bar = 金條

Search for “山东招金” 金條
LBMA bar mark description - Triangle with two interlocking half circles and ZHAOJIN in Chinese characters within the triangle.”

How does Google Hong Kong perform in comparison?

Searches for Zhongyuan Gold (China National Gold), Zijin Mining, Shandong Gold and Shandong Zhaojin using  Google Hong Kong (English version) bring back very limited bar image results, which are mostly images from the ‘Gold Bars Worldwide’ brochures.

The Chinese equivalent name searches in Google Hong Kong (Chinese language) bring back reasonable gold bar image results for each of the 4 refiners above, but not nearly as many image results as retrieved from Baidu. For example, Google Hong Kong (Chinese version) finds the below Zhaojin image in a directory called http://www.zhaojin.cn/imageRepository. But Google.com draws a blank on this directory.

Based on this relatively brief overview, it would appear that Baidu provides the most comprehensive results for gold bar images of Chinese gold refiners.

With China an increasingly critical part of the world gold market, its gold bar brands (and photos of said bars) still do not appear to have registered more than a ripple outside the world of the Chinese internet. This can be explained by the fact that a) China doesn’t generally allow gold bars to be exported therefore few people outside of China have ever seen a Chinese gold bar, and b) Google has retreated from the Chinese web search market, but the dominant player, Baidu is not widely used outside of China.
More importantly, non-Chinese readers and publishers with the frequent or infrequent need to use an image of a Chinese gold bar in blog posts, articles or tweets etc, now no longer have to keep recycling the same old Chinese bar images that get picked up in Google.com search results. With Baidu image search, the world of Chinese gold bar photos opens up considerably.

The Charade Continues – London Gold and Silver Markets set for even more paper trading

Today the London Metal Exchange (LME) and the World Gold Council (WGC) jointly announced (here and here) the launch next year of standardised gold and silver spot and futures contracts which will trade on the LME’s electronic platform LMESelect, will clear on the LME central clearing platform LME Clear, and that will be settled ‘loco London’. Together these new products will be known as LMEprecious’ and will launch in the first half of 2017.

However, although these contracts are described by the LME as delivery type Physical, settlement of trades on these contracts merely consists of unallocated gold or silver being transferred between LME Clear (LMEC) clearing accounts held at London Precious Metals Clearing Limited (LPMCL) member banks (i.e. paper trading via LPMCL’s AURUM clearing system).

For example, the contract specs for the LME’s planned spot gold trading state that the LME’s proposed settlement procedure is one of:

“Physical settlement two days following termination of trading. Seller transfers unallocated gold to LMEC account at any LPMCL member bank, and buyers receive unallocated gold from LMEC account at any LPMCL member bank

The range of LME contracts for both gold and silver will consist of a trade date + 1 contract (T+1), aptly named TOM, as well as daily futures from T + 2 (equivalent to Spot settlement) out to and including all trade dates to T + 25. Beyond the daily futures, the suite of contracts also includes approximately 36 monthly futures contracts covering each month out to 2 calendar years, and then each March, June, September and December out to 60 calendar months. The LME / WGC press release also mentions plans for options and calendar spread products based on these futures.


As well as trading electronically on LMESelect, these precious metals futures will also be tradeable via telephone market (inter-office market). Trading hours for the daily contract (TOM) will be 1am – 4pm London hours, while trading hours for all other contracts will be 1am – 8pm London hours, thereby also covering both Asian and US trading hours. Detailed contract specs for these gold and silver contracts are viewable on the LME website. The trading lot size for the LME gold contracts will be 100 ozs, which is significantly smaller than the conventional lot size of 5000 -10,000 ozs for gold trading in the London OTC market (and conventional OTC minimum of 1000 ozs of gold). The planned lot size for the LME’s silver contracts is 5000 ozs, again below the conventional lot size of 100,000 – 200,000 ozs for silver trading in the London OTC market (and conventional OTC minimum of 50,000 ozs of silver).

These LME contracts are being pitched as a real alternative to the incumbent over the counter system of gold and silver trading in London which is overseen by the London Bullion Market Association, an association whose most powerful members are the clearing and vaulting banks in London, namely HSBC, JP Morgan, Scotia, and to a lessor extent UBS and Barclays, but increasing ICBC Standard bank as well. But given that the LME’s clearing will sit on top of the LPMCL clearing system and use unallocated transfers, the chance of any real change to the incumbent London gold and silver market is non-existent. Nor will the trading of these LME products give any visibility into the amount of physical gold and silver that is held within the London Market, nor the coverage ratio between ‘unallocated account’ positions and real underlying physical metals.

Five Supporting Banks

This new LME / WGC initiative is being supported by 5 other investment banks and a trading entity called OSTC. These bank backers comprise US banks Goldman Sachs and Morgan Stanley, French banks Natixis and Société Générale, and Chinese controlled bank ICBC Standard Bank. According to a Reuters report about the launch, the World Gold Council had approached 30 firms about backing the launch, so with only 5 banks on board that’s a 16.6% take-up ratio of parties that were approached, and 83.4% who were not interested.

Earlier this year in January, Bloomberg said in a report said that the five interested banks were “ICBC Standard Bank Plc, Citigroup Inc., Morgan Stanley, Goldman Sachs Group Inc. and Societe Generale SA“, so somewhere along the line Citigroup looks to have taken itself off the list of interested parties, while Natixis came on board. The World Gold Council’s discussions about a proposed gold exchange and its discussions with ‘5 banks’ appear to have begun as early as the 4th quarter of 2014 and were flagged up by the Financial Times on 02 April 2015, when the FT stated that:

“The WGC has hired a number of consultants and spent the past six months pitching a business case for banks to consider the alternative trading infrastructure”

“The World Gold Council…and at least five banks are participating in initial discussions”

Notably, this was around the time that LME found out it had not secured the contracts to run either the LBMA Gold Price or LBMA Silver Price auctions. Note, that all 5 of the LME supporting banks, i.e. Goldman, ICBC Standard, Morgan Stanley, SocGen and Natixis, are members of the London Bullion Market Association (LBMA), with Goldman, Morgan Stanley, ICBC Standard and SocGen being LBMA market members, and Natixis being a full member of the LBMA. Goldman, Morgan Stanley, ICBC Standard and SocGen are also direct participants in the LBMA Gold Price auction operated by ICE Benchmark Administration. None of these 5 banks are direct participants in the LBMA Silver Price auction. Notably, none of these banks except for ICBC Standard is a member of the precious metals clearing group LPMCL. ICBC Standard Bank also recently acquired a precious metals vault in London from Barclays and also joined the LBMA’s Physical Committee (see BullionStar recent blog ‘Spotlight on LPMCL: London precious MEtals Clearing Limited‘ for details). Therefore, ICBC Standard seems to have a foot in both camps.

Unallocated Balances, Unsecured Creditors

Given the long build-up to this LME / World Gold Council announcement, and the fact that these LME spot and futures products were supposed to be a genuine alternative to the LBMA bank controlled OTC trading system, the continued use of unallocated settlement and the use of LPMCL accounts by these planned LME contracts underscores that the LME contract do not represent any real change in the London Gold and Silver Markets.

As a reminder, the resulting positions following transfers of unallocated gold and silver through the LME Clear accounts of LPMCL members essentially means the following, in the words of none other than the LBMA:

“Unallocated account basis. This is an account where the customer does not own specific bars, but has a general entitlement to an amount of metal. This is similar to the way that a bank account operates” 

Additional LBMA definitions of unallocated transactions are as follows:

settled by credits or debits to the account while the balance represents the indebtedness between the two parties.

“Credit balances on the account do not entitle the creditor to specific bars of gold or silver or plates or ingots of platinum or palladium but are backed by the general stock of the precious metal dealer with whom the account is held: the client in this scenario is an unsecured creditor.

Alternatively, a negative balance will represent the precious metal indebtedness of the client to the dealer in the case where the client has a precious metal overdraft facility.

Should the client wish to receive actual metal, this is done by “allocating” specific bars, plates or ingots or equivalent precious metal product, the metal content of which is then debited from the unallocated account”.

LME bows to LPMCL

However, it should come as no surprise that these LME spot and futures contracts haven’t taken a new departure away from the entrenched monopoly of the London gold and silver clearing and vaulting systems, for the LME specifically stated in quite a recent submission to the LBMA that it will never rock the boat on LPMCL’s AURUM platform. When the LME presented to the LBMA in October 2014 in a pitch to win the contract for the LBMA Gold Price auction (which it didn’t secure), the pitch said that a centrally cleared solution “would only be introduced with market support and respecting LPMCL settlement“. [See right-hand box in below slide]:

LME potential credit models

In the same pitch, the LME also stated that:

LME Clear fully respects existing loco London delivery mechanism and participants

[See bottom line in below slide]:

LME Pathway to cleared solution

Interestingly, following the announcement from the LME and the World Gold Council, the LBMA provided a very short statement that was quoted in the Financial Times, that said:

“The LBMA saw the announcement with interest and reconfirms it has no direct or indirect involvement in this project”.

While that may be true, what the LBMA statement didn’t concede is that 5 of its member banks, 4 of which are LBMA market makers, do have a direct involvement in the LME / World Gold Council project. Nor did the LBMA statement acknowledge that settlement of the planned LME gold and silver contracts will use the LPMCL infrastructure, nor that the LPMCL is now in specific scope of the LBMA’s remit.

Recall that in October 2015, the LBMA announced that:

“the London Precious Metals Clearing company took part not only [in the LBMA] review, but we have now agreed to formalise our working relationship, with the LBMA providing Executive services going forward. I’m grateful to the LPMCL directors for their leadership and their support for removing fragmentation from the market.”

With the LME contracts planning to use LPMCL, this ‘new dawn’ view of the LME / World Gold Council initiative is in my view mis-guided.

Even COMEX has more Transparency

Anyone familiar with the rudimentary vaulting and delivery procedures for gold and silver deliverable under the COMEX 100 oz gold and 5000 oz silver futures contracts will know that at least that system generates vault facility reports that specify how much eligible gold or silver is being stored in each of the designated New York vaults, the locations of the vaults, and also how much of the eligible gold or silver in storage has warehouse warrants against it (registered positions). The COMEX ‘system’ also generates data on gold and silver deliveries against contracts traded.

However, nothing in the above planned LME contract specs published so far gives any confidence that anyone will be the wiser as to how much gold or silver is in the London vaults backing up the trading of these spot and future contracts, how much gold or silver has been converted post-settlement to allocated positions in the vaults, nor how much gold or silver has been delivered as a consequence of trading in these spot and futures contract, nor importantly, where the actual participating vaults are.

This is because the LMPCL system is totally opaque and there is absolutely zero trade reporting by the LBMA or its member banks as to the volumes of gold and silver trading in the London market, and the volumes of physical metals held versus the volumes of ‘metal’ represented by unallocated account positions. Furthermore, the LBMA’s stated goal of introducing trade reporting looks as dead as a dodo, or at least as frozen as as a dodo on ice.

LBMA stall on Trade Reporting, LPMCL clear as Mud

On 9 October 2015, the LBMA announced that it had launched a Request for Information (RFI) asking financial and technology providers to submit help with formulating solutions to deficiencies which regulators thought the London bullion market such as the need for transparency, and issues such as liquidity that had supposedly been recommended as strategic objectives by consultant EY in its report to the LBMA, a report that incidentally has never been made publicly available. On 25 November 2015, the LBMA then announced that it had received 17 submissions to its RFI from 20 entities spanning “exchange groups, technology firms, brokers and data vendors”.

On 4 February 2016, the LBMA then issued a statement saying that it was launching a Request for Proposals (rRfP) and inviting 5 of these service providers (a short-list) to submit technical solutions that would address requirements such as an LBMA data warehouse and that would support the introduction of services such as trade reporting in the London bullion market. The RfP statement said that the winning service provider would be chosen in Q2 2016, with a planned implementation in H2 2016.

However, no progress was announced by the LBMA about the above RfP during Q2 2016, nor since then. The only coverage of this lack of newsflow came from the Bullion Desk in a 27 May article titled “Frustration Grows over London Gold Market Reform” in which it stated that the 5 solution providers on the short-list were “the LME, CME Group, the Intercontinental Exchange (ICE), Autilla/Cinnobar and Markit/ABS“, and that:

“the pace at which the LMBA is moving forward are causes for consternation in some quarters of the sector”

A quote within the Bullion Desk article seems to sum up the sentiment about the LBMA’s lack of progress in its project:

“It’s not going to happen any time soon. Look at how long it’s been going on already,” another market participant said. “Don’t hold your breath. It seems like we still have a long way to go.” 

What could the hold up be? Surely 17 submissions from 20 entities that were whittled down to a short-list of 5 very sophisticated groups should have given the LBMA plenty of choice for nominating a winning entry. Whatever else this lack of progress suggests, it demonstrates that increased transparency in London gold and silver market trading data is not going to happen anytime soon, if ever.

Furthermore, the opacity of the London clearing statistics that are generated out of the LPMCL clearing system need no introduction to most, but can be read about here.


According to the LBMA, ‘Loco London’ “refers to gold and silver bullion that is physically held in London“, however, given the secrecy which surrounding trading data in the London gold and silver markets, and the lack of publication by any bank about the proportion of unallocated client balances in gold or silver that it maintains versus the physical gold or silver holdings that it maintains, this ‘loco London‘ term appears to have been abused beyond any reasonable definition, and now predominantly refers to debit and credit entries in the virtual accounting systems of London based bullion banks. Nor, in my opinion, will the LME contracts change any of this. One would therefore be forgiven in thinking that the real underlying inventories of gold and silver in the London market and their associated inverted pyramid unallocated account positions are too ‘precious’ to divulge to the market. The Bank of England is undoubtedly licking its chops to the continued opacity of the market.

And its not just my opinion. This latest LME / World Gold Council / investment bank announcement has generated other skeptical reactions. The last word goes to Jim Rickards, who tweeted this in reaction to the latest LME / World Gold Council news:

Spotlight on LPMCL: London Precious Metals Clearing Limited

Within the last 2 months, there have been a series of developments in the London Gold Market, each of which has involved Chinese-controlled banking group ICBC Standard Bank Plc.

  • On 4 April, the London Bullion Market Association (LBMA) announced that ICBC Standard Bank had been reclassified as a LBMA Market Making member for the OTC spot trading markets in gold and silver.
  • On 11 April, ICE Benchmark Administration announced that ICBC Standard Bank had been approved for direct participation in the daily benchmark LBMA Gold Price auctions beginning on 16 May.
  • On 3 May, the LBMA announced in its Alchemist magazine that ICBC Standard Bank had joined the LBMA’s Physical Committee. This committee is responsible for aspects of the physical bullion market such as the LBMA’s Good Delivery List and it also liaises with the LBMA’s Vault Managers Working Party.
  • On 11 May, the relatively obscure but powerful London Precious Metals Clearing Limited (LPMCL) announced that ICBC Standard Bank had joined LPMCL, the first membership addition to London’s monopoly bullion clearing group since 2005.
  • On 16 May, ICBC Standard Bank announced that it had agreed to acquire a London-based precious metals vault currently owned by Barclays. This precious metals vault was built by, and is operated by Brinks, on behalf of Barclays. ICBC Standard says that the vault acquisition will be completed by July 2016.

Therefore, within a period of approximately 6 weeks, ICBC Standard has positioned itself front and centre of the closely protected London bullion trading, clearing and vaulting infrastructure.

[Note: On 1 February 2015, Chinese bank Industrial and Commercial Bank of China (ICBC) acquired a controlling interest in London headquartered Standard Bank Plc, hence the name change to ICBC Standard Bank PLC].

On Monday 16 May 2016, the LBMA also issued its own press release, announcing that ICBC Standard bank had joined LPMCL, and that it would become an ‘active member‘ of LPMCL in early June 2016.

The LBMA press release about LPMCL also quoted LBMA CEO Ruth Crowell as saying:

“I’m delighted to see ICBC Standard Bank join this vital organisation. The LPMCL clearing system is one of the great strengths of the London bullion market. The LBMA welcomes this addition and looks forward to continuing to assist LPMCL in its growth and development.”

Although the same bullion bank representatives, wearing different hats, run, and have always run, all of the precious metals entities that operate in the London market (via a series of different ‘puppet shows’), the ‘assistance’ that the LBMA is now providing to LPMCL is based on the following development that was highlighted by the LBMA CEO at the LBMA conference in Vienna in 2015, when she said:

“I’m delighted to inform you that the London Precious Metals Clearing company took part not only [in the LBMA] review, but we have now agreed to formalise our working relationship, with the LBMA providing Executive services going forward. I’m grateful to the LPMCL directors for their leadership and their support for removing fragmentation from the market.”

Examination of the Barclays / Brinks vault (most likely near Heathrow in the Brinks complex) which ICBC is now acquiring, is left to a future analysis. This article concentrates solely on the LPMCL clearing system, the protected crux of the London precious metals markets, but an entity which is rarely given anything but a passing glance by the financial media in London or elsewhere.

One important point to mention here though is that it had been widely reported in January (initially by Reuters) that ICBC was acquiring another London-based precious metals vault, a vault that had been built by G4S in Park Royal on behalf of Deutsche Bank, and that had then been leased from G4S by Deutsche Bank. See “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out” for details.

It turns out that the deal for the G4S / Deutsche Bank vault “did not go through“, according to ICBC. It appears that ICBC considered the Barclays / Brinks vault to be the preferred transaction over the Deutsche / G4S vault, and that when the Barclays / Brinks vault came on to the market, ICBC backed out of the transaction with Deutsche, in much the same as house-hunters change their mind when a better house comes on the market.

The future of the G4S / Deutsche vault is therefore still unknown. Possibly Standard Chartered, which was also mentioned as a name wanting to join LPMCL, could be a potential buyer of the Deutsche / G4S vault?

It’s also interesting to note that “London Precious Metal Clearing Limited (LPMCL) provides formal recognition of companies to provide vaulting services“, not the LBMA.


LPMCL  – The Company

London Precious Metals Clearing Limited (LPMCL) is a UK private company limited by guarantee without share capital, that was incorporated on 5 April 2001, with a company number of 04195299. LPMCL is classified in Companies House with a Standard Industrial Classification (SIC) code of ‘Administration of financial markets‘. LPMCL has a registered address of C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ. Interestingly, this is the same registered address as the London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited, both of which are still active companies and both of which are currently defendants in ongoing New York court class action suits where they and their member banks stand accused of price manipulation in the gold and silver markets, respectively. Hackwood Secretaries Limited is Company Secretary for LPMCL. Hackwood Secretaries is a Linklaters company used for company secretariat services. Linklaters is one of the better known global law firms that is headquartered in London.

LPMCL uses an electronic clearing platform called ‘AURUM’ to clear London-settled precious metals trades. This is done via book entry netting and clearing, entirely using unallocated accounts. The vast majority of the LPMCL clearing trades are processed by HSBC and JP Morgan.

As to the raison d’etre for LPMCL, perhaps the recent LBMA press release sums it up best:

“[the] London clearing system for gold, silver, platinum and palladium [is] managed by London Precious Metals Clearing Limited (LPMCL).

LPMCL operates a central electronic metal clearing hub, with deals between parties throughout the world, settled and cleared in London

Most global ‘over-the-counter’ gold and silver trading is cleared through the London clearing system. The London bullion market clearing banks provide a service to their clients in providing the settlement of gold and silver transfers. Ultimately each clearer has to have access to reserves of physical metal and provides an array of services tailored to each client’s specific needs; the most important of which is intermediating credit and providing credit facilities.

This last paragraph in the press release was cut and pasted by the LBMA from the LPMCL website FAQ under the question: “Can you explain the benefits of the London bullion clearing system as compared with a clearing house?” so it can also be viewed there.

You will notice from the above press release that:

a) LPMCL is critically important due to its role as global clearer for all 4 precious metals, and

b) Access to physical precious metals plays a secondary role in the LPMCL system compared to ‘credit facilities and intermediating credit (i.e. The LPMCL system is a credit-based fractional-reserve system of unallocated metal holdings and transfers).

LPMCL was founded in 2001 by 7 bullion bank founding members, namely, NM Rothschilds, JP Morgan Chase, HSBC Bank USA, ScotiaMocatta, UBS AG, Deutsche Bank , and CSFB (Credit Suisse). Credit Suisse resigned in October 2001, Rothschilds resigned in June 2004, and then Barclays joined in September 2005. Deutsche bank resigned in August 2015. HSBC Bank USA NA resigned on 11 February 2015, and was replaced by HSBC Bank Plc. Gold and silver were the two metals originally cleared loco London by LPMCL’s system. Platinum and palladium clearing loco London was added to LPMCL’s clearing offering in September 2009. UBS (a LPMCL member) and Credit Suisse (a previous LPMCL member) also offer loco Zurich clearing of platinum and palladium.

Including ICBC Standard Bank, the current membership of LPMCL as of May/June 2016 now consists of JP Morgan, HSBC, Scotia Mocatta, UBS, Barclays, and ICBC Standard. Since Barclays is withdrawing from much of its precious metals business in London, and is selling its London vault , its possible that Barclays will resign from LPMCL in the near future.

All LPMCL members either have their own precious metals vault in London, or access to vaulting facilities at London vaults. Many of the LPMCL members also have vaulting facilities in other financial capitals around the world. Here are some of the vault operations for each of the LPMCL members:

  • HSBC – vaults in London, New York (Manhattan) and Hong Kong
  • JP Morgan – vaults in London, New York (Manhattan) and Singapore (Freeport)
  • Scotia – vaults in Toronto and New York (JFK)
  • Barclays – vault in London (being sold), vault in Singapore
  • UBS – vault in Zurich (Kloten) and Singapore (Freeport)
  • Deutsche Bank (ex LPMCL) – trying to sell a lease on a G4S vault in London; has / had a vault in Singapore (Freeport)
  • ICBC Standard – buying vault in London from Barclays. Standard Bank had vaulting facilities at JP Morgan’s vault in London. ICBC has many vaults in China.

ICBC London

Notice also that 4 of the LPMCL member banks, HSBC, JP Morgan, Scotia and UBS are also 4 of the 6 banks represented on the LBMA Management Committee, therefore LPMCL members have a disproportionately large influence on the strategic direction and decision-making of the LBMA.

LPMCL’s original Memorandum and Articles of Association, signed by representatives of the 7 founding bullion banks can be seen here -> LPMCL Memorandum and Articles of Association October 2001.  One of LPMCL’s main objectives in its Memorandum of Association is:

“to take on and continue the promotion, administration and conduct of precious metals clearing in the London precious metals markets” 

According to the original Articles of Association, the registered ‘Office’ of LPMCL was “New Court, St Swithin’s Lane, London EC4P 4DU“, which is the headquarters of N.M. Rothschild & Sons in London. Rothschilds was also the company Secretary at that time. Interestingly, the respective addresses listed for JP Morgan and HSBC in the Memorandum and Articles of Association document are “60 Victoria Embankment”, and “Thames Exchange, 10 Queen Street Place”, which is the location of JP Morgan’s London precious metals vault, and a supposed location of HSBC’s London precious metals vault, respectively.

Why LPMCL was Established

According to the history section of the LPMCL’s website, the London bullion market first felt the need to develop an electronic clearing  / matching system in the mid-1990s due to a combination of growing trade volumes, technological change, and also the need for better audit trails. This view is backed up by comments from Peter Smith of JP Morgan in a 2009 article for the LBMA’s Alchemist when he said that:

“Thirteen years ago [1996], the bullion clearers were exchanging transfers between themselves by telephone instructions – a situation that was causing considerable problems in the control and audit departments within those banks. Because of those concerns, the clearers realised that the only sensible and secure solution was to develop a central clearing hub, where transfer instructions could be up loaded and matched. This resulted in the establishment of LPMCL in April 2001″

The LPMCL website’s history section also reveals that the initial legwork on automating London precious metals clearing was done by the LBMA’s physical committee, since this committee “comprised the clearing members”.

Until very recently, the LBMA physical committee was exclusively made up of LPMCL members, indeed, the LBMA physical committee literally looks like an alternate venue for LPMCL members to meet up in. For example, in September 2015, the only members of the LBMA physical committee were representatives from the then 5 members of LPMCL, i.e. JP Morgan, HSBC, Scotia, UBS and Barclays.

The addition of ICBC Standard and Standard Chartered to the LBMA Physical Committee was announced in the LBMA’s Alchemist on 3 May 2016. Currently, all 6 LPMCL members – JP Morgan (chair of physical committee), HSBC, ScotiaMocatta, Barclays, UBS, and ICBC Standard Bank are members of the LBMA physical committee, as is Standard Chartered (a potential member of LPMCL), and TD Bank (Toronto Dominion). Note that Standard Chartered and TD Bank are the 5th and 6th member banks of the LBMA Management Committee. Therefore all 6 bullion banks that are on the LBMA Management Committee are also on the LBMA Physical Committee.

The LBMA physical committee membership is rounded off by Brinks (notably, the vault transaction facilitator between Barclays and ICBC Standard Bank) . Note also, that there is a Bank of England ‘observer’ on the LBMA physical committee, an indication of the Bank of England’s keen interest in monitoring the London Gold Market and the gold market’s physical operations and transactions.

The LPMCL history goes on to say that:

“It was subsequently decided that the most effective way of carrying the electronic matching system project forward would be for the clearing members to form a separate company specifically for the purpose of developing and administering such a system. As a result LPMCL was formed in April, 2001.

Obscurely, LPMCL was first incorporated on 5 April 2001 with a name of Itemelement Limited (basically a shell company). It changed name to London Precious Metal Clearing Limited on 2 October 2001 (‘Metal’ singular). It then changed name again on 2 November 2001 to London Precious Metals Clearing Limited (‘metals’ plural). The first tranche of LPMCL directors were then installed in November 2001 from the six remaining founder members companies (excluding Credit Suisse First Boston International since CSFB resigned in October 2001).

OM and LBT Computer Services

Its unclear what, if anything, LPMCL did as a company in 2002, however in April 2003 a press release was issued by Swedish technology company OM revealing that:

“London Precious Metals Clearing Limited (”LPMCL”) has chosen OM as an outsourcing partner for Facility Management of their proposed web-based automated bullion matching system to be provided by LBT Computer Services, an Information Technology service provider and partner to OM.”

We are happy to welcome LPMCL, the leading organization for precious metal clearing, as a Facility Management customer to OM.”

This ‘web-based automated bullion matching system’ is “AURUM”.

The same press release described LPMCL as:

“LPMCL is the administrative company set up by the six clearing members of the LBMA to facilitate the development of an electronic matching system to replace the existing clearing system which is conducted by telephone and / or facsimile.”

In 2003, OM also merged with Finland’s NEX to form OMHEX. Following the merger OM continued to exist as the OM Technology division of OMHEX, providing transaction technology services to the financial and energy industries. OMHEX became OMX in 2004, and was then acquired by NASDAQ in 2007 to form the current group NASDAQ OMX.

However, the relevant entity here is LBT Computer Services, which is still around today as it’s website shows. The LBT web site also still has a short profile of its LPMCL project in the ‘case study’ section of its website, where is states, in a slightly childish way that:

“The LPMCL are the ‘clearing’ organisation for precious metal dealing and are based in London, the centre for such trading. They needed a way of linking together the precious metal bankers to match transactions/deals. They needed to do it in such a fashion that no bank could see anything other than their counterparty bank, and to do it with absolute security. 

LBT built an application that is hosted on the Internet and which connects to each bank via a secure link to collect transactions which it then matches to the counterparty bank’s transactions and send the results back to both banks. It runs 24 x 7, unattended, other than via an on-line link. Unfortunately we cannot say more about this innovative solution.

Why can’t LBT Services say anything more about the LPMCL automated platform? This statement from LBT is perhaps the first clue as to the secrecy, paranoia, and obsessive protectionism that surrounds LPMCL, a company that is the global clearer for all 4 precious metals, yet lies at the heart of the opaque system that is the global precious metals trading system run out of London where real trade-level data that runs through AURUM is never publicly reported.

Between 2003 and the present day, the AURUM platform would obviously have gone through a number of changes, and it may not even be hosted on the LBT platform any longer. Given that lack of publicly available information on the design and functionality of AURUM, its hard to say. There is however a current ‘LPMCL Technical Committee‘ comprising IT and Business Analyst representatives of the member banks (see various Linkedin profiles for details), so perhaps AURUM was brought in-house between the bank members. Many of the in-house systems that AURUM interfaces to would also have changed over the years, requiring various upgrades of the AURUM platform too, and therefore a rationale for the existence of a ‘LPMCL Technical Committee’.

ICBC Standard’s Membership Application to LPMCL

When Reuters reported back in January of this year that ICBC Standard was looking to take on the vault lease for the Deutsche Bank / G4S vault, Reuters also reported in the same article that ICBC Standard had:

“also applied to become a clearing member of the London gold and silver over-the-counter business [LPMCL]”

“These banks are shareholders of the London Precious Metals Clearing (LPMCL) company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months.”

“They [ICBC] are applying for clearing membership at the moment, but that’s still subject to a vote, which has not taken place yet”

Therefore, LPMCL’s announcement that it had allowed ICBC Standard to join wasn’t really a surprise. But the application and voting procedure referred to by Reuters gels with the new membership procedure laid out in the Articles of Association of LPMCL, which states that membership of LPMCL is open to “other eligible persons as the directors in their discretion may admit to membership“. (person here means company entities that wish to become members).

In the LPMCL company each ‘member’ (bank) appoints a director. Each director can also appoint an alternate director. During the ICBC membership application, there were 9 directors listed as current directors of LPMCL, comprising 5 directors from each of the 5 members banks of JP Morgan, HSBC, ScotiaMocatta, UBS and Barclays, and 4 alternate directors from all the member banks except Barclays. A list of the current directors names can be seen here.

According to the 2015 annual accounts of LPMCL, the 5 LPMCL directors are Tony Dean (HSBC), Jane Lloyd (Scotia), Andrew Lovell (JP Morgan), Marco Heil (UBS), and Vikas Chamaria (Barclays). The 4 alternate directors are Peter Smith (JP Morgan), William Wolfe (HSBC), Conway Rudd (Scotia) and Daniel Picard (UBS).

Former Deutsche bank LPMCL director , Raj Kumar, has now moved to ICBC Standard Bank and should be in the front running to be appointed a LPMCL director representing ICBC Standard. If Standard Chartered also joins LPMCL, then former Barclays LPMCL director, Martyn Whithead, who moved to Standard Chartered, may also be expected to re-appear as a LPMCL director representing Standard Chartered.

LPMCL’s latest annual Accounts

The most recent set of annual accounts filed by LPMCL at UK Companies House are the accounts for the full year to 31 March 2015. These accounts were, audited by Kingston Smith LLP, signed off on 8 September 2015, and filed with Companies Office on 8 October 2015. The most interesting items in the accounts are as follows:

- 2015 Turnover (Revenue) totalled £223, 599 and is entirely derived from subscription income. This revenue is accounted for on an accruals basis, meaning that it refers to subscription income for the year to 31 March 2014. With 6 bank members of LPMCL for the period under consideration, thats £38,933 per member, which is very small change for investment banks.

- For the year to March 2015, LPMCL actually made an operating loss of £64,944 because Administrative Expenses were £288,543. The bottom line loss was a similar figure.

- The biggest components of Administrative Expenses were Computer Service Fees: £151,978, and Legal and Professional Fees: £118,384, which together totalled £270,362.

Computer Service Fees obviously refers to costs in running AURUM, running the LPMCL web site, and possibly other technology costs that can be billable by the member banks to LPMCL such as, for example, electronic communications and interfacing software for sending trades to and receive data from AURUM.  ‘Fees’ suggests a payment to an external provider.

The ‘Legal and Professional Fees’ line item is more unusual. Why would LPMCL need to spend £118,384 on legal and profession fees in one year, which is 41% of total admin expenses, and 78% as large as the ‘computer service fees’? This legal and professional fees line item is also eye-opening since it increased  from £69,194 in 2014 to £118,384, a 71% increase. Auditing fees would be fairly constant from year to year, so there is a relatively new and quite large expense under this category. Could it be a legal expense, and if so why?


What does LPMCL’s AURUM actually do?

The London bullion market’s clearing system is a monopoly bullion clearing system run by LPMCL for bullion settled loco London, with “all bullion transactions between the clearing members of the LBMA settled and cleared by The London Precious Metals Clearing Limited.” “Loco London” traditionally meant gold and silver bullion physically held in London. With the rise of the unallocated account transfer system, to what extent unallocated bullion accounts are backed by physical bullion is debatable. The system is now a fractional-reserve credit system. LPMCL’s electronic clearing platform, AURUM, clears all bullion trades via book-entry netting and clearing using unallocated accounts.

Entities trading in the London bullion market maintain a series of unallocated accounts with one or more of the LPMCL clearers. The LMPCL members maintain unallocated accounts between each other used for clearing. The LPMCL also maintain bullion clearing accounts at the Bank of England. Each day, each client of each bullion clearer sends its LPMCL member clearing bank details of bullion trades between that client and its counter-parties. At the end of each trading day, each LPMCL member then processes position settlements by first netting out, in-house, to whatever extent possible, the bullion trades done by its own clients and clients of those clients.

Following this, the LPMCL members send their netted trade data to AURUM which then clears the clearers’ positions. The majority of LPMCL trades cleared are processed by LPMCL members  HSBC and JP Morgan. The clearers also ‘settle’ their own positions with each other between 4pm and 4:30pm each day via broker transfers usually involving  3 brokers. This is done to prevent excessive overnight credit exposure between the clearers. The clearing process also involves “close liaison with the Bank of England and the many overseas bullion depositories“.

According to the LBMA, the LPMCL members:

“utilise the unallocated gold and silver, in accounts they maintain between each other, to make ‘paper transfers’ to settle mutual trades. They also settle third-party loco London bullion transfers, conducted on behalf of clients and other members of the London Bullion Market. This system of ‘paper transfers’ avoids the security risks, costs and impracticality of physically moving metal bars”

An overview of the London clearing process can be read on BullionStar’s Gold University profile of the London gold market here. The LBMA web site also provides a summary here.  A similar summary is also in an article titled “Gold and Silver Clearing “Loco London” Through the Central Hub Developed by London Precious Metal Clearing Ltd” in Issue 55 of the Alchemist , dated July 2009. The most visible part of LPMCL and AURUM is the generally useless high level monthly clearing statistics that the LPMCL has produced each month since early 1997, and that are published on the LBMA website. These clearing statistics report the “net volume of loco London gold and silver transfers settled between clearing members of the LBMA.

For each of gold and silver, the statistics are calculated as daily averages and reported each month as three sets of figures, namely, a figure of millions of ounces transferred per day, the USD value of those ounces transferred per day, and also the number of transfers per day. Note that these clearing figures are just a fraction of what the real underlying trading figures are. Overall  trading figures of the London gold market are anywhere up to 10 times or more larger than the clearing figures would suggest, since the clearing figures are ‘netted’ trading figures.

London-settled gold and silver clearing statistics were first published in January 1997, with the first clearing data reported for the Q4 period 1996. This was prior to the automation of the daily clearing operations through AURUM.

Even back then in 1997, the daily clearing figures for gold and silver through London were baffling and opaque since the daily clearing volumes were huge compared to the quantities of physical gold and silver that exists in the entire world, and there was no granular explanation or categorisation as to the trade types and client types that these clearing figures represented. In this regards, nothing has changed. Then as of now, the LPMCL only reveal that the monthly figures include 3 types of data:

- Loco London book transfers from one party in a clearing member’s books to another member in the same member’s books or in the books of another clearing member.

- Physical transfers and shipments by clearing members

- Transfers over clearing members accounts at the Bank of England

For example, the LBMA clearing statistics for April 2016 state that 16.5 million ounces (513 tonnes) of gold were cleared each day during the month. With 21 trading days in April 2016, that would be 346 million ounces (10,777 tonnes) of gold cleared during April. Since there is said to be a 10 :1 ratio between the amount of gold traded in London and the amount of gold cleared through AURUM, these clearing figures can be rolled up by a multiple of 10.

The trouble with this type of high level reporting is that it doesn’t even reveal the percentage of transfers in each of the above three groups, but physical transfers would be very very small percentage of the total, because, by definition, physical transfers couldn’t be any larger given that there is only a fraction of physical gold being transacted in the world on any given day relative to these gigantic clearing & trading figures.

An article called “Clearing Volume on the London Bullion Market” in Issue 6 of the Alchemist, by Peter Smith of JP Morgan, dated January 1997,  first introduced these predominantly useless clearing statistics and revealed the 3 categories above. Nothing has changed in the reporting since 1997 and this LBMA lack of transparency remains right up to today. Ironically, Issue 6 of the LBMA’s Alchemist was titled ‘Towards Transparency‘ but there was little transparency divulged at that time, and the same opacity of the London bullion market still remains 20 years later.

Issue 6 of the Alchemist also had an introductory editorial from the then chairman of the LBMA, Alan Baker, whose opening line in the editorial was:

The bullion market in London 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.”

Notice the secrecy is inevitable spin. The LBMA has been making excuses for the lack of transparency for at least 20 years now. Frankly, I don’t agree with any of the above explanations on the need for opacity. It’s a fiction. Reporting of trade volumes in all other markets globally such as equities, bonds, FX, money market and exchange-based commodities, is detailed, publicly available, and usually granular by transaction types and client types, and this does not, and has never, compromised client confidentiality in any of these asset classes. Why then do the precious metals markets, and the gold market in particular need to be the exception? They do not.

The excuses by people such as the ex LBMA chairman are merely helping to protect an entrenched system of opacity in which central banks, sovereign institutions, monetary authorities, the Bank for International Settlements, large bullion banks, and other large operators can move within the gold market without being concerned that any of their transactions and interventions will ever be noticed and reflected in gold price discovery. This is not an efficient market. Far from it. This is a protected and hidden physical trading system upon which is overlaid a massive pyramid of fractional-reserve paper gold trading.

The trade types of the trades from which the massive MPMCL clearing figures are generated could easily be reported by LPMCL and the LBMA, but they choose not to report this information. All positional, transactional, account, account type, and physical allocation data in every database table in AURUM and in every bullion trade database table of each LPMCL member bank could be published publicly while stripping out clients’ account-sensitive data and would still not jeopardize client confidentiality.

Trade Types behind the LPMCL Clearing figures

LPMCL provided one glimpse into London bullion market trade types in October 2003, in an article in Alchemist 32, titled “Clearing the Air Discussing Trends and Influences on London Clearing Statistics“, when the then LMPCL chairman,  Peter Fava, and JP Morgan’s Peter Smith, both involved in the compilation of the original clearing statistics in 1997, were interviewed about “some changes in the nature of the market and over the intervening years that might have had an impact on the reported numbers.” This is the only insight that I am aware of that provided a small window into some of trade types of bullion transactions that are processed through AURUM.

Fava was asked about the “changes in the overall pattern of trading activity from certain counterparts”. He then gave a rundown of various bullion trading activities that were showing up in the clearing data. The activities mentioned were:

  • central bank gold deposits, rolling over monthly, and the hedging transactions connected to that borrowing
  • interest rate swaps and longer-term collateralised agreements
  • speculative trading activity on a leveraged, forward basis that is closed out before maturity
  • investment fund participation via spot transactions* (generally netted by the counterparty banks against EFPs – exchange for physicals) but if not netted would show up in clearing
  • interbank market trading (multiple times per day)
  • consignment accounts in physical markets, notably Istanbul, Dubai and India” with purchases out of the consignment account hedged loco London

Since that 2003 article was written, there has been a huge growth in Exchange Traded Fund (ETF) trading, a trading activity that can be added to the above list. In 2014, in the LBMA Silver Price competition proposals, ETF Securities’ bid stated that “our physical precious metal ETCs are created and redeemed for physical metal, with the metal being cleared through the LBMA clearing system and the securities being cleared through the CREST clearing system which is used for LSE trading“.

I have analysed the above London bullion market trade types in more depth, but due to space constraints, I’ll cover this is a future posting, but for now, the point to note is that a lot of London bullion trading activity has very little to do with physical metal movements.

Recall also that Stewart Murray (ex LBMA CEO) had said in a 2011 presentation that investment funds had ‘very large’ unallocated positions in the market.

 “Various investors hold very substantial amounts unallocated gold and silver in the London vaults”

I wonder if investment funds which presume they own unallocated gold or silver (which is just a long unallocated spot position put on by a bank), are aware that their positions are then offset against futures. Some unsophisticated funds might think they are actually hold pooled gold or silver holdings within a London bank vault.

Circling the Wagons: Protection of LPMCL’s clearing monopoly

In 2014, the daily fixing auctions for all 4 precious metals in the London market were moved to new electronic platforms. In the case of gold and silver, competitions were held (organised by the LBMA) to decide on which companies would become the new administrators and calculation agents for the auctions. Ultimately, Thomson Reuters / CME Group secured the contract to run the new Silver auctions (LBMA Silver Price), and ICE Benchmark Administration secured the contract to run the new Gold auctions (LBMA Gold Price). In the case of the platinum and palladium auctions, as to whether a competition was held is debatable, since neither LPPM nor the London Platinum and Palladium Fixing Company (LPPFC) would confirm this when asked. However, the London Metal Exchange was ultimately awarded the mandate to run the new platinum and palladium auctions (LBMA Platinum Price and LBMA Palladium Price).

After Thomson Reuters and CME Group had secured the contract for the silver auctions, CME Group maintained (in a public presentation) on 29 July 2014 that it would soon introduce a centrally cleared platform for these auctions trades so as to widen participation in the auctions and eliminate credit risk between participants.

“[for] Extended Participation, we envisage central clearing via CME Clearing Europe under the auspices of the UK and European regulated authorities which should effectively open the door for most participants.

We’re basically starting the process as soon as possible. Let’s get this up and running by 15thAugust [2014] and then it’s all hands to the pumps on the clearing side so hopefully it will happen soon.

“The work we’ve got to do is to set this up so that’s it’s part of the platform so it’s a level playing field for participants…”

Anindya Boral will be starting to do a big drive to enable cleared transactions through our clearing house and wider participation in August”

In its presentation, CME Group featured a slide which stated that:

“Central counterparty clearing will enable greater direct participation in the London Silver Price”.

We anticipate using CME Group’s London Clearing House – CME Clearing Europe – for the London Silver Price

 By serving as the counterparty to every transaction, CME Clearing Europe will become the buyer to every seller and the seller to every buyer, virtually eliminating credit risk between market participants

However, the CME’s promise of central clearing never happened and its plans to introduce central clearing were mysteriously dropped. See BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for full details.

Likewise, when the LME announced that it had been awarded the contract by LPPFC to run the platinum and palladium price auctions, the LME issued a press release on 16 October 2014 stating that it planned to introduce clearing of platinum and palladium auction trades using its clearing platform LME Clear, so as to maximise participation and overcome the credit risk obstacle:

To maximise participation in the London pricing mechanism, the LME also plans to introduce a cleared platinum and palladium servicewhich will mitigate the difficulty associated with participants taking bilateral credit risk in positions.

LME Clear, launched on 22 September 2014, was built specifically to enable efficient clearing of metals exposures and will extend its existing precious metals clearing functionality to clear platinum and palladium.

However, the LME mysteriously pulled its press release a few hours after it had been published, and replaced it with an amended version where the above two paragraphs had been deleted. See BullionStar blog “LPPM – The London Platinum and Palladium Market” for full details.

And so, LME Clear was never introduced for clearing platinum and palladium auction trades.

Similarly, in its Executive Summary proposal submitted to the LBMA in October 2014 to run the new gold price auctions, a contract which it ended up winning, ICE Benchmark Administration (IBA) stated that its solution could employ pre-collateralisation to eliminate bi-lateral credit risk between participants, and therefore widen auction participation. ICE also made reference to the logic of using a centrally cleared model, but was shrewd enough at that point in time to defer to the powerful interests of the clearing members who essentially run the LBMA, knowing that the CME Group and LME clearing solutions for Silver and Platinum/Palladium had been shot down:

“It is through the Oversight Committee that the LBMA will continue to have significant involvement in the auction process, including… the decision on whether to move to a centrally cleared model (until that time, weaker credit names can be accommodated via pre-collateralisation).”

“One of the key benefits of WebICE is its ability to allow clients to participate in the auction process with the same information and order management capabilities as the direct participants. This reduces both operational and regulatory risk for direct participants, even before increasing the number of direct participants or moving to a centrally cleared model.

In its presentation submission to the LBMA in October 2014 during the competition to run the London gold auctions, the LME also seemed to have gotten the message that the LPMCL’s clearing monopoly and its AURUM clearing system were not to be tampered in any proposed LME platform. In a slide titled “Potential credit models” the LME said that a centrally cleared solution “would only be introduced with market support and respecting LPMCL settlement“. See right-hand box in below slide:

LME potential credit models

Likewise, in the slide that followed the above one, the LME again made it abundantly clear that it had got the message that LMPCL was not to be touched – “LME Clear fully respects existing loco London delivery mechanism and participants“:

LME Pathway to cleared solution

The only reference by the LBMA to central clearing counterparties is a short comment on its website about centrally clearing OTC forward trades where it states:

“..members of a common ‘Central Counterparty’(CCP), that has a facility to clear forwards, may novate their trades and thus avoid bilateral credit risk. In the absence of an exchange, the trade remains one of an OTC nature but has the ability to be cleared. This method of credit mitigation is known as OTC Cleared.”

CME Group already offers a very sparsely used (or not even used) centralised clearing service for OTC unallocated gold forwards using collateral or cash margin. “Delivery occurs at LPMCL member banks via book entry transfer of ‘London Good Delivery’ gold, which means unallocated loco London book entry gold claims on an LPMCL bank”.

Not surprisingly, the LBMA web site, says nothing about the pros and cons of centrally clearing OTC spot trades nor is there any discussion about exchange-based trading and clearing of any London bullion trades.

The LPMCL web site mentions an alternative clearing system (a clearing house), but not surprisingly, this approach is only mentioned as a foil for undermining it, as follows:

Q: Can you explain the benefits of the London bullion clearing system as compared with a clearing house?

 A: “…a clearing house usually has a rigid settlement structure, does not provide credit, or assume intra-day or term credit risks, and not being in the banking business, has no ability to use any underlying liquidity. It will thus most likely be less flexible, less efficient and more expensive – particularly as clearing houses by their nature are non-competitive, whereas the London bullion clearing banks compete for clients by providing competitive services and pricing.”

Q: Could a clearing house replace the London bullion clearing system?

“Yes, but it would prove to be less efficient and more expensive than the current arrangement. It would also most likely need strong financial backing and insurance cover – which then directs us back to the London bullion clearing banks, as above, all of whom are first tier global institutions.”

Why is LPMCL being Protected?

In conclusion, why does the LBMA think that LPMCL is a ‘vital organisation’? as the LBMA CEO phrases it.

  • Firstly, LPMCL keeps the entire pyramid of London’s unallocated precious metals trades spinning. By not reporting any trade information, the LBMA and LPMCL keep the entire gold world in the dark about the extent of the London paper gold trading scheme
  • Secondly, LPMCL preserves opacity and prevents public reporting of precious metals trades, including central bank gold lending and gold swaps, and therefore keeps this major gold market trading activity out of focus, with the spotlight off the role of the Bank of England in the London Gold Market.
  • Thirdly, the most powerful banks in the LBMA are the LPMCL members which are also the vaulters in London and the member banks of the LBMA Management Committee. These banks want to maintain the monopoly status quo of LPMCL and to maintain the status quo of the London precious metals vaulting system and their vaulting fees. The same banks run the trading, clearing and vaulting of the entire London bullion system. Perhaps the FCA should be looking at anti-competitive behaviour here, for example vaulting fees, and clearing fees.
  • Fourthly, the current LPMCL system masks huge amounts of trading for the LBMA members banks and brokers. Huge trading makes large trading commissions. The same system generates the need for the banks to provide credit to bullion market participants, which generates interest income.
  • Fifthly, by propping up LPMCL, its member banks can push back on any competing initiatives that are proposing a ‘gold exchange’ in London, such as the exchange initiative that’s backed by the World Gold Council and a number of other (non LPMCL) bullion banks.

As the Financial Times said in October 2015 when reporting about the LBMA’s so-called moves to provide trade reporting in light of other initiatives by the LME / World Gold Council and banks such as Goldman, SocGen, Citibank and Morgan Stanley (and previously including ICBC Standard) to move gold trading on to an exchange platform using exchange defined gold contracts:

“In the other camp is the LBMA, the official body set up by the Bank of England in 1987 to regulate the bullion market, which has close ties to the vaulting banks. Many of its biggest members want physical gold trading in London to remain off-exchange, but have conceded that a move towards all trades being cleared in one place could add transparency.”

Look at what the incumbent LBMA banks do, not what they say to newspapers. What the LBMA – LPMCL co-op (same people, different hats) has just done is welcomed another bank (ICBC Standard) into ‘this vital organisation” (the LPMCL), and the LBMA is now looking forward to “continuing to assist LPMCL in its growth and development.”

ICBC Standard had been in the LME / World Gold Council / Goldman / SocGen/ Citi / Morgan Stanley camp, buton the face of it, ICBC now appears to have deserted that faction and fully aligned with the LPMCL cartel of HSBC / JP Morgan / Scotia / UBS and Barclays. ICBC Standard may have been using the LME / Goldman camp as a bargaining tool with which to exert access pressure to join the LPMCL gang, and now that it has done so, it would be surprising if ICBC continues to align itself with the LME’s upcoming gold exchange proposal. However, as a Chinese controlled bank with long-term planning horizons, ICBC may wish to play a strategic game with a seat at both tables.

Deutsche Bank agrees to settle with Plaintiffs in London Silver Fixing litigation

In a surprising development, a group of plaintiffs in an antitrust litigation case against Deutsche Bank, HSBC Bank plc, the Bank of Nova Scotia, and UBS AG, have just announced that Deutsche Bank is in the process of negotiating the formal terms of a settlement agreement with the plaintiffs. Deutsche Bank, HSBC and Scotia are the only members of the London Silver Market Fixing Limited, a private company that had operated the London Silver Fixing auctions until mid August 2014, after which time that auction was superseded by the LBMA Silver Price auction.

The case (# 1:14-md-02573-VEC) is being overseen as a class action suit by federal judge Valerie E Caproni in the US District Court for the Southern District of New York. A large number of different plaintiffs had taken similar actions and the cases were consolidated into one class action suit. The plaintiffs allege in the suit that Deutsche Bank, HSBC and Scotia colluded to fix the price of silver futures by publishing false silver prices, so that they, as members of London Silver Market Fixing Company would benefit (from the price movements).

The full 1 page letter from the plaintiffs legal representatives Lowey Dannenberg, Cohan & Hart can be read here -> Deutsche letter to Caproni – 13 April 2016 – London Silver Fixing – Lowey Dannenberg Cohen Hart.

In a shocking development for the remaining defendants and the entire future of the current LBMA Silver Price auction, owned by the LBMA, administered in London by Thomson Reuters and calculated by the CME Group,  the letter states that:

“In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.

The plaintiffs include Modern Settlings LLC (of New York and Florida), American Precious Metals Ltd, Steven E Summer, Christopher Depaoli, Kevin Maher, Jerry Barrett, Rebeccca Barrett, KPFF Investment Inc, Don Tran, and Laurence Hughes.

The defendants include Deutsche Bank AG and various other Deutsche Bank entities, HSBC Bank Plc, HSBC Bank USA NA, HSBC Holdings Plc, and various other HSBC entities, The Bank of Nova Scotia, and various other Scotia entities, and finally The London Silver Market Fixing Ltd.

Coming on the heels of the unresolved and unexplained fiasco that is the LBMA Silver Price auction and the broken promises by the London Bullion Market Association (LBMA) about greater auction transparency and wider participation in the new Silver auction (see BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing“) it seems difficult to envisage that the LBMA Silver Price can survive in its current form, with its current participants, of which 2 of the remaining 5 participants are HSBC and Scotia. It will also be interesting to see what the Financial Conduct Authority (FCA) will say about this development with Deutsche Bank, especially in light of the fact that HSBC and Scotia are now participating in a ‘Regulated Benchmark’ (the LBMA Silver Price), where price manipulation can be criminally prosecuted.

London Silver Market Fixing Limited

The directors of the London Silver Market Fixing Limited company in the months before it ceased doing the London Silver Fixing auctions, were Simon Weeks of Scotia, Matthew Keen of Deutsche Bank, and David Rose of HSBC, with alternate directors of David Wilkinson of Scotia, James Vorley of Deutsche Bank and Peter Drabwell of HSBC. Since the above list was drawn up, UK Companies House filings show that, for London Silver Market Fixing Limited, David Rose ceased to be a director on 5 January 2016, David Wilkinson ceased to be a director on 16 October 2015, James Vorley ceased to be a director on 27 May 2014, and Matthew Keen ceased to be a director on 18 February 2014. According to those filings, it means that Simon Weeks of Scotia and Peter Drabwell of HSBC are still directors of the company that is a defendant in the above New York class action suite.

Surprisingly to some, Simon Weeks of Scotia is listed on the website of LBMA Silver Price administrator Thomson Reuters as still being a member of the LBMA Silver Price Oversight Committee. See list here. Furthermore, the same Simon Weeks is still listed as being a member of the LBMA Gold Price Oversight Committee, chaired by ICE Benchmark Administration. See list here.

Some of the above directors names will also be familiar to readers as directors of the London Gold Market Fixing Limited company, as profiled in the ZeroHedge article “From Rothschild To Koch Industries: Meet The People Who “Fix” The Price Of Gold“.

The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing

On 28 January 2016, the midday LBMA Silver Price auction took 29 rounds to establish a final price of US$13.58 which was manipulated down by a whopping 6% below where silver spot and futures prices were trading at that time. This auction fiasco and price manipulation has caused deep concern among silver benchmark price users as well as consternation among the Gang of Three companies which own/administer/operate the LBMA Silver Price, namely the London Bullion Market Association, Thomson Reuters Benchmark Services, and CME Group.

Notice in the following financial data distribution screenshot (taken from a US terminal) of the entire set of rounds in the LBMA’s distribution of the Silver Price auction results that day, that a trading entity was progressively increasing the Ask (Sell) volume between each round, thereby causing the auction algorithm to continual try lower opening prices each round, because the Bid volume was not increasing by enough to  meet the tolerance threshold between bid and ask volume (i.e. the imbalance was too great). Notwithstanding the possibility that collectively no participants or other traders felt the desire to arbitrage this price anomaly during the auction, it appears that someone was turning up the sell volume as the price went lower every 30 seconds for at least 14 minutes between midday and 12:15pm that day.

Silver Price auction rounds

Joint statement by Thomson Reuters, CME Group and the independent Silver Price Oversight Committee

On 4 February 2016, after scrambling and squirming for an entire week, Thomson Reuters, the CME Group, and the ‘Independent’ Oversight Committee for the LBMA Silver Price released a statement solely by email. This statement was not published on the websites of either the CME Group, Thomson Reuters, nor the website of the LBMA, hence, many people would not have seen it. Therefore, the full statement that they released is as follows:

“Developments to LBMA Silver Price Benchmark

Joint statement by Thomson Reuters, CME Group and the independent Silver Price Oversight Committee

LONDON, February 4, 2016 – Thomson Reuters and CME Group with the agreement of the LBMA and the independent LBMA Silver Price Oversight Committee today announce a package of measures to further develop the silver benchmark.

In addition to its regular meetings, the Committee has held two extraordinary meetings since the auction on Thursday January 28, 2016 and has been working with the benchmark administrator (Thomson Reuters) and calculator (CME Group) to address concerns. The regulatory authority, the Financial Conduct Authority, has been kept fully informed.

At the meeting, the Committee endorsed an intervention protocol agreed by the administrator and calculator to suspend an auction if they believe the integrity of the auction or participants is threatened.

This protocol has been in place since Friday January 29, 2016. All participants and the FCA have been informed of its implementation.

The Committee, Thomson Reuters and CME Group will present details of the measures to participants, their clients and the Financial Conduct Authority for discussion and implementation at the earliest opportunity.

These include: a blind auction, where only prices and not volumes are disclosed to participants until after the auction has closed; increasing the settlement tolerance where necessary to maintain the integrity of the auction; change the structure for sharing the differential to encourage full participation; and a package of measures to increase participation in the benchmark process and to encourage non-banks’ participation.

In addition we look at the viability of introducing centralized clearing of all auction trades, to make the process easier and less capital-intensive for participants.

“We are committed to maintaining the integrity of the LBMA Silver Price,” said Neil Stocks, chairman of the Oversight Committee. “We are introducing enhancements and are consulting on further developments with the many users who rely on this important benchmark.”

Note to editors

The LBMA Silver Price is calculated daily on a transparent electronic auction platform operated by the CME Group; Thomson Reuters is responsible for administration.


Brian Mairs, Thomson Reuters

Donal McCarthy, CME Group”


The above statement from Thomson Reuters, CME Group and the Oversight Committee is, in my view, misleading from a number of perspectives. As you will see below, the above statement fails to mention that increased participation in the benchmark auction, as well as non-bank participation in the auction, were promised by Thomson Reuters, the CME Group and the LBMA in July and August 2014, which was before the LBMA Silver Price auction was even launched.

The above statement also fails to mention that the introduction of centralized clearing was also promised by Thomson Reuters, CME Group and the LBMA in July and August 2014, again before the LBMA Silver Price auction had even been launched.

It is now February 2016, more than 18 months after the LBMA Silver Price was introduced, and here we have Thomson Reuters and the CME Group with the gall to state that they have suddenly formulated plans for wider participation and central clearing, when all along, these plans were actively discussed by the LBMA and CME Group during July and August 2014 as practical mechanisms that were promised to be implemented to address the pricing concerns of the wider silver market community and the spirit of the IOSCO benchmark Principles.

Given that the details of wider auction participation and central clearing of silver auction trades were quietly dropped and evidence of said discussion was even actively removed from the websites of CME Group and Thomson Reuters, it is not unreasonable to conclude that various powerful entities representing the London Bullion Market have been doing everything they can to prevent wider participation in the Silver auction, and doing everything they can to prevent central clearing being implemented for Silver auction trades.

London Silver Price Seminar – CME Webinar 29 July 2014

On Tuesday 29 July 2014, just over two weeks after the CME Group and Thomson Reuters had been awarded the contract to run the LBMA Silver Price auction process, and just over two weeks before the 15 August 2014 auction go-live date, “CME Group Metals Products and OTC Solutions” held a webinar titled the ‘London Silver Price Seminar’.

Recall that at that time, the new auction was still being referred to as the ‘London Silver Price’, and not the ‘LBMA Silver Price’. Critically, at various points in the 29 July webinar presentation (38 minutes long), reference was made to the new silver auction eventually using CME Clearing Europe as a central clearing counterparty (CPP) for all trades in the LBMA silver price auction.

The webinar consisted of presentations by four CME Group staff, namely, Jack Allen of the CME business team, Michel Evaraert, Head of OTC solutions for CME, Harriet Hunnable, CME’s Global Head of Precious Metals, and Anindya Boral, also of the CME business team. There was also a selection of Q&A from attendees at various points in the webinar.

From July 2014 to October 2014, a link to this CME webinar presentation was prominently listed on the CME Group’s LBMA Silver Price web page under the section ‘Additional Resources’, with the description “Our recent webinar covers a range of topics to the new LBMA Silver Price“. The following screenshot from the 9th October 2014 Wayback Machine archive link to the page in question can be seen below, with the Webinar link highlighted.

CME 9th October 2014 site

Sometime between October 2014 and early January 2015, but at least before 12th January 2015, the CME’s webinar link had been removed from the ‘Additional Resources’ section of the same webpage.

CME 12th January 2015 site

Now, why would such a useful ‘Additional Resources’ link in the form of a webinar covering “a range of topics to the new LBMA Silver Price” suddenly be removed from the website of the LBMA Silver Price calculation agent (CME) just a few shorts months after the new silver fixing auction was launched?

For those who want to see this webinar, don’t panic, because the full CME webinar from 29 July 2014 on the LBMA Silver Price can be seen here:

The CME webinar can also be played at this direct CME website. Let’s see how long this link stays live: http://cmegroup.adobeconnect.com/p3o9n3qj6gr/

At the outset of the 29 July 2014 webinar, the CME Group  displayed a power point slide showing a timeline divided into three phases:

  • Phase 1 was listed as ‘Today (July 29th) till August 15th’, described as ‘Day 1 participation’ and ‘business as usual’.
  • Phase 2 was titled ‘Broader base Participation”, including “Tier 2 participation”.
  • Phase 3 was ‘Extended Participation’, ‘Central Clearing via CME Clearing Europe’, and an ‘on-boarding process’, and also ‘EUR & GBP ability’.

Harriet Hunnable introduced the webinar, by saying:

“We wanted to make sure that we were addressing some of the questions that were coming to us from end-users, from silver producers and refiners and the like with regard to this transition that is happening in the London silver market. We wanted to make sure we were doing this pretty quickly given the number of inquiries we were getting and also the depth of business change that end-users were trying to prepare themselves for.”

Harriett Hunnable also stated that the CME wanted to”

enable more wide participation over time, directly towards this key market benchmark and reference price.”

Harriett Hunnable introduced Jack Allen of the CME business team, saying that Jack Allen:

“will be talking about what the banks are doing now and other participants can do over time to be part of this new London Silver Price”.


Both Jack Allen and Michel Everaert highlighted that the CME Group seemed to be under time pressure to deliver the new electronic based silver auction between July 11 and August 15:

Jack Allen said

“Time is short, 5 weeks, from when we were mandated, which is tough, it’s tough.”

Michel Evaraert said that:

“this really is what we call phase 1 of this effort. We were under very tight timelines to move the auction process into this new model…..we fully expect more functional changes over time…..we have simply electronified this (existing) process and we’ve introduced an audit trail and significantly more transparency to that process…”

Jack Allen’s explanation of the CME’s three phases highlights how the CME planned that the LBMA Silver Price would progressively evolve over the period after it was launched:

For Day 1 participation, what have we got? We’re looking at the LBMA Market Makers with consistent and constant bilateral credit facilities. These are very much encouraged due to restrictive timelines, and we know that this as a core participation that will work.”

“For the corporate and commercial user it will be business as usual. As a commercial user from day 1 please reach out to your correspondent banks and trading counterparties. There will be very little difference to what you previously had and what you’re going to be getting on 15th August”.

On Phase 2, Allen said:

Phase 2 we are looking for broader participation. On Day 1 our market makers may not be up and ready really yet. We will be very much again encouraging them to join, as well as suitable bilateral, what I would call, upper echelon banks with a good credit basis”.

On Phase 3, Allen said:

Extended Participation, we envisage central clearing via CME Clearing Europe under the auspices of the UK and European regulated authorities which should effectively open the door for most participants.


There were a number of Q&A breaks during the CME’s 29 July 2014 webinar. Many of the questions and answers from the webinar are very important and revealing, and are therefore documented below. Jack Allen read out the questions that came in from webinar participants:

Question: We have a question around getting the banks signed up and negotiating the legal documentation.

Jack Allen: “I can answer that. Basically it’s going pretty well at the moment, in terms of numbers without being specific. I think we can pretty much say in category one, two and three, with one being the top-tier, we’ve probably got between 6 and 7 verbal interests, good interests… I would say there’s probably a couple of mid-term ones on the lower scale, 5 of those are still considering what they are going to do. But it’s actually looking very good at the moment.

Question: “Is the platform open by invitation or is there a process for new participants to go through?”

There seemed to be hesitation by Jack Allen to answer this question (listen to the webinar to see what I mean), and Harriet Hunnable then stepped in and answered the question:

Harriet Hunnable: “The LBMA is going to be running the accreditation for phase 2 participants, they are setting up some criteria, and it will be open for people to apply.


Question: “What is the targeted timeframe for moving to centralised clearing?

Jack Allen: We’re basically starting the process as soon as possible. Let’s get this up and running by 15th August and then it’s all hands to the pumps on the clearing side so hopefully it will happen soon.”


Harriet Hunnable added:

“It’s possible to clear some trades already today on CME Europe and also in the US, to clear silver forwards and spot trades already, these are for loco London delivery. The work we’ve got to do is to set this up so that’s it’s part of the platform so it’s a level playing field for participants

Anindya Boral will be starting to do a big drive to enable cleared transactions through our clearing house and wider participation in August, so if you’re interested in that please get in contact with your broker or clearer or current bank. Boral is going to be doing a lot of work across CME Europe to facilitate that.”

There then followed a short discussion by Anindya Boral addressing central counterparty clearing through CME Clearing Europe, and a discussion of the slide which follows below. This is a very important slide because a variant of this slide appeared in the Thomson Reuters / CME Group / LBMA webinar presentation on 19 August 2014 (see below), but by then, the reference to CME Clearing Europe in the 19 August version of the same slide had been watered down significantly.

SLIDE 7 from CME Webinar:

CME 29th July phase 3

Slide text

Phase 3, Centralised Clearing

“Central counterparty clearing will enable greater direct participation in the London Silver Price”.

  • We anticipate using CME Group’s London Clearing House – CME Clearing Europe – for the London Silver Price

 By serving as the counterparty to every transaction, CME Clearing Europe will become the buyer to every seller and the seller to every buyer, virtually eliminating credit risk between market participants

  • Client connectivity to the Clearing House and clearing firm readiness will be the key to delivering centralised clearing for the London Silver Price
  • Please contact one of CME Clearing Europe’s 20+ clearing firms, or your preferred clearing firm or broker

That slide concluded the CME Group webinar on 29 July.


Reuters Global Gold Forum – 17 July 2014

On 17 July 2014, less than a week after the CME Group and Thomson Reuters had won the LBMA silver contract, Jonathan Spall of G Cubed Metals (and formerly of Barclays Capital) appeared in a Thomson Reuters Global Gold Forum webinar session where he was interviewed by Jan Harvey of Thomson Reuters about the new silver auction and associated topics.

A LBMA press release from 11 July 2014, titled “LBMA SILVER PRICE SOLUTION: CME GROUP & THOMSON REUTERS“, stated that the market consensus (to choose CME and Thomson Reuters)…

“…was also supported by the independent review conducted by Jonathan Spall of G Cubed Metals Ltd. As part of his review, Jon carried out in-depth interviews with the seven companies who delivered presentations at the seminar on the 20th June.”

So the review written by Jonathan Spall, the ‘independent consultant’ hired by the LBMA, also supported the choice of CME Group and Thomson Reuters to operate the new LBMA Silver Price auction. The regular Thomson Reuters global gold forum over the Reuters platform is hosted by Reuters journalists, and takes the form of a question and answer session with precious metals industry representatives, often facilitated by Jan Harvey.

Jan Harvey (Thomson Reuters):

“What made the successful proposal successful, as far as you were concerned?”

Jonathan Spall (G Cubed Metals Ltd)         (part of answer to the above question)

“The hope of course is that we get many more participants in the new benchmark process….while it is likely that we will start by having banks involved it is ultimately hoped that the wider market will participate, be they refiners, miners etc. The idea of starting with banks is that they are likely to have credit lines with each other, and without centralised clearing that is obviously vital.”

 So, centralised clearing precludes the need for using bilateral credit lines in the auction, and therefore removes one of the barriers to entry that favours the bulllion banks as the exclusive direct participants in the auction. The Thomson Reuters Forum continued:

Jan Harvey: (with a question from the floor):

“How is this going to work, as not everyone has credit with everyone. What if the algo (algorithm) matches you against someone with whom you don’t have credit?”   

Jonathan Spall (G Cubed Metals Ltd):

That’s why it’s starting with the banks. Ultimately, there may be some form of agreement such that if a refinery, for example, wants to become part of the benchmark (and I very much hope that they do) – then a bank could agree that if the algo matches the refiner/miner etc to a name where they do not have credit lines, the bank would be allowed to intermediate.”

Jan Harvey:

“Another question from the floor: ‘Will there be a published parallel run of the silver fix? And will only banks get access to the platform and also the run of the auction?’

Jonathan Spall (G Cubed Metals Ltd):

“There all be parallel testing – so basically during August we can see if the system and software works. But it will not take place at noon. The idea of the auction is that volumes and the number of buyers and sellers will be published unlike now. So you can see that there were 3 buyers and 1 seller perhaps with 3 million ounces of silver taking place the names of the buyers and sellers will not be released though.

Ultimately – and as I said before – the intention is that there is much wider participation. So yes, refiners, miners etc.


Jan Harvey (also from the floor):

“Will the volumes and number of sellers be published in real-time?”

Jonathan Spall (G Cubed Metals Ltd):

“My understanding is that it will be.”

Jan Harvey

“From the same questioner – ’Will that be the case as of 15th August or not initially?’”

Jonathan Spall (G Cubed Metals Ltd):

“There is an enormous amount to sort out in less than a month – certainly the intention is there but not necessarily from day 1. There will also be the ability to see orders of the bank themselves and clients – again this will follow later. So orders will be gross – ultimately – and not net. The intention is to make it as transparent as possible but it will not be all singing and dancing on day 1.”



Thomson Reuters Webinar 19 August 2014 – including Ruth Crowell (LBMA) and Harriet Hunnable (CME)

On Tuesday 19 August 2014, Thomson Reuters hosted two sessions (London morning and afternoon) of a broadcast webinar titled “The New LBMA Silver Price, Greater Transparency, Facilitated by Thomson Reuters, CME Group, and LBMA”. The morning session took place from 9.30am – 10:30am London time. Note that by August 19 2014, the CME’s Phase 1 had by that time passed (i.e. it was after the 15 August 2014 launch date of the LBMA Silver Price).

Douglas Pollack, Thomson Reuters Head of Market Development for Commodities in Europe, hosted the webinar. Other speakers included Bernd Sischka, Global Metals Proposition Manager for Thomson Reuters, Ruth Cowell, LBMA CEO, and again, Harriet Hunnable, of CME metals products.

This webinar was available on the following link but has been taken down: http://edge.media-server.com/m/p/j82fcpca/st/TR/. Accessing this link now returns an error message:


Lucky however, the morning session of the LBMA – Thomson Reuters – CME Group 19 August 2014 webinar can still be viewed in full here:


Attendees at the 19 August 2014 could post questions to the panel during the webinar to be answered in the Q&A parts of the session.

Bernd Sischka began the 19 August 2014 webinar, and said that he would cover methodology and auction process, and then cover the details of participation:

“The third point I will highlight, who can participate in the LBMA Silver Price auction, and highlight the requirements for any new market participants who are looking and aiming to participate in the auction”.

This is what Bernd Sischka then said about auction ‘Participation’:

“So who can participate in the LBMS Silver Price auction? There are a number of market participants which have signed up for Day 1 participation and successfully participated in the auction process, but obviously given that this benchmark is meant to provide access for a wider range of market participants, and also increase the transparency and establish the LBMA Silver Price as a widely used benchmark, there obviously are certain ways that other participants who have heard about the new LBMA Silver Price, who can actually fulfill certain criteria for participation.

However, Bernd Sischka did not explain or even list what the LBMA accreditation criteria consisted of:

“So I will just briefly highlight what those requirements are. First of all there are certain benchmark criteria which are set out by the LBMA, given that the LBMA is accrediting all the market participants. That is probably one of the key requirements that have to be fulfilled..

.. followed on by from the Thomson Reuters side, we’ve got a participant code of conduct which is a legal document which we require as the administrator, for every market participant to sign up to, and then thirdly from the CME side, obviously given that the CME operates the electronic auction platform, there are technological requirements and documents, and legal documents, that need to be signed off by the individual market participants, in order to be able to participate in the auction platform.”

About the methodology document, Bernd Sischka said:

“the second key document is a very extensive methodology document which goes into much more detail which was drafted by the CME, LBMA and Thomson Reuters as a joint document”.


During Ruth Crowell’s part of the session, she discussed the survey that the LBMA had launched in May 2014 to solicit views on improvements to the then existing Silver Fixing. This survey received 444 responses from interested parties in the Silver Market. While discussing slide 19 of the presentation, Crowell stated that there was a:

clear demand that came out that there was market satisfaction with the current mechanism, but demand for some improvement, particularly further transparency, as well as increased direct participation, and we had 25% of those 444 coming back saying they would be interested, and we’re still interested in having all of those participants on board, and I can talk a little bit about that later, and I know Harriett will as well.”

However, the later discussion in the webinar from Ruth Crowell and Harriet Hunnable did not talk about extended participation until an attendee of the webinar specifically asked a question about it.

After the formal presentation completed, there was a Q&A session for the attendees, with the questions submitted via the webinar and read out by Douglas Pollack.


“According to the presentation, phase 3 introduction of centralised clearing and CCP….Does this mean that the London price, trading loco London, becomes more exchange based, rather than OTC market?”

Harriett Hunnable:

“Lets go ..to slide 27,..ehm..central clearing is not something we’ve spoken about here because we wanted to focus on what’s up and running on Day 1 and how it’s set up”

Note: By 19 August 2014, the CME’s slide on ‘Phase 3 – Centralised Clearing’ had been distorted and the first bullet point which had previously stated…

Central counterparty clearing will enable greater direct participation in the London Silver Price”

had now become…

“CME Group’s London Clearing House – CME Clearing Europe – can facilitate central clearing CCP of spot transactions such as the LBMA Silver Price”

TR 15 Aug 2014 phase 3

Harriett Hunnable continued:

We have discussed with the LBMA and with a number of interested participants…., it is possible today to centrally clear through our clearing houses, at CME Group silver spot and silver forward transactions and it is possible that at a later stage we introduce under the auspices of the LBMA, central clearing, into this model…

..and we’ve called that phase 3, just to illustrate that there are several steps that need to be gone through to get there. ….to answer that question, will it become an exchange traded market, no, this remains an over the counter product, it is not listed on a recognised investment exchange, so whether it remains like it is today, whether it is bilaterally cleared, from one participant to another participant, or centrally cleared with a clearing house in the middle, it will remain an over-the-counter marketplace, and it will not be an exchange marketplace.”


Ruth Cowell:

The advantage with centralised clearing, particularly for the pricing mechanism, is that we can really exponentially grow the amount of direct participants, and that was something that was really highlighted during the working group and the testing is that credit is an issue, and obviously in the old model, the participants in it had quite high credit with one another, but managing the credit in the new system is something that we’ve …..addressed, but there is a limit when it comes to.. there’s a difference between a small participant and one of the larger institutions credit wise, you still want to allow liquidity, but centralised clearing is a way to get to meet all of those things …..”


“What happens to London Precious Metals Clearing Limited?”

Ruth Cowell:…. nothing happens to London Precious Metals Clearing Limited. It remains the institution which is separate from the LBMA…..and.. it continues business as usual..”

Harriett Hunnable: “..business as usual in London.

Douglas Pollack:Nice easy answer on that one!”

It appears to me that there was a reluctance of the presenters to talk about London Precious Metals Clearing Limited (listen to the webinar to see what I mean).



“Will actual direct participating members who are direct participants become brokers for their underlying clients?”

Harriett Hunnable:

“They may do and some of them may decide not to…so it is very possible that we have a major producer who wants to become a direct participant and does so. It is possible that we have a trading company and a bank who are…both of whom act as brokers for other participants, and accept their orders and place them on the fixing …so the model allows for clear direct participation and what you might call aggregated direct participation…so yes, we expect some of the participants to take direct orders from others but it’s not a requirement.”

Ruth Cowell:

“And that’s the way it has traditionally worked…I think for a lot of participants, particularly those who haven’t been involved in the process, if you’re looking at institutions, like producers, if they have significant business to do during the auction then they could probably make a business case to become a direct participant, ..put the controls and the governance in place, however, if it’s something that they are just doing a few times per year, they probably, I would expect, would do business the way they traditionally have, through their metals partner”

That said…many of the accredited participants have made it clear that if you’re someone who is another bank or trading house, they may not be willing to take your orders on the long-term basis, and that is something that has got to change….and because there is direct participation that is comparable…if you’re the type of player that should be directly involved from their perspective, they reserve the right to say no.”

Harriett Hunnable:

So this is really the new world, this is not the old fixing…..this is wider participation…and the London bullion market is really encouraging that…this is the new world, or the LBMA Silver Price!”.


“Why have some participants refused to take others from a lot of semi-pros for the new LBMA Silver Price?

Ruth Cowell:

What we want to see is more direct participation. If you’re an institution who should be directly involved or able to have the controls, because you’re participating in another benchmark, the market would like to see those people there as well, which is why a lot of the traditional players have said we will not take your orders. We don’t want to have just the liability on ourselves, we want everyone to put direct participation in, so it stops being only a few institutions.

In the new mechanism it’s definitely a big change….in that there’s not the ownership and liability that we had with the old,…..ultimately everyone is a participant, they are not obliged to participate every day, if they don’t participate then they don’t share the differential so it is something that you can be accredited for and when you have business, you put that business in, it’s not a blind ….in the same way as the past.”



What phase is the current implementation, is there a roadmap to phase 3?”

Ruth Cowell:

There is a roadmap for phase 3, there is also a roadmap for phase 2..and that’s something we’ve been working with the participants and potential participants on, in conjunction with the CME Group and Thomson Reuters. So if there is interest I invite you to engage with the LBMA and we can put you in touch with the right people to start sharing and building that roadmap together.


I think the above spin speaks for itself. No comment necessary. But I advise readers and especially journalists to listen to the 2 webinars above, and to begin asking proper questions to the LBMA, to Thomson Reuters, and to the CME Group.

The above webinar was the morning Thomson Reuters webinar session. Coverage of the 19 August 2014 afternoon webinar session (London afternoon) by a Resource Clips article ‘Claims of greater transparency fail to satisfy critics of the LBMA silver price referred to it thus:

“Phase II will bring more participants, possibly including trading houses, large refiners and producers, according to the CME, which expects to see “a big jump in terms of who can take part.” Those who seldom trade or can’t meet the LBMA criteria may do business through a broker or banker.

Wider participation will further enhance transparency says Harriet Hunnable, CME head of precious metals”.

There was also a Q&A session at the second August 19 webinar and the Resource Clips web site covered some of the Q&A topics. The questions chosen to be answered in the second webinar were far less challenging than those in the morning webinar session, and, according to Resource Clips, covered topics such as regulation of the auction, purpose of the algorithm, reason for having a minimum 100,000 ounce lot size and ‘physical’ delivery.

Even so, Resource Clips concluded in its article that:

Some of those (Q&A) replies might have benefited from greater conviction, not to mention clarity.”


LBMA distances itself from the scandal

Some journalists, such as in Platts, have admittedly now begun to ask the pertinent questions. But the ‘Gang of 3′ entities that should be answering the questions are refusing to do so.

Apart from the mis-leading and disingenuous 4 February “Joint statement by Thomson Reuters, CME Group and the independent Silver Price Oversight Committee” (see above), the auction owner (LBMA), administrator (Thomson Reuters) and calculation agent (CME Group) have not co-operated with those asking the questions, such as Platts. From a Platts article on the afternoon of 4 February 2016:

“The LBMA, which does not participate in daily operations, declined to comment on the matter.

Both CME and Thomson Reuters declined to comment, pending an investigation into last week’s settlement issues.”

The LBMA looks to be running scared and has distanced itself from the latest silver price manipulation controversy. The one noncommittal acknowledgement that the LBMA did communicate on 2 February (after pressure and contact from silver market participants) was only transmitted via a link to a page that had been uploaded to an obscure email management software app called createsend.com – See link http://createsend.com/t/j-85A8744E09A02D2B and below is the screenshot.  Notice how the LBMA seeks to highlight in a few places in its release, the roles and responsibilities of Thomson Reuters and the CME Group. Rats on a sinking ship perhaps:


crisis mgt lbma

The above bereft LBMA update does not even acknowledge that the LBMA owns the intellectual property rights to LBMA Silver Price (as well as similar ownership rights to the LBMA Gold Price). The LBMA registered the Trademarks for both the LBMA Silver Price and the LBMA Gold Price on the same day, August 15 2014. See LBMA Silver Price Trademark and LBMA Gold Price Trademark.

The LBMA also updated its website after 28 January 2016 by adding an entire ‘Governance and Oversight’ section near the top of its LBMA Silver Price description page pinning the responsibility on Thomson Reuters and the CME Group.

The first screenshot is from a Google cache imprint on 28 January 2016. This cache has now updated but a Wayback Machine imprint with the same information from 22 September 2015 shows the same imprint.

silver with Mitsui

The second current version of this LBMA Silver Price web page shows the hastily added ‘Governance and Oversight’ paragraph, with similar text to that which appeared in the LBMA’s arms-length email stunt using createsend.com.

Governance added - silver without Mitsui

In the above 2 screenshots, you will notice that the ‘Accredited Price Participants’ paragraph has also been highlighted. It was only after the 28 January 2016 silver price fiasco auction that the LBMA suddenly changed its text and pulled Mitsui and Co Precious Metals Inc from the list of 6 participants of the LBMA Silver Price. Why were there 6 participants accredited on 28 January, but only 5 participants accredited on 29 January? And why was Mitsui still listed as a silver auction participant when it was reported in October 2015 to be “shutting down precious in London and New York in December” according to Reuters “Mitsui to shut precious metals business in London, New York-sources“.

Even an early version of an article from BullionDesk on 28 January reported that

The [silver] price is set every day by six participants – HSBC, JPMorgan Chase Bank, Mitsui & Co Precious Metals, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters“.

Thomson Reuters (as administrator of the LBMA Silver Price) only very recently added a number of compliance type documents to its website. In one of them, the ‘silver price participant code of conduct‘, there is a paragraph about a participant needing to give 1 month’s notice of withdrawing from the auction:

Participants Notice of Withdrawal
1.5 Participants considering withdrawing from the LBMA Silver Price Benchmark auction process must endeavor to provide Thomson Reuters with at least one calendar month’s notice in order to protect the continuation of the Benchmark.

On launch day in August 2014, the LBMA trumpeted the addition of Mitsui to the LBMA Silver Price but has now reverted to very quietly amending its website when Mitsui has departed.


The Gang of Six

The new LBMA Silver Price was launched on 15 August 2014, administered by Thomson Reuters, with CME Group as auction calculation agent. On launch day there were only 3 direct participants, Bank of Nova Scotia (Scotia Mocatta), HSBC Bank USA NA, and the now infamous Mitsui & Co Precious Metals Inc. HSBC and Scotia had been existing members of the London Silver Market Fixing Limited company, in conjunction with Deutsche Bank.

On 15 August 2014, the LBMA  claimed that it “fully expects the list of price participants will grow over the coming weeks” and that “these participants include banks, trading houses, refiners and producers”. This growth of participants, as readers will be aware, never happened. Scandalously, only 3 further participants ever joined the LBMA Silver Price auction, and these 3 participants were all banks which had representatives on the 10 person LBMA Management Committee. UBS joined the Silver auction on 26 September 2014JP Morgan Chase Bank joined the Silver auction on 14 October 2014, and The Toronto Dominion Bank signed up to the auction on 6 November 2014.

During that time, the 10 person LBMA Management Committee of the LBMA included Steven Lowe of Bank of Nova Scotia-ScotiaMocatta (Vice-Chairman), Peter Drabwell of HSBC Bank USA NA, Kevin Roberts of JP Morgan Chase Bank, Philip Aubertin of UBS AG, Robert Davis of Toronto Dominion Bank, and Anne Dennison of Mitsui. The chances of the only 6 participants ever to join the LBMA Silver Price auction being 6 of the 8 banks which were represented on the LBMA Management Committee when they signed up, is infinitely small.


Gates and Obstacles to Wider Participation crafted from Day 1 in August 2014

On August 15, a document titled Commodities Benchmark Methodologies: LBMA Silver Price was published under the name of Thomson Reuters, the administrator of the new LBMA Silver Price benchmark. Some of this was covered in a section of the BullionStar blog post “Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!“, but is critical here to understand which entities can and can’t participate in the Silver auction.

This Silver Price methodology guide was jointly written by the LBMA, Thomson Reuters, and the CME Group and discusses the methodology that the three groups have established for the silver price benchmark, including the criteria that qualifies an applicant to be authorised as a silver auction participant.

This LBMA Silver Price Methodology document states that:

 “Participation in the auction is open to all silver market participants who meet the following conditions:

  1. meet the Benchmark Participant criteria set out by the LBMA
  2. meet the Participation criteria set out by Thomson Reuters as the Administrator
  3. meet the requirements set by CME Benchmark Europe Ltd to use the technology platform and

participate in the auction market place.

The market participants are accredited by the LBMA; access to the auction platform is approved by CME Benchmark Europe Ltd.

It’s important to look at each of these three sets of criteria/requirements as these criteria/requirements are the basis under which the LBMA plays the role of gatekeeper in deciding which applicants to allow to join the new silver auction process. It’s also important to note the distinction between participant criteria and participation criteria:

The LBMA’s Benchmark Participant criteria

In a section titled “Benchmark Participant criteria”, the document states:

  • A participant has to be a Full Member (Ordinary or Market Making) of the LBMA.
  • The participant also needs to have a Loco London Clearing account.
  • Applicants to be a Full LBMA Member must demonstrate that they:
  • actively trade spot, options or forwards in the London Bullion Market
  • Pass KYC (know your customer) procedures
  • Declare conformance with the Non-Investment Products Code
  • Applications are subject to review and ultimate approval by LBMA
  • The participant has to accept and implement the Thomson Reuters LBMA Silver Price Participant Code of Conduct
  • Participation is additionally subject to the requirements set by CME Benchmark Europe Ltd for use of the technology platform and for participation in the auction (e.g., in respect of credit arrangements)

In a further section titled “Accreditation of Participants” the document states:

  • Participants will be accredited by the LBMA based on the Benchmark Participant Criteria
  • Accredited Price Participants will be listed separately on the LBMA website

There is no reference in the Thomson Reuters document to the phrase to the concept of ranking participants based on ‘credit ratings’ or ‘credit scores’ as Jack Allen of CME stated in the CME webinar when he said “LBMA Market Makers with consistent and constant bilateral credit facilities“.

Note that all of the market-making members of the LBMA already meet the LBMA’s benchmark participant criteria and just need to receive formal LBMA authorisation and sign up to the CME’s platform and participation requirements.

Thomson Reuters’ Participation Criteria

Thomson Reuters’ participation criteria refer to the fact that “all participants are required to adopt the LBMA Silver Price Participant Code of Conduct. This is addressed in a section titled “Benchmark Participant Codes of Conduct”.

CME Benchmark Europe Ltd Requirements

The CME Benchmark Europe Ltd also has requirements which participants must adhere to. These requirements relate to the use of the technology platform and to participating in the auction.

One participation requirement cited in the document is “in respect of credit arrangements”. These credit arrangement refer to the bi-lateral credit lines between the participating bank in the auction.

According to the methodology guide, the auction platform also has a credit screener built-in which ensures “that an order entered by a participant will not result in that participant exceeding their pre-set credit limit”.

Auction participants also need to sign the CME Benchmark Europe Ltd Participation Agreement.


Limitations of the Silver Price Auction in terms of IOSCO

The most obvious limitation of the LBMA participant criteria is that auction participants are required to be Full Members of the LBMA, and so the auction is not representative of the global Silver Market.

The IOSCO benchmark principles state that a benchmark should be a reliable representation of interest, i.e. that it should be representative of the market it is trying to measure. Interest is measured on metrics such as market concentration. In the Thomson Reuters methodology document, on page 11 under benchmark design principles, the authors estimate that there are 500-1000 active trading entities in the global silver market.

4.2 Financial Benchmarks Design Principles

Reliable representation of the interest:

“Market concentration Estimated ~500-1000 active trading entities; an estimated 5 market markets at launch date rising to approximately 15 spot market makers in the auction.”

Yet there are only 75 full members of the LBMA, 61 of which are Ordinary members, and some of these ordinary members are just logistical and infrastructure type entities. Even the 66 Associates and 9 affiliates of the LBMA cannot even apply to participate directly in the Silver auction. Therefore, due to the strict auction participant criteria, a handful of LBMA market-makers are being assigned to globally represent the 500-1000 active trading entities. The Methodology document also foresaw 15 spot market makers in the auction. Where too are these 15 spot market makers?


The IOSCO benchmark design principles, page 11, also recommend measuring a metric called “relative size of the underlying market in relation to the volume of trading (the volume of trading that is being used to form the benchmark)”.

iii. Relative size of the underlying market in relation to the volume of trading

Volumes in the LBMA Silver Price auction are a fraction of the daily volume traded in the silver futures and OTC markets

The Thomson Reuters methodology document admits that “volumes in the LBMA Silver Price are a fraction of the daily volume traded in the silver futures and OTC markets”.

The first day of the LBMA Silver Price auction only saw a net 525,000 ounces of silver offered and a net 325,000 ounces bid. Since the CME group and Thomson Reuters don’t provide any other volume data beyond this net data, on face value this looks like a miniscule amount of silver compared to global daily silver trading, and it not representative of anything in particular. Net auction volume data is not useful without the pyramid of gross trade data that may or may not lie underneath it.


All for One and One for All

Finally, since this article started with the Statement jointly issued by Thomson Reuters, CME Europe and the ‘Independent’ Silver Price Oversight Committee, let’s look at what exactly these 3 entities are.

The new LBMA Silver Price is therefore being ‘run’ by a combination of three entities, namely, the LBMA, CME Group and Thomson Reuters, but more specifically, the LBMA, CME Benchmark Europe Ltd. (“CMEBEL”), and Thomson Reuters Benchmark Services Ltd. (“TRBSL”).

There is now an extensive disclaimer on the LBMA website addressing the LBMA Silver Price (which obviously wasn’t there during the time of the London Silver Market Fixing Limited company). Given the involvement of the three parties, LBMA, CME and Thomson Reuters, together they now comprise the ‘Disclaiming Parties’. The introduction of this (long) disclaimer is as follows:

LBMA Silver Price (“Benchmark”) is owned by The London Bullion Market Association (“LBMA”), calculated by CME Benchmark Europe Ltd. (“CMEBEL”) and administered by Thomson Reuters Benchmark Services Ltd. (“TRBSL”).

None of LBMA, CMEBEL, TRBSL, their group companies, nor any of their or their group companies’ respective directors, officers, employees or agents (collectively the “Disclaiming Parties”) shall be liable in respect of the accuracy or the completeness of the Benchmark or the market data related thereto (“Market Data”) and none of the disclaiming parties shall have any liability for any errors, omissions, delays or interruptions in providing the Benchmark or market data.”

So who are CEMBEL and TRBSL?


Thomson Reuters Benchmark Services Limited

The administrator of the LBMA Silver Price process is a freshly established subsidiary of Thomson Reuters called “Thomson Reuters Benchmark Services Limited” (TRBSL).

Thomson Reuters Benchmark Services Limited is a private limited company, company number 08541574 which was incorporated on May 25, 2013, but only really ‘launched’ in March 2014. TRBSL has a registered address of “The Thomson Reuters Building, 30 South Colonnade, Canary Wharf, London E14 5EP”.

Initially the directors appointed to TRBSL were legal and compliance staff from Thomson Reuters including David Mitchley, Global Compliance Controller. From October 2013 onwards these directors were replaced by other directors from Thomson Reuters, namely Peter Moss, Head of Trading, Mark Beaumont, Global head of Treasury, John Cooley, Global Head of Indexes and Reference Rates, and Philip Wellard, Head of Transaction Services. TRBSL was then publicly launched in March 2014 via various press releases. Philip Wellard resigned from TRBSL in May 2014.

Mark Beaumont was a director of TRBSL all the way through the LBMA consultation and selection process but then dropped off the director list on July 17 2014, a few days after the LBMA had selected Thomson Reuters to administer the auction. On July 17 2014, another Thomson Reuters executive, Stephen Turner, Global head of Planning and Deployment, Real Time Technology, was appointed as a director of TRBSL. Julian Day, Global Head of Fixing Operations at Thomson Reuters was appointed to TRBSL in October 2014, Peter Moss dropped off in March 2015, Tobius Sproehnle, Global head of Benchmark Services at Thomson Reuters was appointed to TRBSL in June 2015, and interestingly, the company’s Auditor resigned on 1 October 2015. Why would the auditor have resigned?

Thomson Reuters established TRBSL so as to have a separately governed and registered entity to provide benchmark services. This was partially done for compliance reasons in light of regulatory guidance and client expectations in the wake of the LIBOR scandal, when regulators took action against some of the banks that contributed to BBA LIBOR. TRBSL is now regulated by the FCA.

LIBOR had been administered by BBA LIBOR Ltd and calculated and published by Thomson Reuters. John Ewan (see below), a director of BBA LIBOR Ltd, left BBA LIBOR Ltd in 2012 and joined Thomson Reuters as Head of Fixings Business Development, and worked with Mark Beaumont on promoting the benchmark calculation and publication services of Thomson Reuters (see below). Ultimately, the senior people listed above are responsible for the LBMA Silver Price given that they are directors of TRBSL.

Note that LIBOR is now a regulated benchmark and regulated by the FCA since April 2015. ICE Benchmark Administration is the administrator of ICE LIBOR and also oversees the methodology and calculation process of this benchmark.


CME Benchmark Europe Limited

CME Benchmark Europe Ltd is a newly incorporated legal entity, purely set up for the LBMA Silver Price. CME Benchmark Europe Ltd (CMEBEL) is a private limited company, company number 09165067, which was only incorporated on 6 August 2014, a week before the new LBMA Silver Price auction went live.

On 6 August 2014, CEMBEL had a registered address of “3 More London Riverside, London SE1 2AQ”, which is the same address as law firm Norton Rose LLP, located near London Bridge Station. The secretary of the company is “Norose Company Secretarial Services Limited”, also of 3 More London Riverside, London SE1 2AQ. Norton Rose acts as outside legal counsel for CME Europe.

On 6 August 2014, the sole director of the company was Clive Weston, 3 More London Riverside, London SE1 2AQ. Clive Weston is listed with an occupation of company secretary. On 7 August 2014, the registered office of CME Benchmark Europe Ltd was re-registered to 4th Floor, One New Change, London EC4M 9AF, which is CME’s London headquarters office.

On 1 October 2014, two Appointment of Director forms were filed with Companies House on behalf of CMEBEL, appointing two CME employees as directors of CMEBEL. These forms were backdated to 6 August 2014. So, technically, the CME auction was being run for over six weeks by a company that had only one director and this director was a company secretary employed by law firm Norton Rose, who was not a direct employee of the CME Group. The forms filed on 1 October 2014 appointed William Knottenbelt and Adrienne Seaman as directors of CMEBEL. William Knottenbelt is CEO of CME Europe. Adrienne Seaman is CME Group associate general counsel for EMEA.

In February 2015, Richard Bodnum, md Tax, Jill Harley, md Corp Fin Services and Harriet Hunnable (Global Head of Precious Metals) were appointed to CMEBEL, with Bodnum and Harley both stepping down as directors in June 2015, after which Thomas Krabbe, director of Corporate Finance and Development and Julie Winkler, md Research, Product Development, were appointed as directors the same month, and Gavin Lee was appointed as a director in September 2015. On 11 December 2015, Harriet Hunnable’s directorship of CMEBEl was terminated, since she left the CME Group at that time.

CME Europe Benchmark Limited performs the roles of ‘auction platform operator’ and ‘calculation agent’ for the LBAM Silver Price. Immediately prior to each daily auction the ‘operator’ performs a calculation on diverse CME market data silver price sources in order to establish an opening or seed price that starts the whole auction process. CME Direct is used as the auction platform. This is an electronic trading platform for trading OTC and exchange traded markets.

According to Thomson Reuters, “the calculation agent is a legal entity with delegated responsibility for determining a benchmark through the application of a formula….with the methodology set out by the administrator”.

CME Europe Benchmark Limited also has an ‘Auctions Market Team’. This team is part of the CME Global Command Center (GCC) some of whom are located in the CME’s London office at One New Change in the City of London.

Additionally, according to the LBMA Silver Price methodology paper “CME Benchmark Europe Ltd will conduct limited monitoring of live auction activity for suspicious bids, offers, or trades.” As to why this monitoring of live auction activity is limited and not constant is not addressed by the administrator, Thomson Reuters.


‘Independent’ Silver Price Oversight Committee

You may recall that the statement on the LBMA Silver Price issued on 4 February was issued by Thomson Reuters, the CME Group and “the independent Silver Price Oversight Committee”. Who and what is this independent committee?

In March 2015, I asked Thomson Reuters by email as to who was on this committee. The question was precipitated by the fact that the LBMA Gold Price, administered by ICE Benchmark Administration (IBA) had just launched the LBMA Gold Price (on 20 March 2015) and had appointed its Oversight Committee. The Silver Price methodology guide had referred to a LBMA Silver Price Oversight Committee, but it did not explain who was on such as committee or whether it actually existed in practice.

Thomson Reuters replied to me in March 2015 that:

“Yes we are pleased to confirm there is an LBMA Silver Price Oversight Committee, as mentioned in our methodology guide. We will release the committee members names in due course (we have not yet made them public) and committee procedures will be in full compliance with all FCA requirements when silver becomes an FCA-regulated benchmark on April 1.” [2015]

This list had still not been published on the Thomson Reuters website by September 2015, as this Archive (Wayback) link makes clear. So 6 months after Thomson Reuters said they would release the list ‘in due course’ it still wasn’t on the website. The list was eventually published sometime between September and December 2015.

Fast forward to the end of January 2016 when the embarrassing LBMA Silver Price auction took place, and this was probably the first time in quite a while that Thomson Reuters and CME Group and LBMA had actually given any thought to the ‘Independent Oversight Committee’. For in a google cache link from 29 January, it still listed a version of the Committee list with Harriet Hunnable listed as the CME Group representative, and Harriet Hunnable left the CME Group in December 2015, as explained above, and as Reuters reported:

CME Group Inc’s executive director for metals products, Harriet Hunnable, will leave the company later this month, a CME spokesman said on Wednesday.

Where does Hunnable’s departure from CME leave all of the improvements of wider participation and central clearing for the LBMA Silver Price that she promised the attendees during those 2 webinars in July and August 2014?


You can see a Bing cache of this page from 24 January 2016 here. Bing sometimes has its uses. It was only after the suspect price auction on 28 January that the named CME representative was amended on the list from Harriet Hunnable to Gavin Lee, suggesting that no one even noticed the out of date information until Thomson Reuters realised that there were lots of eyes looking for this list. Importantly, there are NO published minutes of ANY meetings held by this LBMA Silver Price Oversight Committee, ever. Contrast that to the LBMA Gold Price Oversight Committee which has published minutes of 6 of its meetings since 27 February 2015.

As the 4 February ‘joint statement’ at the top of this article said:

“In addition to its regular meetings, the [Silver] Committee has held two extraordinary meetings since the auction on Thursday January 28, 2016″

So, where are the minutes for these meeting and for any of the ‘regular’ meetings, which obviously hadn’t taken place at least since Harriet Hunnable left CME Group in early December 2015.

Lets look at these 8 individuals on the Silver oversight committee?

Gavin Lee is head of benchmark services at CME. Courtney Lynn is treasurer at Coeur Mining. She also says in her Linkedin profile that she is on the “LBMA Silver Price Oversight Committee” and joined this committee in April 2015, and that the “LBMA Silver Price oversight committee reviews and maintains the definition, setting, scope and methodology of the LBMA Silver Price benchmark.” This is the same Courtney Lynn of Coeur Mining who told Bloomberg in August 2014 in relation to new LBMA Silver auction, that:

“We hope to have the opportunity to become a direct participant down the road and look forward to working with the LBMA, CME and other silver producers to drive the evolution of this market.”

Hope springs eternal….because with price manipulation in the Silver auction, and Mitsui now departed from the Silver auction, it looks like the evolution of the market is being driven backwards rather than forwards. Even being on the Oversight Committee doesn’t seem to be enough for the LBMA to allow Coeur to become a direct participant in the LBMA Silver Price auction.

The “Neil Stocks”, who is “Independent chairman” of this committee, appears to be the Neil Stocks who is global head of compliance at UBS. There can’t be many “Neil Stocks” in London that fit the role of being able to be appointed as chair of a Silver Price oversight committee, but Thomson Reuters doesn’t see fit to ascribe Neil Stocks to any organisation, presumably because that would make him less independent. If it is the Neil Stocks from the infamous precious metals manipulator UBS (that made clear attempts to manipulate the prices of precious metals), than that is not independent since UBS is one of the 5 remaining direct participants in the Silver auction. Sakhila Mirza is the general counsel for the LBMA and a member of the LBMA Gold Price Oversight Committee.

Now we come to the infamous John Ewan from Thomson Reuters, and remember that Thomson Reuters is the officially retained administrator of the LBMA Silver Price benchmark. This is the same John Ewan who worked at the British Bankers Association and was managing director of BBA Libor Ltd (surely with oversight?) and was subsequently referred as Mr Libor. This is also the same John Ewan, who according to the Wall Street Journal article from 2012:

assured participants that the BBA had rigorous quality-control measures to prevent any problems, the minutes indicate” and “advocated further expansion, touting the potential revenue from broadening Libor’s reach”

 This is also the same John Ewan whose senior at Thomson Reuters, wrote a letter in Q4 2012 introducing Ewan to benchmark contributor associations:

I am writing to introduce myself and some key contacts at Thomson Reuters, to provide an update on our recent activities with regard to benchmark fixings and to make some proposals to improve fixings to the advantage of both you as a sponsor and partner as well as the broader market and end users of the data.”

There has been regulatory action taken against contributors to BBA LIBOR, by authorities acting in co-ordination.  Regulators and other authorities have announced inquiries, consultations and other actions”

Thomson Reuters has unrivalled experience in calculating and publishing fixings and benchmarks.

We invest in teams of experts, close to key markets, who specialize in the collation, calculation, publication and onward distribution of fixings content. These teams can also provide the specialist   analysis and reporting required to guide your decisions on potential changes, challenges to contributors and process improvements.”

In short we are passionate about fixings and proud to provide a service which assures data of the highest quality.

The global regulatory community is currently focussing on BBA LIBOR.

Please address any correspondence to either John Ewan, whose contact details are below, or directly to myself.

John Ewan, Head of Fixings Business Development, Thomson Reuters, The Thomson Reuters building, South Colonnade, London E14 5EP, Email:    john.ewan@thomsonreuters.com

“We believe that accurate well-governed benchmarks, fixings and indices are vital tools that allow market participants to have confidence that markets are clean and efficient and we welcome any level of debate on the topic.

Mark Beaumont, Global Head of OTC Market Content, Thomson Reuters, mark.beaumont@thomsonreuters.com

The final 3 committee members are Martyn Smith, bullion development manager at The Royal Mint, Bernhard Fuchs, senior vp at Umicore, Simon Weeks, md at Scotiabank, who is also former chairman of the LBMA, former chairman and director of the London Gold Fixing, former chairman of the London Silver Fixing etc.


Conclusion – Can’t get Fooled Again?

Such a strong Libor scandal to LBMA Silver Price connection in the form of Mr. Libor becoming ‘Head of Fixings’ business development at Thomson Reuters is in my view problematic, even from an image point of view. You could not make this up. The guy in charge of BBA Libor is now the Oversight Committee representative of the Administrator of the LBMA Silver Price benchmark, a benchmark which trust in is rapidly disappearing, just like the trust in Libor evaporated. It also brings to mind the famous George Bush junior quote, when he said:

“There’s an old saying in Tennessee — I know it’s in Texas, probably in Tennessee — that says, fool me once,… shame on.. — ..shame on… you. Fool me,.eh,. — you can’t get fooled again!”

Furthermore, what happened to “increased direct participation” as Ruth Crowell said was needed, and what happened to her interest in having 25% of 444 participants (or 111 participants) come on board?

Why was there an initial rush in 5 weeks in July-August 2015 that pressured the CME Group to come up with a rudimentary system that could not handle central clearing, and yet 18 months later there has been no evolution of the system?

Why was there mis-leading evidence from the LBMA, CME Group and Thomson Reuters in July-August 2014 that wider participation and central clearing would happen in the Silver auction and then these developments never happened? Who leaned on CME to back off on central clearing?

Why is the joint statement from Thomson Reuters, the CME Group and the ‘Independent’ LBMS Silver Price Oversight Committee referring to wider participation and central clearing as if it was a fresh plan, when in fact it was the original plan in July – August 2014 that got pushed to one side. And why did it get pushed to one side. Cui bono?

Why is the LBMA giving an advantage to the bullion bank participants in the LBMA Silver Price auction by perpetuating a system where direct participants are required to maintain bilateral credit limits?

Where is the Financial Conduct Authority in all these developments and why has it not made any statement? Remember, the LBMA Silver Price is now a Regulated benchmark.

Where are the Chinese banks that said that they wanted to become direct participants in the LBMA Silver Price auction?

Which trading entity was putting massive and increasing sell orders into the midday Silver fixing on 28 January?

These are just some of the questions that remain outstanding in what has surely been the most suspicious financial benchmark launch of all time.

The Gold Vaults of London: Malca-Amit

Following on from the recent blog post “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out“, which discusses the G4S precious metals vault located on Abbey Road in the Park Royal area of London, its instructive to also look at where the other London Gold Market vaults are located.

According to the vaulting pages on the London Bullion Market Association (LBMA) website:

“There are seven custodians offering vaulting services in the London bullion market, three of whom are also clearing members of the LBMA (Barclays, HSBC and JP Morgan). There are also four other security carriers, who are also LBMA members (Brinks, G4S Cash Solutions (UK), Malca Amit and Loomis International (UK) Ltd). The Bank of England also offers a custodian service (gold only).”

These 8 custodians are then listed in a pdf document on the LBMA website with their head office addresses, but not the vault addresses. So where are the actual vaults?

Having looked at G4S, let’s continue by examining the London vault of Malca-Amit. On its website page which featuring its London vault, Malca-Amit states that:

The London-based Malca-Amit vault is conveniently located close to Heathrow airport. The vault is graded at level XII CD EX, the highest European Vault classification and is complemented by the most up to date security systems including the Avigilon CCTV suite with cameras capturing 29 megapixels per frame.

The vault is authorised by the members of the London Clearing Company and has LBMA approval for the weighing and inspecting of precious metals.

Notice the reference to London Clearing Company. This is a reference to the London Precious Metals Clearing Limited (LPMCL), a private precious metals clearing consortium comprising HSBC, JP Morgan, Barclays, The Bank of Nova Scotia – ScotiaMocatta, and UBS.

Driving around in Circles?

The London Bullion Market Association (LBMA) actually featured Malca-Amit’s London vault in a slightly tongue in cheek article by Aelred Connelly titled “Visit to Malca-Amit’s New Vault” which appeared in Issue 68 of the LBMA’s Alchemist magazine in October 2012.

The article begins:

“It was a balmy day when we arrived at Feltham station where we were warmly greeted by our host for the day, Allan Finn, Global Commodities Director for Malca-Amit. Allan told us that the location of the vault was top secret so he deviously drove his car round in circles until we were so disorientated we had no idea where he had taken us.”

And ends with:

“Our tour came to an end. Allan drove his car round in circles again until we were so disorientated that we didn’t know where we had come from. But he made up for it by taking us for a nice lunch on the river at Richmond.



Apart from driving around in circles between Feltham Station and the vault destination, the article also tells us that:

Malca-Amit became a member of the LBMA in March 2012 and shortly afterwards completed the building of a new vault facility close to Heathrow airport..

…the new secure storage facility was opened in April 2012 near Heathrow airport.

So it seems that Malca-Amit was granted Ordinary membership status of the LBMA just prior to its new vault becoming operational. The granting of Ordinary membership was probably a precursor to the Malca-Amit vault being, in the words of Malca-Amit, “authorised by the members of the London Clearing Company ..[with].. LBMA approval for the weighing and inspecting of precious metals.

The LBMA Alchemist profile goes on to say:

Built above ground, the Malca-Amit vault is one of a number of new facilities that either have been built or which will be opened shortly within the perimeter of the M25….. Proximity to an airport is an advantage.

On 20 September 2012, the LBMA issued an advisory document titled “Best Practice Guidelines; Used by “Loco London” Vaults Opening a new vault for the storage of precious metals“, in which it was advised that “If you wish to store the higher value precious metals then you may find that insurers insist that your vaults are subterranean“. This obviously wasn’t an issue for Malca-Amit’s insurers, since the Malca-Amit vault is in a building that’s above ground.

The Alchemist continues:

“When we eventually arrived at our destination only the sound of planes overhead gave any indication as to where we were.”

“Before we went in to the building Allan explained that the perimeter fencing can withstand a 7.5-ton vehicle at 50 mph and the internal shutter anti-ram barrier which is located behind the entrance gates can withstand a 7.5-ton vehicle at 30 mph.”

“But the thing that strikes you most is the vault. Allan explained that it is a Chubbsafe
grade XII which offers the highest possible level of security and provides capacity for more than 300 metric tonnes of gold and 1,000 tonnes of silver.

“Gold and silver are not the only precious items in storage: there are also diamonds and other precious stones and jewellery which are kept in storage on behalf of clients.”

Where then could Malca-Amit’s recently opened gold and silver vault be located?


Arena plane

Arena Building, Parkway

It turns out that in a similar manner to G4S when it made a planning application amendment for its new vault building at Abbey Road in Park Royal, Malca-Amit was also not shy of listing its building location on the internet, for it too listed the location of its new vault in a planning application amendment submission dated July 2013.

This planning document is posted on the www.gov.uk website, and on page 10, it states:

OK0230285 SN


(0 vehicle(s), 0 trailer(s))
New authorisation at this operating centre will be: 4 vehicle(s), 2 trailer(s)


Which leads us to the questions: what is and where is this Arena Building?


In 2011, the already completed Arena Parkway building,  profiled in a glossy brochure, was marketed on a UK commercial real estate website called NovaLoca commercial property finder. This brochure pdf file was created on 14 July 2011. So although Malca-Amit may have “completed the building of a new vault facility” as the LBMA stated, it did not build the building in which the vault is located. The building had already been built prior to 2011.

The ‘Arena’ building is in the ‘Parkway Heathrow M4′ industrial estate off Cranford Lane, in Heston, in the Hounslow area to the north-east of Heathrow airport.  Anyone who knows that area around Hounslow will know that the one of the landing routes into Heathrow Airport is a very low approach along a route right above where this building is located.

According to the brochure:

“The Arena provides a modern detached warehouse unit of 23,660 sq ft with a self-contained secure yard and benefits from 24-hour security, an on-site management team and surveillance cameras.”

“The unit is available on a new Full Repairing and Insuring lease basis.”

Additional information in the 2011 brochure includes such facts as:

“NEW DISTRIBUTION/WAREHOUSE UNIT 23,660 sq ft (2,198 sq m)”

The Arena is a new high quality warehouse suitable for production, storage, research and development, laboratories and general distribution. It has an impressive reception leading to first floor fully fitted offices. The property is constructed of brick and profile metal composite cladding with double glazed windows fitted with solar shading.

The property provides the following approximate gross external floor areas:
Warehouse 20,430 sq ft 1,898 sq m
FF Offices 3,230 sq ft 300 sq m
Total 23,660 sq ft 2,198 sq m

Warehouse, 8m clear height, Two up and over electric loading
doors, 200 kVA 3 Phase power supply, Roof lights to 10% of warehouse
floor area, Floor loading of 50Kn/m2

Open plan layout, Full access raised floor, Suspended ceilings with recess
lighting, Gas central heating, Double glazed windows, Passenger lift
Reception area

Self-contained property, Large secure yard, Access for articulated lorries
Allocated parking

Given that this Arena building was being marketed from July 2011 onwards, and that Malca-Amit began operating the vault facility from April 2012, then it would suggest, as would be expected, that Malca-Amit took possession, and then fitted out the building to its own specific requirements, including the vault, before opening for business in April 2012.

The Arena building is in the London Borough of Hounslow, so it is instructive to examine planning applications made for this building in and around the dates that Malca-Amit took occupancy.

A planning search for TW5 9QA on the Hounslow planning website reveals that plans for this Arena Parkway building were submitted from as early as December 2007, but there seems to have been a long drawn out series of planning applications and amendements made for the construction, the latest being submitted in December 2008 and approved by Hounslow Council in February 2009. Therefore, construction of the building would have commenced sometime after February 2009.

The planning applications for the Arena building, which were submitted by CGNU Life Assurance Ltd / Aviva Investors, summarise the project as follows:

System Reference: P/2008/3669

Planning Reference: 00315/F/P59(6)

Following approval for demolition of the existing office building and construction of new industrial and warehouse unit with ancillary office accommodation, new entrances off existing access road, car parking, landscaping and roof mounted photo-voltaic panels details submitted pursuant to Condition 6 (waste and recycled materials storage) of permission dated 18/03/08


Name Mr Mark Nevitt CGNU Life Assurance Ltd

 Address C/O Aviva Investors No.1 Poultry London EC2R 8EJ

Architect     LDA Ltd Chartered Architects, Surrey”

The Arena drawings document submitted with the most recent building application shows a layout in keeping with the size and shape of the structure that was actually built, so it looks like the development was completed in accordance with the last approved set of plans.


Malca Amit Arena Parkway TW5 9QA
Malca Amit Arena Parkway TW5 9QA



Following occupancy by Malca-Amit, the only planning application submitted for the Arena Building since then is application “Planning Reference: 00315/F/P61″ which addressed improved fencing around the site.

System Reference: P/2013/1670

Planning Reference: 00315/F/P61


Date received 31/05/2013

Details: Erection of security fencing and bollards along perimeter of site with sliding gate at yard entrance and rising barrier at car park

Ward: Heston West   [note that a ward is a sub-unit of a borough]


Name     Malca Amit

Address   100 Hatton Garden EC1N 8NX

Architect          Pinnegar Hayward Design, Birmingham

Application Received 31/05/2013

Decision Approved 13/09/2013

The ‘delegated report’ submission states that:

“The application seeks to improve the existing security around the site. The existing bollards around the site would be made good to existing low-level shrub planting. The fencing around the part of the site would be a 2.4m high 358 mesh panel fence powder 600 mm high electric fence above. This fencing would be on the north, south and west parts of the site. There would be a 6m cantilevered sliding gate, which would be 2.4m high with serrated top – RAL 9005 (black) finish.

In order to secure parking on site a car park gate has been proposed which runs off the access road. This would be 3m wide rising barrier which would be 1m high, RAL 9003 (white) finish with contrasting red banding. There would be 1m wide exit gate which would be next to the unit.”

The Site Plan and Elevation for the above application put some visuals on the above delegated report text. This fencing is therefore the fencing that Allan Finn of Malca-Amit was referring to when he told the LBMA that the”perimeter fencing can withstand a 7.5-ton vehicle at 50 mph and the internal shutter anti-ram barrier which is located behind the entrance gates can withstand a 7.5-ton vehicle at 30 mph.”


The Edinburgh Assay Office and UKAS

Not only is Malca-Amit located in this Arena Parkway Building, but so is the Edinburgh Assay Office.  Although the Edinburgh Assay office has its headquarters in Goldsmiths Hall, Edinburgh, in Scotland, it also operates a laboratory at a Heathrow Sub Office where it is accredited for “Chemical Tests for the purpose of hallmarking”.

This fact is revealed in a series of United Kingdom Accreditation Service (UKAS) reports that were posted on the UKAS website in June 2015. On 8 June 2015, UKAS posted a report about the Edinburgh Assay Office on its website titled “The Edinburgh Assay Office Issue No: 010 Issue date: 08 June 2015″. This report lists a ‘Heathrow Sub Office’ for the Edinburgh Assay Office without specifying its address.



However, 4 days earlier on 4 June 2015, UKAS posted a report titled “The Edinburgh Assay Office Issue No: 009 Issue date: 04 June 2015” in which the Heathrow Sub Office was listed with an address of  “1st Floor,  Arena Parkway, Cranford Lane, Heston, TW5 9QA”.

Although the Issue 010 report from UKAS replaced its Issue 009 version a few days later, the Issue 009 version remained in the Google cache as a Google search result and also as a complete cached document:

Edinburgh Assay Office Heathrow sub office 1st floor Arena Parkway

Cached version of Issue 009

UKAS Issue 009 4 June 2015 Edinburgh Assay Arena Parkway

The commercial logic for the Edinburgh Assay Office having a presence in Malca-Amit’s Arena building seems to be that, in addition to Malca-Amit storing precious metals and precious stones and jewellery in the building, the location is also convenient for the rest of the Heathrow area where precious metals and jewellery are constantly arriving into and departing from. This is the ‘Hallmarking in Transit’ service offered by the Edinburgh Assay Office, offered in conjunction with Malca-Amit, and explained on the Assay Office website here, and also on Malca-Amit’s website here.

The Edinburgh Aassy Office’s Heathrow sub-office was profiled in January 2015 in an article on website Jewellery Focus, complete with photo of the office in the Arena building. Notice the Malca-Amit warehouse floor in the background of the photo with the office on the 1st floor. The one year anniversary of the Edinburgh Assay Office sub-office in the Malca-Amit premises was also recorded in an end of January 2016 article from Professional Jeweller titled “Edinburgh Assay Office celebrates one year of Hallmarking in Transit at Heathrow”.

This is not the only UK-based assay office to maintain a sub-office in the premises of a secure precious metals transport and secure storage operator near Heathrow Airport. The Goldsmiths Company – Assay Office, which is headquartered in the City of London, also operates a Heathrow Sub Office in “Unit 7, Radius Park, Faggs Road, Feltham, Middlesex, TW14 0NG”. This is listed in a UKAS report “The Goldsmiths’ Company – Assay Office Issue 016 Issue Date 05 August 2014″. This ‘Unit 7 Radius Park’ is a Brinks building and it too contains a vault, but that’s another vault profile for another day.


From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA

In early September 2015, I wrote an article titled “Moving the goalposts….The LBMA’s shifting stance on gold refinery production statistics”, in which I explained how the London Bullion Market Association (LBMA) had, on Wednesday 5 August, substantially lowered its 2013 gold and silver refinery production statistics literally a few days after I had commented on the sizeable figure of 6601 tonnes of 2013 refined gold production that the LBMA had previously published in May 2015.


  • On 5 August, the LBMA substantially altered and republished Good Delivery List gold and silver refinery production statistics in two of its published files: LBMA Brochure Final 20120501.pdf and LBMA Overview Brochure.pdf
  • For gold, the alterations were most pronounced in the 2013 refined production figure which was reduced from 6601 tonnes to 4600 tonnes, i.e. a 2001 tonne reduction
  • Other years’ figures for refined gold refinery output (2010-2012) were also reduced, with the 2008-2009 figures being increased
  • As part of the update, the LBMA linked its amended figures solely to GFMS estimates of gold mining and scrap output,  adding the words ‘estimated to be‘ in front of the 4,600 tonnes figure, and the words ‘owing to recycling of scrap material‘, thereby framing the revised figure solely in terms of scrap gold in excess of 2013 gold mining supply. This use of GFMS data is bizarre because all refiners on the LBMA’s Good Delivery List provide exact refinery production statistics to the LBMA Executive as part of the LBMA Pro-Active Monitoring programme, so there are no need to reference estimates from external data providers
  • In the updated versions of the brochures, the LBMA made no reference to why the gold figures had been reduced, nor what the original figures referred to, particularly for the huge difference of 2,000 tonnes of gold refinery output in 2013 between its two sets of figures
  • By 12 August, the LBMA had again updated its 2013 gold refinery output figure to 4579 tonnes

In my Part 1 article, I had concluded that:

“There are 2,300 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the  6,601 tonnes figure which was removed from the LBMA’s reports on 5 August 2015.

Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?”

Note that for 2013, Gold Field Mineral Services (GFMS) estimated gold mining production to be 3,022 tonnes, and gold scrap supply to be 1,280 tonnes for 2013, so in total GFMS estimated gold mining + scrap supply at 4,302 tonnes in 2013. Therefore, the LBMA’s original figure for 2013 gold refinery production of 6,601 tonnes exceeded the combined GFMS mine and scrap supply by 2,300 tonnes.

Whose interests are served by replacing actual refinery output figures with far lower estimates comprising GFMS gold mine production and scrap recycling data? What happened to the third major source of gold supply to refineries during 2013, i.e. London Good Delivery gold bars, and why won’t the LBMA reference this? Why would the LBMA go to great lengths to de-emphasise the huge volume of Good Delivery gold bars being sent to gold refineries (especially in 2013) for conversion into 9999 fine kilobars, when its obvious for all to see that this huge migration of bars happened?

This article, which is Part 2 of the analysis into the LBMA’s 2013 gold refinery statistics, looks into this 6,601 tonne number and the 2,300 tonne delta compared to GFMS estimates, specifically examining the mountain of evidence that highlights the huge volume of Good Delivery bars that were processed through the Swiss gold refineries in 2013, and the huge associated shipments of gold from the UK to Switzerland, and onward from Switzerland to Asia.

Part 2 also looks at the extent to which GFMS and the World Gold Council, through their report text and data, addressed, and did not address, the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013.

When Part 1 was written, I had also planned that Part 2 would examine the 2013 gold withdrawals from the London-based gold ETFs, and the 2013 withdrawal of gold from the Bank of England, however, these topics were subsequently addressed in a separate piece titled “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“.

That article itself had found a lot of interesting information including:

  • that the entire London LBMA vault network (including the Bank of England) lost 1,500 tonnes (120,000 bars) between 2011 and early 2014, shrinking from 9,000 tonnes to 7,500 tonnes
  • Between the end of February 2013 and the end of February 2014, the amount of gold in custody at the Bank of England fell by 755 tonnes
  • In 2013, the large physically-backed gold ETFs which store their gold in London saw a 720 tonne outflow of gold (GLD 561, IAU 60, ETF Securities’ PHAU 52, ETS Securities GBS 42, ‘Source’ Gold 31)
  • The full set of gold ETFs storing their gold in London can, nearly down to the exact tonne, account for all of the LBMA vaulted gold held outside the Bank of England vaults (See  start of my article titled “Central bank gold at the Bank of England” for an explanation of this)

Note: Deutsche Bank gold ETFs and an ABSA gold ETF also store their gold in London, and during 2013, these 2 sets of ETFs lost approximately a combined 12 tonnes of gold (~9 tonnes from Deutsche and ~3 tonnes from ABSA, so this would increase the 720 tonne ETF loss above, to about 732 tonnes.


Yet another Change to the LBMA Brochure in September 2015

On 29 September 2015, the LBMA made a further alteration to the 4-page LBMA Overview Brochure, the brochure that had featured the shifting gold and silver refinery output statistics.

On this occasion, although the data in the table remained unchanged, some unusual footnotes were added underneath the table of refining statistics. The text, table and the new footnotes are as follows:

LBMA brochure refining Sept 2015 text

The footnotes are highlighted as per yellow box:

LBMA brochure refining Sept 2015 footnotes and table

Let’s look at these 3 footnotes one by one.

Note 1): The data for 2008-2013 contains estimates which will be updated when actual data becomes available.

This note is illogical, since the LBMA already has all of the exact data of gold and silver output per refinery. This was stated in the previous versions, and it’s all detailed in my previous article.

Also, specifying ‘Figures correct as at September 2015’ is illogical since the LBMA states that the data is ‘estimates’ and not ‘actual data’. Correct relative to what? How can ‘estimates’ be deemed to be correct if the ‘actual data’ is not published?

That would also explain the bizarre note number 2.

Note “2) Refined production should include only the refinery’s output that has gone through a refining process”.

Footnotes to tables are normally used to explain data, not to justify the data. This Note 2 sounds more like a pronouncement or a direction from a LBMA communication to the refineries rather than an explanatory footnote.

In English grammar, ‘Should‘ means to give advice, a recommendation or a suggestion, and to express obligation or expectation. This footnote looks like it has been lifted out of a directive from the LBMA to the member refineries.

Converting a 995 fine Good Delivery ~400oz bar into a series of 999 kilo bars does involve a a chemical refining process in addition to melting and pouring. The transformation by the refineries of large bars into smaller bars is still throughput, and is a refinery process (as you will see below).

Also problematic to the LBMA’s footnote is that converting 9999 fine scrap (in the form of old bars) to new 9999 bars, which sometimes happens, would not necessarily be captured in the above LBMA footnote, so this approach to seemingly attempt to tie in the LBMA data to GFMS mining and scrap refining data opens up a can of worms.

Note 3): the production of newly accredited refiners excludes production in the years prior to accreditation.

Note 3 should be obvious, and besides, it wouldn’t change much in terms of the huge gaps in the numbers between 6601 tonnes in 2013, and the GFMS figure of 4302 tonnes.


Macquarie 2013 – Where has the ETF gold gone

In August 2013, Macquarie Commodities Research, in its report “Where has the ETF gold gone” commented that:

“over 1H 2013 it [the UK] has exported 797 tonnes [of gold], equivalent to 30% of annual gold mine production”

“…gold bars from ETFs have gone to Switzerland, where most of the world‟s gold refining capacity is, to be remelted into different size bars and coins and then sold on end consumers, predominantly in Asia, specifically China and India.

“Trade data also backs up this movement of gold – Hong Kong customs reported imports of gold from Switzerland of 370t in 1H 2013, up 284t on 1H 2103 (fig 3), while Indian imports from Switzerland appear to have risen by more than 100t YoY.

It is not really very surprising that the gold has found its way from vaults in London (and most likely the US and Switzerland) to Asia via Swiss refineries. We have repeatedly noted that gold ETFs are part of the physical gold market and if investors don’t want the gold it has to go somewhere else.”

Since the four large Swiss gold refineries account for the lions share of worldwide annual gold refinery output (See my article “Swiss Gold Refineries and the sale of Valcambi“), its important to examine what the Swiss gold refineries had to say about the smelting of London Good Delivery gold bars into smaller bars in 2013, as well as their comments about the dramatic reduction in gold scrap coming into the refineries during that time.

Note that London Good Delivery gold bars are variable weight bars that weigh about 400oz each (12.5kgs). These are the standard type of gold bars stored in central bank vaults and held in physically backed gold Exchange Traded Funds (ETFs) such as the SPDR Gold Trust (GLD).

 Swiss Gold Imports from the UK: 2013

In 2013, Switzerland imported more than 2,600 tonnes of gold and exported approximately 2,800 tonnes of gold. That year’s gold import and export totals were the highest ever annual totals recorded for Switzerland. See chart below from Nick Laird’s Sharelynx.

Although Switzerland doesn’t possess any major gold mines, it does host one of the largest physical gold markets in the world, which regarding investment gold, primarily comprises the large Swiss gold refineries along with some bullion banks (including UBS and Credit Suisse), the Swiss National Bank and the Bank for International Settlements (BIS), and the Swiss wealth management and private banking sector. But the throughput and precious metal processing of the four large gold refineries accounts for nearly all the country’s gold imports and exports.


The UK is consistently the largest import source of gold into Switzerland. In 2013, Switzerland imported nearly 1,400 tonnes of gold from the UK during the year, with hardly any gold moving back in the opposite direction. Notwithstanding the fact that the UK does not have any producing gold mines, 1,400 tonnes is 46% of GFMS 2013 global gold mining production estimate of 3022 tonnes. And despite the fact that GFMS itself stated that the UK only contributed 41 tonnes of gold scrap to the 1280 tonne global gold scrap total in 2013, 1400 tonnes of UK gold exports to Switzerland is 109% of GFMS’s 2013 global gold scrap estimates.

So why is the LBMA not including all of this 1400 tonnes of UK to Switzerland gold exports in its 2013 gold refinery production statistics?


Even Swiss gold imports from the United States in 2013, at 267 tonnes, paled into comparison compared to Switzerland’s imports of 1,373 tonnes of gold from the UK, and left all other import sources such as Italy and France in a distant third.


Thanks to Nick Laird of Sharelynx for permission to use the above 3 charts.

Swiss Refineries – From the Horses’ Mouths

Let’s look at what the Swiss gold refineries had to say about the conversion of Good Delivery gold bars into smaller bars during 2013. You will see that the large Swiss refining companies treat Good Delivery bars as one of three sources of supply coming in to their refineries.

It’s important to note that the transformation of London Good Delivery bars of 995 fineness into, for example, kilobars of 9999 fineness, still involves the use of chemicals in reactions, albeit smaller amounts than when refining mining ore, and is not just a simple melting and re-casting exercise.

Argor-Heraeus’s perspective on Good Delivery bars in 2013

In its 2013 Corporate Sustainability Report, Argor-Heraeus had the following comments to say about the 400oz bar to smaller bar transformations:

In 2013, we consumed 3,120,603 kg of chemicals, 4% less than in 2012, despite a slight increase in precious metals processing. This decrease derives from the fact that a large percentage of gold processing involved the re-smelting of metal already in circulation (Good Delivery) to obtain high-fineness ingots, which are in great demand. The processing of a metal that is already pure requires smaller amounts of chemicals in reactions, as opposed to the refining of raw materials from mines.”

Argor-Heraeus even divides the gold inputs that go into its refining process into three distinct categories, namely, a) Scrap, b) Mines and c) Good Delivery, such is the importance of the Good Delivery refining activity to the refinery. See the following graphic from the Argor-Heraeus 2013 Sustainability report, complete with descriptive icons of the three input sources inputs of metal:

AH flow


The text box from the left-hand corner of the above graphic has been zoomed in and magnified below to aid readability:

AH text

Elsewhere in the same report, Argor-Heraeus reiterates the same 3 sources of gold supply that come in to its refineries for ‘Transformation and Processing‘.

AH graphic

Argor-Heraeus picks up the Good Delivery bar theme again in its 2014 Corporate Sustainability Report, where it produces a similar but slightly more detailed graphic, complete with the icons, and which explains that the Good Delivery bars can be either ‘grandfathered or non-grandfathered‘ and that the materials are ‘already certified Good Delivery, or already high-quality‘. High quality but not good delivery could be signifying gold bar brands on the former London Good Delivery list, or else lower grade coin bars, that had originally been made from melting down and casting into bars the gold coins that were previously  in circulation. Coin bars were at one time on the London Good Delivery list up until 1954.

Grandfathered is a term used by the LBMA in its discussions of ‘Responsible Gold Guidance‘ and is defined as:

Grandfathered Stocks: Gold investment products (ingots, bars, coins and grain in sealed containers) held in bullion bank vaults, central bank vaults, exchanges and refineries, with a verifiable date prior to 1 January 2012, which will not require a determination of origin. This includes stocks held by a third-party on behalf of the listed entities.

 The Argor-Heraeus 2014 graphic referencing Good Delivery bars is as follows:

AH 2014 graphic1


Metalor’s information on Good Delivery bars in 2013

In its 2013 Annual Report (large file 3.4 MBs), within the review of 2013 performance section, large Swiss based gold refinery Metalor Technologies highlights a steady demand for ‘recasting of gold bars for banks':

“Full-year net sales in the Refining business unit declined by 16 percent as precious metal prices remained low, reflecting a weak global economy. The drop in prices negatively impacted the price/volume mix, as reduced quantities were retained at lower prices. This was partly offset by steady demand in less profitable activities, such as the recasting of gold bars for banks.”

Metalor also provided a host of pertinent insights into other drivers of the 2013 gold market:

“The spot-price of gold and silver declined by more than 30 percent over a six-month period, and this prompted sharp sell-offs of the gold stored in ETF (Exchange-Traded Funds) vaults. The consensus is that this surplus was absorbed by strong China based bullion purchases, while price-dependent scrap flow fell rapidly.”

High grade precious metal bearing scrap flows worldwide dropped sharply due to sustained price erosion. This market development created an overhang in refining capacity, and a much more competitive pricing environment, although some of the volume reduction in scrap flows was offset by new mining doré contracts. The drop in price led to strong bullion purchases, mainly driven by China.”

The Refining business unit saw a challenging 2013, due to reduced gold prices. This resulted in a continuous slowdown in the scrap market. …….a decreasing volume of mining doré coming from abroad, due to changes in country regulations.”

“In Asia, the Hong Kong refinery was able to sustain a high level of activity due to strong demand and a high premium on bullion products.”


Valcambi on refining of Banks’ gold

Valcambi has an annual refining capacity “in excess of 1,200 tons for gold and 400 tons for silver“, so is known for having potentially unused refining capacity.

Following the July 2015 Valcambi acquisition by Indian company Rajesh Exports, the acquirer clarified to Indian newspaper ‘Business Standard’ that it was a regular activity for Valcambi to use its excess capacity to meet “emergency” refining requirements for gold held by bullion banks.

In fact, on the recently updated Valcambi website, an entire web page is now devoted to describing how transportation works for banker clients, in addition to clients that are miners, scrap dealers, other refineries, and watch makers. See ‘Transportation for Bankers‘ web page which details the import and exports procedures which the Valcambi refinery offers its banker clients.

Valcambi bankers

Valcambi 1

Under its Assaying web page, Valcambi even sees fit to specifically explain the process for the incoming ‘shipments of Good Delivery (GD) bars‘ which are merely checked to confirm that they haven’t been tampered with, as opposed to the shipments of ‘Non Good Delivery (NGD) precious metals‘, which are subjected to homogeneity checking, sampling and analysis. This shows that the volume of Good Delivery bar shipments into Valcambi is significant enough to warrant specific coverage on its website.

Valcambi Assaying

Valcambi good delivery

Under its Refining web page, Valcambi again details its ‘3’ sources of incoming gold, namely “primary doré supplied by mines”,  “industrial scrap and recycling“, and “metals invested and owned by financial and governmental institutions“, i.e. London Good Delivery Bars.

Valcambi refin

Valcambi refining

On the phenomenon of a low gold price leading to a decline of gold scrap coming into Valcambi, the CEO, Michael Mesaric, recently had the following to say while talking with Indian publication Bullion Bulletin at the India International Gold Convention (IIGC) 2015 in Goa:

Bullion Bulletin: The gold price is coming down continuously, is there any impact on the refinery segment?

Michael Mesaric: There is a small impact as well because if the gold price is very low there is very little scarp coming in.”


Argor-Heraeus interviews -They’re bringing in good delivery bars”

On 4 December 2013, Alex Stanczyk from Anglo Far-East group, in an interview with Koos Jansen published on his BullionStar blog, said that he (Stanczyk) and colleague Philip Judge, accompanied by Jim Rickards, had just returned from a visit to Switzerland where they had met with the managing director of one of the large Swiss refineries. Although the identity of  the refinery was not revealed, Alex Stanczyk said that the refinery MD informed them that there was huge demand for fabrication at his refinery and that:

“They put on three shifts, they’re working 24 hours a day, and originally he (the MD) thought that would wind down at some point. Well, they’ve been doing it all year. Every time he thinks its going to slow down, he gets more orders, more orders, more orders. They have expanded the plant to where it almost doubles their capacity. 70 % of their kilobar fabrication is going to China, at a pace of 10 tons a week.”

They’re bringing in good delivery bars, scrap and doré from the mines, basically all they can get their hands on.”

“…sometimes when they get gold in, it’s coming from the back corners of the vaults. He knew this because these were good delivery bars marked in the (nineteen) sixties.”

The same Swiss gold refinery executive was interviewed by Jon Ward of the Physical Gold Fund in September 2015, with the interview published as a podcast and as a transcript.

Jon Ward: In 2013, I recall you commented on the tightening of physical supply in the gold market and even the difficulties you were having in sourcing material. In fact, as I remember, you remarked that in 30 years, you’d never seen anything like it.”

The exact identify of the Swiss refinery executive was also not revealed in the September 2015 interview, however the executive is most certainly from the Argor-Heraeus refinery. Why? Because, the introduction to the 2015 interview states that:

“The gentleman we are interviewing  is part of senior management of one of the largest Swiss refineries.  His refinery is one of only 5 global LBMA referees…”

The LBMA appoints 5 refinery assay laboratories to help it to maintain the Good Delivery system. These appointees are known as ‘Good Delivery Referees’ and they meet on a quarterly basis at the LBMA. The 5 Good Delivery Referees are Argor-Heraeus, Metalor Technologies and PAMP (all from Switzerland), Rand Refinery (South Africa), and Tanaka Kikinzoku Kogyo (Japan).

Therefore, the interviewee has to be from one of three Swiss refineries, namely, Argor-Heraeus, Metalor or PAMP.

Furthermore, and this is the critical point, during the interview, the refinery executive states that his company has just opened in Santiago, Chile.

“Head of Refinery: ..looking at mining partnerships, we are expanding in Latin America. We have just opened in Santiago, Chile, and are trying to provide even more competitive services for the Latin American mining industry.”

Out of the short-list of Argor-Heraeus, Metalor, and PAMP, the only one of the three to open an operation in Santiago, Chile in 2015 (and the only one of the three to even have an operation in Chile) is Argor-Heraeus. See Argor-Heraeus new item below from the news page of its website dated 16 September 2015:

AH Santiago

The press release for the above Chilean plant announcement is only in Italian, but can be read here.

Lets look at what the Argor-Heraeus refinery executive says about conversion of Good Delivery bars to kilobars, both in 2015 and during the few years prior to that. From his September 2015 interview:

Jon Ward: Over the last couple of years, has this meant that you actually had to melt down and re-refine a whole lot of 400-ounce bars for China? If you have, I’d like to know where the bars come from.

Head of Refinery: The bars are coming from what you could call “the market.” Looking back, there were all these ETF liquidations, and the ETFs were holding bars in the form of 400-ounce bars. At that time a lot of the physical liquidity maintained in the London gold market was actually in 400-ounce large bars. The final customers were not interested in 400-ounce bars, so it was one of our jobs to take these bars, melt them down, refine them up to the 999.9 standard, and cast them into kilo bars.

Jon Ward: Were a whole lot of these bars coming from London?

Head of Refinery: Regarding the ETF liquidations, this gold had to go somewhere, and that was all converted. This is a thing you see every year. You also see some liquidations of physical gold held with COMEX and NYMEX. More or less, these are the sources of gold other than newly mined.

 PAMP – Three Shifts and Full Capacity – Barkhordar

In January 2014, in an article titled “Gold Flows East as Bars Recast for Chinese Defying Slump“, Bloomberg highlighted that the PAMP refinery, owned by MKS (Switzerland) SA, was at full capacity during parts of 2013,  and the article quoted PAMP Managing Director Mehdi Barkhordar as saying that they had to add production shifts to cope with processing demand:

“Gold’s biggest slump in three decades has been a boon for MKS (Switzerland) SA’s PAMP refinery near the Italian border in Castel San Pietro, whose bullion sales to China surged to a record as demand rose for coins, bars and jewelry.”

To keep up with orders, MKS added shifts at the PAMP refinery, located about 4 miles (6.4 kilometers) from the Italian border, Barkhordar said in November…”

Furnaces that can process more than 450 tons a year were at full capacity from April to June, melting mined metal, scrap jewelry and ingots at 1,000 degrees Celsius (1,832 degrees Fahrenheit) into the higher purities and smaller sizes favored by Asian buyers.”

“The surge in orders meant some parts of the refinery worked three shifts instead of the usual two, Barkhordar said.”

Again, you can see that there were three sources of supply for the PAMP refinery in 2013, i.e. mining, scrap and ingots (bars). According to GFMS, global scrap gold supply fell by 354 tonnes (21%) from 1634 tonnes in 2012 to 1280 tonnes in 2013, so this did not account for the ‘surge in orders’ and the need to add extra refinery shifts. Likewise, global gold mining output only increased by 160 tonnes (5%) from 2860 tonnes in 2012 to 3022 tonnes in 2013, and much of this increase was in China, Russia, Australia, Kyrgyzstan, and Indonesia which refine their own gold domestically, so this would also not explain the surge in orders, which therefore can only be attributable to recasting existing large gold bars into “smaller sizes favored by Asian buyers“.

Therefore, all 4 of the 4 large Swiss gold refineries are on the record that London Good Delivery gold bars were a very significant source of gold supply into their refineries during 2013 and even since then. So why did the LBMA amend its 2013 gold refining production statistics and seek to purely link its revised ‘estimate’ numbers to GFMS estimates of gold mine supply and gold scrap supply? There is an entire third source of gold supply to the refiners being overlooked because the LBMA dramatically reduced its 2013 gold refining production figure of 6,601 tonnes. Classifying Good Delivery bars as a supply source for refining is as legitimate as classifying gold scrap as a supply source for refining, and both come from above ground gold stocks.


GFMS and the World Gold Council

The well-known gold research consultancy GFMS, as well as gold mining lobby group the World Gold Council, between them produce a number of gold supply and demand reports each year. [Note: GFMS, formerly known as Gold Fields Mineral Services, is now part of Thomson Reuters].

Each year GFMS publishes a gold survey and related update reports later in the year. In 2013, this GFMS gold survey included two update reports. The 2013 survey and its updates were sponsored by Swiss refiner Valcambi and Japanese refiner Tanaka, with ‘generous support‘ from a selection of entities including Swiss refiner PAMP (part of the MKS Group),  South African refiner Rand Refinery, US gold mining companies Barrick and Goldcorp, bullion bank Standard Bank, US futures exchange CME Group, and the gold mining sector backed World Gold Council.

Its notable that the GFMS reports are ‘sponsored’ by some of the large Swiss gold refiners, yet there is nothing in the GFMS reports that puts cold hard factual numbers on the amount of Good Delivery bars processed through the refineries. As you will see below, GFMS mentions the good delivery bar processing in passing in its text, but not in its 2013 gold supply-demand ‘model’.

What, if anything, did GFMS have to say about conversion of London Good Delivery gold bars into smaller gold bars, such as kilobars, during 2013?

In its GFMS Gold Survey for 2013 – Update 1 (large file 11MBs) report, published in September 2013, the report states that:

“Strong trade flows were recorded between the UK and Switzerland, where Good Delivery metal was refined to smaller bars and shipped to India and China.”

The GFMS Gold Survey for 2013 – Update 2 (large file 9.8 MBs), published in January 2014, reiterated this point about large bar to small bar refining. On page 5 of the Update 2 report it states:

The duality of disinvestment in the developed world and an increase in physical demand from Asia was witnessed by the largest movement of gold, by value, in history as bars were shipped to Asia, often being melted down into smaller bars en route.

Notice that not all Good Delivery bars were converted to smaller bars before shipment to Asia. Some shipments went straight to Asia without being melted and converted.

And on page 9 of the same Update 2 report, the source of some of these smaller bars is given, i.e. the source was UK ETF gold holdings:

As a consequence, UK-led ETF outflows found their way to Switzerland, where refiners melted the metal into smaller bars, and shipped them East, in order to satisfy the surge in demand.”

The World Gold Council (WGC), regularly issues its own gold supply demand reports called ‘Gold Demand Trends‘, and publishes these reports in the form of an annual version, followed by shorter quarterly updates. In ‘Gold Demand Trends Q3 2013′, published in November 2013, the WGC said:

“Gold continued to work its way through the supply chain, to be converted from London Good Delivery bar form, via the refiners, into smaller Asian consumer-friendly kilo bars and below. This process is borne out by recent trade statistics. Data from Eurostat show exports of gold from the UK to Switzerland for the January – August period grew more than 10 fold to 1016.3 tonnes. This compares to a total of just 85 tonnes for the same period in 2012.”

In its Full Year 2013 edition of ‘Gold Demand Trends’, published in February 2014, the World Gold Council had this to say about the London Good Delivery bar shipments going to refineries, being transformed into smaller bars, and then recommencing their onward journey to the East:

No review of 2013 would be complete without a mention of the unprecedented flow of gold from western vaults to eastern markets, via refiners in North America, Switzerlandand Dubai.”

These shifts resulted in the shipment and transformation – on an epic scale – of 400oz London Good Delivery (LGD) bars into smaller denominations more suitable for consumers’ pockets.”

Notice the reference to refiners in North America and Dubai also, in addition to Switzerland.

In its ‘Gold Demand Trends Q1 2014‘ published in May 2014, the WGC stated that:

As illustrated last year when gold flowed out of western ETFs, through refineries in Switzerland and to consumers in the East, official trade data can provide insights into global gold flows.”

The full GFMS Gold Survey for 2013 (large file 6.2 MBs), i.e the report before the 2 updates, was originally published in April 2013, and was written too early in 2013 (probably written in March 2013) to really capture the flows of Good Delivery gold bars from the UK to Switzerland that were smelted into smaller bars. This was before the massive gold price smash of April 2013 that got the ETF gold sales going. That report mentions ETF gold outflows of 148 tonnes up to 11th March 2013, including 111 tonnes from the SPDR Gold Trust (GLD), but the 2 GFMS update reports from September 2013 and January 2014 were written at a later date, with a better vantage point, when the 400oz bar to smaller bar trend had gathered momentum.

Where was the Swiss refinery output going to in 2013?

On the outbound export route, Swiss gold exports of 2,800 tonnes in 2013 went primarily to Hong Kong (939 tonnes), India (520 tonnes), China (254 tonnes), Singapore (179 tonnes), Thailand (149 tonnes), Turkey (147 tonnes) and the United Arab Emirates (125 tonnes), with the residual 500 tonnes going to other destinations as detailed in the below chart from Nick Laird’s Sharelynx.




GFMS – Masking the Swiss refining of Good Delivery Bars?

Given that the LBMA decided to compare its amended gold (and silver) refinery production statistics against GFMS ‘estimates’ of gold supply (especially out of sync for 2013), then its important to look at what GFMS claimed gold supply and demand to be in 2013. This may help in determining a possible rationale the LBMA had for reducing its refinery output figures.

So, does the 2013 GFMS gold supply and demand data model show this “largest movement of gold, by value, in history” “on an epic scale” phenomenon from the UK to Swiss refiners to Asia? The answer is explicitly NO, neither in 2013, nor in any prior year, but to a limited extent yes, but only after drilling down into the sub-components of an obscure GFMS balancing items within the GFMS supply-demand equation.

But GFMS precious metals supply data and the way it’s presented does not seem to want to highlight the ‘largest movement of gold, by value, in history‘. So even though GFMS mentions (in passing – see above) the historically important 2013 movement of 400oz bars to refineries through places like Switzerland and their transformation into smaller bars by the large gold refineries, the GFMS gold supply statistics keep some of the relevant numbers locked away and jumbled up within a rather odd rolled up figure that it calls “implied net (dis)investment“. Other relevant data, such as OTC demand data, is not even detailed by GFMS, it’s just assumed.

 GFMS gold supply – Disaggregating the implied figure

Here is how GFMS gold supply statistics looked for 2013, taken from the GFMS Update 2 2013 report published in January 2014. In 2013 GFMS used 4 supply categories, namely, ‘Mine production‘, ‘Old gold scrap‘, ‘Net producer hedging‘ and ‘Implied net disinvestment‘.

GFMS-style gold supply and demand figures, 2013 - from GFMS Update #2 report
GFMS-style gold supply and demand figures, 2013 – from GFMS Update #2 report

The first thing to notice is that there is no GFMS supply category called ‘Good Delivery bars’, unlike the large Swiss gold refiners themselves which actually list Good Delivery bars as a distinct gold supply category, such is the importance of that supply source.

Neither is there any category for Gold ETF outflows. So even though 6,600 tonnes of gold came out of LBMA gold refineries in 2013, if you looked at a GFMS supply demand model from 2013, you would never know this. Apart from gold mine production of 2,982 tonnes and old scrap supply of 1,371 tonnes (which together totalled 4,353 tonnes), the only other non-zero supply figure in the GFMS model was ‘implied net investment’ of 383 tonnes.

On the demand side in 2013, GFMS listed jewellery fabrication (2,198 tonnes), other fabrication (792 tonnes), central bank purchases (359 tonnes), physical bar investment (1338 tonnes), and producer de-hedging of 50 tonnes. Again, looking at this demand side, you would not know that gold refinery output in 2013 reached 6,600 tonnes, and that this figure was 2,300 tonnes more than combined mine production and scrap recycling.

There was also a footnote to the above GFMS supply and demand summary table which defines the GFMS definitions of ‘Net producer dehedging‘ and ‘Implied net disinvestment/investment‘.

GFMS defines ‘Implied net disinvesment‘ or “Implied net investment‘ as a residual figure in its supply-demand table (i.e. a plug figure), and states that this “captures the net physical impact of all transactions not covered by the other supply/demand variables“, So basically, it’s a catch-all plug figure. GFMS says that “the implied net (dis)investment  figure is not independently calculated, but derived as the item which brings gold supply and demand into balance.” See full GFMS explanation below:

GFMS disclaimer

This ‘Implied net’ (investment/disinvestment)’ figure is where the 2013 GFMS supply and demand figures become, in my view, completely convoluted and opaque. GFMS says, in both its 2013 Update 1 and Update 2 reports that:

“It is interesting to examine how the implied figure compares to information on activity within the different arenas of investment over the year, (although given aforementioned limitations in this information, it is not possible to dis-aggregate accurately the implied figure into these components)”.

How GFMS exactly makes sense of its ‘Implied net’ (investment/disinvestment)” figures is hard to fathom because there is no proper explanation of the ‘aforementioned limitations‘ that GFMS alludes to except the fact that it doesn’t seem to be able to offer estimates for physical bar movements in Comex nor physical bar movements in OTC activity, part of which it considers the bar shipments to Switzerland to be.

GFMS could also maybe ask the gold refineries in Switzerland and elsewhere for the throughput figures on what they refined in 2013, be it gold mine doré, scrap metal, or Good Delivery bars, and then use that data also. And GFMS could also ask the SPDR Gold Trust Authorised Participants how much gold each of them took out of the GLD in 2013 and how this gold made its way to Switzerland and elsewhere, did the banks send the gold to Switzerland themselves using secure transporters such as Brinks, or did they sell it to other parties who then sent it to the refineries etc etc. The same question could be asked of the Bank of England and the amount of gold withdrawn from its gold vaults and the bullion bank identities of who withdrew it.

In the GFMS world, demand has to equal supply, so whichever side of the equation is greater, the other side has to have a plug figure. In 2013, GFMS put the above items into the demand side, and arrived at an estimate of 4,737 tonnes for demand. It then did an estimate for supply using only 2 components (mining and scrap), and arrived at 4,353 tonnes for supply. Since demand did not equal supply, GFMS then said that implied dis-investment was 383 tonnes. (The figures are 1 tonne out due to what must be a rounding error).

Here is my quick and easier to read version of the GFMS 2013 gold supply – demand table:

gfms 2013 reformat

GFMS then takes the plug figure of 383 tonnes and thinks about an explanation for it.

In its 2013 gold surveys, GFMS also produced another figure which it called ‘World Investment‘, which it defined as “the sum of implied net investment, physical bar investment, and all coins“. It provided this ‘world investment’ figure for both H1 and H2 2013.

This ‘world investment’ figure includes investment demand for physical gold bars and coins, gold medallions, and imitation coins (made of gold), but it also includes investment in products such as gold-backed ETFs. So if there is a huge outflow of gold from the gold ETFs, as there was in 2013, GFMS did not consider this to be gold supply, but rather, GFMS considered it to be negative demand, that it then buries in the implied net investment category.

Since the Authorised Participants of the large gold ETFs redeemed huge amounts of gold from these ETFs in 2013, especially in the first half of 2013, GFMS refers to this as gold ETF ‘investors’ redeeming gold from the ETFs. This is not entirely true because only large investors can redeem from an ETF such as GLD. Small investors just sell their shares in GLD. GFMS calls these 2013 ETF redemptions ‘implied disinvestment’, and it is this phenomenon that caused the GFMS ‘implied disinvestment’ category to be negative in the first half of 2013, but not in the second half of 2013, when GFMS insists that there was positive ‘implied net investment’.

GFMS calculated that there were 550 tonnes of gold outflows from ETFs in the first half of 2013, and 330 tonnes of gold outflows from the same ETFs in the second half of 2013, making a total outflow of 880 tonnes for 2013. Somehow, although the 550 tonnes of gold that left ETFs in H1 2013 caused the H1 implied net investment to be a negative 613 tonnes (as would be expected), the 330 tonnes of outflow from gold ETFs in H2 2013 did not, in GFMS’s eyes, have the same effect, and GFMS’s implied net investment in H2 2013 was a positive 230 tonnes, meaning that although ETFs had an 880 tonne outflow for the full year 2013, the GFMS implied net investment was only -383 tonnes. This then creates another residual number which would have to have been a positive 497 tonnes from some other type of investment demand.

gfms world inv 2013

What else is buried in this GFMS implied net investment apart from ETF flows? It seems to have been Comex exchange activity and OTC activity that is within this implied figure, but GFMS avoids putting numbers on it, hence the confusion.

The reason given by GFMS for a positive net investment of 230 tonnes in the second half of 2013, which cancelled out approximately 500 tonnes of the ETF gold outflows, was what it calls  “significant net buying” in the OTC market.

GFMS refers to its implied net investment figure as “a proxy for institutional investor activity” and said that it “shifted to negative territory” in H1 2013. I’ve included the GFMS 2013 discussion below, just to should how convoluted and unsatisfactory this GFMS logic was. Firstly, the GFMS Update 1 report discussion on ‘implied net investment':

“The implied net (dis)investment figure is not independently calculated, but derived as the item which brings gold supply and demand into balance. The figure should therefore not be seen as an exact tonnage equivalent but instead an indication of investment activity separate from retail bar and coin demand. Additionally, although a substantial majority of this tonnage will reflect such activity, implied net (dis)investment could also include other flows that, technically, are outside the definition of investment. One example is the impact of any central bank activity that is not being picked up in our official sector figures and that would, as a result, be absorbed within our implied net (dis)investment category.”

“Despite this caveat, implied net (dis)investment typically does provide a clear indication of the overall impact of investor activity on the market for the period discussed. Furthermore, using information collected through field research and publicly available data, Thomson Reuters GFMS performs a ‘reality check’ on these values.”

“It is interesting to examine how the implied figure compares with information on activity within the different arenas of gold investment (although given aforementioned limitations in this information, it is not possible to disaggregate accurately the implied figure into these components).

Due to the nature of gold ETFs and other similar products, we are certain that the near 580-tonne decline in ETF holdings had a one-to-one impact on the volume of investment. The picture is somewhat more opaque when it comes to the futures and OTC markets. As for the former, at end-June, noncommercial and non-reportable net positions in Comex futures were 477 tonnes lower than the end-2012 figure. Turning to the OTC market, however, the first half-year saw robust volumes of investment.

 “As a shortage of bullion rapidly developed in many regional markets and local premia jumped, transactions that were related to physical gold transfer jumped in the London market. Feedback from our contacts, gold trade data and clearing statistics published by the LBMA indicate that a substantial amount of large gold bars (from redemptions of ETFs and sales from unallocated accounts) were shipped to Switzerland from mid-April to be converted to small bars for markets in Asia and the Middle East”.

In its 2013 Update 2 report, GFMS then stated the following. Notice how a lot of the text is copied over from the previous Update 1 report. Update 2:

GFMS update 2 implied

Therefore, GFMS throws a number of items into its OTC category but steers clear from committing itself to really explaining what it means by OTC activity. It states that “the OTC
market is dominated by institutional investors“. It states that  “a substantial amount of large gold bars (from redemptions of ETFs and sales from unallocated accounts) were shipped to Switzerland from mid-April to be converted to small bars for markets in Asia and the Middle East“.

It alludes to “direct shipments, albeit more restrained, from the United Kingdom to the Far East also jumped, as refineries reached full capacity.”

GFMS hazily refers to ‘metal accounts’, which I would consider to be unallocated accounts, and not directly related to absorbing physical ETF gold outflows. GFMS says in its 2013 Update 1 report that “Metal accounts held by western high-net-worth investors also posted a net rise, largely reflecting gold’s traditional role as a means of wealth preservation. This was also partly related to the ongoing shift out of gold ETFs, as metal accounts offered lower fees, while transactions in the OTC market were less transparent than in ETFs.

By the time it wrote its Update 2 report for 2013, GFMS had concluded that:

GFMS update 2 otc

So an 880 tonne outflow of gold from the large ETFs (which are predominantly based in London), as well as hundreds of tonnes of gold outflows from the Bank of England, that led to 1373 tonnes of gold being exported from the UK to Switzerland in 2013, the lions share of which were transformed into kilobars and then shipped to the Asian markets, somehow, according to GFMS, turned into only a negative 383 tonne implied net investment due to “significant net buying for the year as a whole” in the OTC market. There is no attempt to explain the 1373 tonnes of gold exported from the UK to Switzerland in 2013.

If you classify gold ETF outflows as a distinct supply category of gold, which seems logical to me and which the large Swiss gold refineries also consider it to be, then a GFMS supply-demand model would look like this:

gfms 2013 reformat ETFs

The trouble (for GFMS) then is, that the model doesn’t balance, and they are left with a 496 (or 497 tonne) item on the demand side that they can’t explicitly explain what it refers to.

World Gold Council version of GFMS 2013 data

The World Gold Council (WGC) also publishes gold supply and demand data in its annual and quarterly ‘Gold Demand Trends‘ publication. Until 2015, the WGC used GFMS data as a data source, after which it switched to using gold supply and demand data from the Metals Focus consultancy (see below for discussion of the WGC – Metals Focus switch). The WGC uses a different (and easier to understand) layout format for presenting the gold supply and demand data, but for the 2013 format, it still subscribed to the approach of putting ETF withdrawals in the demand category as a negative number.

In its ‘Gold Demand Trends – Full Year 2014′ report, which has the most complete data for 2013, the WGC states in a footnote that the source is

“Source: GFMS, Thomson Reuters; The London Gold Market Fixing Ltd; World Gold Council. Data in the table are consistent with those published by GFMS, Thomson Reuters in their Gold Survey but adapted to the World Gold Council’s presentation

WGC 2013 table

The above WGC model puts gold ETF outflows (Good Delivery bars) into its own line item, but instead of including it as Supply, the WGC puts this in a negative demand. There is also another line item under demand that the WGC calls ‘OTC investment and stock flows‘, which it defines as “Partly a statistical residual, this data is largely reflective of demand in the opaque over-the-counter (OTC) market, with an additional contribution occasionally from changes to fabrication inventories.

GFMS changes its Supply-Demand Methodology in 2014

When the GFMS 2014 Gold Survey was published in April 2014,  GFMS had surprisingly altered the methodology and formatting of its supply-demand data model to include gold ETF outflows as an explicit line item. GFMS also ditched the implied investment concept, but came up with a physical surplus /deficit plug figure instead. I say surprisingly because GFMS had used its previous supply-demand model for a long number of years. GFMS did not dwell on why this had not been done earlier, choosing instead to highlight the benefits of such a change:

GFMS 2014 methodology

Could it be that GFMS subscribers questioned as to why the huge ETF withdrawals were not explicitly listed in the 2013 GFMS supply-demand model, that forced the change? Perhaps.

The inclusion of ETF gold flows (and gold flows from gold futures exchanges) were explained as follows. The OTC category continued to seem to cause problems to GFMS. See below:


gfms meth 3

The actual re-gigged GFMS supply-demand model, redone for 2013 was as follows. The figures for 2013 are slightly different from the ones that GFMS published during 2013, since the table below was published in April 2014 when GFMS probably had updated data about 2013 compared to the reports it published during 2013:

gfms 2014

The above GFMS revised model can also be reformatted as below, moving ETF and Exchange ‘build’ to the supply side, since they are supply and not demand:

gfms 2013 using its 2014 formatting

How the 99 tonnes of Exchange Inventory supply is calculated is not clear. Net Balance of 277 became 276 due to rounding differences. Even including ETFs and Exchange Inventory, there is no explanation by GFMS of what the Net Balance referred to beyond a vague reference to OTC activity.

This GFMS 2014 Survey report was sponsored by Swiss refiner Valcambi, and Japanese refiner Tanaka, with support from Swiss refiner PAMP, the CME Group, the World Gold Council, German refiner Heraeus, Italian refiner Italpreziosi (Italy), Rand Refinery of South Africa, and Istanbul Gold Refinery. Again my question would be why not ask all of these refiners (especially the Swiss refiners) what their throughput of Good Delivery bars was during 2013.

Instead, GFMS still seemed to struggle with explaining what it calls ‘OTC trade’. It even discussed (with a straight face) the huge London gold market clearing volumes of paper gold in 2013, seemingly trying to use this as some sort of vague connection to physical bar movements:

gfms otc

As to GFMS’ assessment (on page 26) of OTC activity, there is nothing concrete offered by GFMS as to what the OTC investment consists of. It mentions bars being shipped to Switzerland and on to Asia, but why is this activity not captured in physical demand?

However, GFMS does have a section in its 2014 (discussing 2013) titled “Supply from Above-Ground’ Stocks”.

“If we include the sales of ETF holdings, then the visible supply of gold to the market from above-ground stocks was 2,160 tonnes, equivalent to 42% of total demand in 2013. The figure comprises 1,280 tonnes of scrapped fabricated products and 880 tonnes of sales from ETF stockpiles.”

And it also included a table of ‘Visible Supply’ in which it did add ETF withdrawals of 880 tonnes to the ‘SUPPLY’ side for 2013, which created a total of 5,182 tonnes of gold supply for 2013. So this is further proof that the amended LBMA gold refinery figures for 2013 are completely out of sync with reality, since even GFMS now includes this ETF supply.

GFMS Visible Supply 2013

But still, 5182 tonnes of supply does not explain 6600 tonnes of gold refining output for 2013. What about all the gold that was withdrawn from the Bank of England in 2013 and shipped to Switzerland? Does GFMS capture this central bank related flow?I can’t see anywhere in the GFMS model where these type of gold flows are captured.

GFMS claims that for official sector transactions, it uses sources such as the IMF and central bank websites, and also “our own proprietary data on undeclared central bank activity, compiled using information collected through field research“. Then why does it not capture all the gold at the Bank of England that has been lent by central banks to bullion banks which has then been withdrawn from the vaults of the Bank of England and flown to Zurich during 2013?

And even for some central bank purchases that it has learned about, GFMS won’t reveal who the purchasers were due to ‘respect of confidentiality’. What does this say for accuracy of a supply-demand model if the nontransparency of central bank transactions prohibits gold transactions being publicised? See example from GFMS Update 1 report 2013:

“South Korea raised its bullion holdings by 20 tonnes in March. The balance of gross buying in the public domain consisted of small gains in gold reserves in a handful of countries. The overwhelming majority of these purchases were made by Asian countries, including Nepal, Mongolia, Brunei and Indonesia. Apart from the aforementioned buyers, over 40% of gross purchases or some 80 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market.”

 By the time it wrote its Update 2 report for 2013, GFMS listed some additional central bank buyers during 2013, and then stated that:

“Apart from the aforementioned buyers, over 60% of gross purchases or some 225 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market.”

That’s more than 135 tonnes of central bank purchases during 2013 that were not captured in the GFMS model.


Borrowing Gold in London

In my 7 September article “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“, I included a quotation from the Financial Times on 2nd September 2015 which stated:

“The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.”

And I concluded that:

“it begs the question, why do the dealers need to borrow, and who are they borrowing from. And if the gold is being borrowed and sent to Swiss refineries, and then shipped onward to India (and China), then when will the gold lenders get their gold back?”

Scotia Mocatta, a bullion bank which is very active in the Indian and Hong Kong/Chinese gold markets, vindicated this point in its ‘Metals Monthly September 2015‘  (page 3):

“The recent low Gold price has spurred physical buying interest to the extent that lease rates have climbed as metal is borrowed and delivered to refineries to be melted into the required bar sizes (such as kilobars) before being shipped to its final destination.

 So, where in the GFMS and World Gold Council data models is this “metal that is borrowed and delivered to refineries to be melted into the required bar sizes (such as kilobars)” being reflected? It appears that these gold bar movements are not being reflected at all.


World Gold Council switch from GFMS to ‘Metals Focus’

Earlier this year, the World Gold Council (WGC) switched from using GFMS as a data provider of gold supply and demand data. In an announcement, the WGC said:

“Starting in May 2015, we will be publishing gold supply and demand data provided by Metals Focus, a leading precious metals consultancy. These data will feature in Gold Demand Trends First Quarter 2015 onwards. Previously, we sourced gold supply and demand data from GFMS Thomson Reuters. The decision to change data providers was based on rigorous market research and a competitive pitch process. For more information, please see the focus box in Gold Demand Trends First Quarter 2015”

The focus box in Gold Demand Trends First Quarter 2015 states:

When new data sets become available and new methodologies are developed, we review how these might complement and advance our own methods. To that end, in 2014 we conducted a rigorous assessment of the gold market data landscape – a process which involved an in-depth review of a number of leading data providers. Following this review we appointed Metals Focus as the provider of our core demand and supply statistics.

“The World Gold Council is committed to publishing the most accurate gold demand data available. We are confident that the move to Metals Focus supports this aim.”

What the WGC didn’t mention in its press release nor in its Gold demand Trends Q1 2015  report is that in October 2013, the WGC purchased a 50% shareholding in Metals Focus Data Limited via its subsidiary WGC (UK) Ltd. The other 50% is owned by Metals Focus Limited. Surely this 50% shareholding is material information that should have been divulged by the WGC in its ‘focus box’ statement above? With its recent emphasis on costs savings, the WGC may have opted for switching from GFMS to Metals Focus partially because it may save money by using a data provider that it has an ownership interest in.

From the WGC 2014 financial statements:

WGC Metals Focus

WGC (UK) Ltd (Company No. 07867682) is a fully owned subsidiary of the World Gold Council, operating out of the same address as the parent company, 10 Old Bailey, London.

Metals Focus Data Limited is a joint venture for “the collection of data relating to the supply and demand for precious metals and licensing of data to third parties”.

What is Metals Focus Limited?

Metals Focus Ltd (Company No 08316950) was incorporated in December 2012, and was founded by Nikos Kavalis, Charles de Meester and Philip Newman, all of whom have previously worked at GFMS. Kavalis (through Premier Metals Consulting Ltd), de Meester and Newman each own a 28.87% shareholding in Metals Focus according to CompanyCheck. Metals Focus 2013 accounts can be seen here.

Metals Focus Data Limited, the 50-50 joint venture between the World Gold Council and Metals Focus Ltd, whose latest accounts can be seen here, has the following directors: Nikos Kavalis, Philip Newman and Lisa Mitchell of Metals Focus, and Terry Heymann, an MD at the World Gold Council.

Some of the sponsors of Metals Focus and its reports include Swiss refiners Valcambi and PAMP/MKS PAMP, other refiners Asahi Refining,  TCA (Italian precious metals refining), the World Gold Council (obviously), Brady Commodity Software Solutions, the CME Group, and G4S. So Metals Focus could also obtain very direct data from at least these Swiss refineries as to their throughput of Good Delivery gold bars.

Although the World Gold Council has now switched data suppliers to Metals Focus since earlier this year, in its 2015 Q1 Gold Demand Trends, it still uses the same supply-demand presentation format as previously,  with ETFs in 2013 being classified as negative demand and not supply. Interestingly, in the Metals Focus data, the ETF line item for 2013 has now risen to 916 tonnes.

wgc metals focus pres



With 6,600 tonnes of Good delivery refinery gold refining production confirmed by the LBMA to have taken place during 2013 (before the LBMA altered its data), you can see in the above analysis that this is problematic for the models of GFMS, the World Gold Council and possibly the model of Metals Focus too. Since the LBMA is sent refining data by its members, then, if it chose to, the LBMA could generate very accurate data for gold and silver refinery output for all of 2014 and nearly all of 2015.

Almost all other industries are able to publish accurate industry production figures with a minimal lag of maybe 2-3 months that provide an up-to-date snapshot of that industry’s activity. This is also true of economic data such as labour statistics and housing starts. Why then is it so hard for the LBMA to publish full and comprehensive gold refinery output data on a quarterly basis?

If this reporting procedure was put in place, the global gold industry would have far more clarify and insight into the huge flows of kilobar gold that are, on a daily and weekly basis, now being flown from Switzerland into Delhi, Ahmedabad, Chennai, Bangalore, Hyderabad and Kolcata in India, and that are also flowing at a torrential rate through Brinks vaults in Hong Kong and on into China.