The following is an edited extract from “Gold for Australian Investors”, a book on investing in physical gold, written by ABC Bullion Chief Economist Jordan Eliseo. Jordan is also a member of the Gold Industry Group Project Subcommittee.

Despite the fact gold is produced around the world, and purchased by a diverse range of investors all over the globe, trading in the wholesale physical gold market is still centered in London.

The London Bullion Market Association (LBMA) is an international trade association, representing the London market for gold and silver bullion. It was set up in 1987 by the Bank of England (BoE), which was the bullion market regulator at the time.

Despite the creation of the LBMA, the BoE is still heavily involved in the global gold market, as it has been since the creation of the bank back in 1694. To this day the BoE remains by far the largest vaulter of physical gold in England, whilst the Prudential Regulation Authority at the BoE is responsible for the regulation of the major participants in the London bullion market.

Today, the LBMA has close to 150 member companies, including traders, refiners, producers, fabricators and other companies providing storage and logistic services to the physical bullion industry. The client base also includes the majority of the world’s central banks - unsurprising considering the key role they play in the global gold market.

The LBMA has a number of responsibilities, all carried out with the intent of fostering the development of good trading practices within the over the counter (OTC) bullion market. The primary responsibility of the LBMA is the maintenance of the London Good Delivery List, including accreditation of new refiners and regular testing of listed refiners.

London Good Delivery Refiners

The London Good Delivery List dates back to 1750, when it was set up by the BoE. To this day, in the physical gold refining industry, inclusion on the LBMA Good Delivery List is recognised as the international benchmark standard for the quality of gold and silver bars. A gold or silver bar stamped with the hallmark of a LBMA accredited refiner really is “as good as gold” and will be accepted by bullion dealers the world over.

This is due to the stringent criteria that a refining applicant must satisfy in order for their bars to qualify as acceptable for trade in the wholesale bullion market, and for refineries producing those physical gold bars to be classified as a Good Delivery refiner.

Gaining acceptance to the London Good Delivery List involves a number of steps.  Refiners are required to submit gold bars to a physical committee for inspection and validation, with strict guidelines regarding the weight, size, and purity of these bars.

There are a number of refineries that act as referees, independently testing gold bars for their purity and adherence to the strict requirements of the LBMA.

Apart from this, the LBMA has further criteria that must be satisfied in order for a refiner to be accepted onto the London Good Delivery list. These criteria include requirements that:

  • The refiner must have been in existence for at least five years.
  • The refiner must produce at least 10 tonnes of physical gold per annum.
  • The refiner must have a tangible net worth of more than GBP 15 million.
  • The refiner must have a financial standing and reputation allowing it to satisfy the Know Your Customer (KYC) tests practised in the London Bullion Market.
  • The refiner must have implemented the LBMA Responsible Gold Guidance.

There are currently just over 70 LBMA accredited Good Delivery gold refiners in the world, spread across the Americas, Asia, Europe and Oceania. Collectively, these companies have refined on average some 4,000-5,000 tonnes of physical gold per annum, worth just under USD $200 billion at a price of USD $1,200 per troy ounce.

Some of the better known of this list include Swiss refineries such as Valcambi, Argor-Heraeus, Metalor and PAMP Suisse, as well as the Rand Refinery from South Africa, which produces the Kruggerand, the world’s most widely owned bullion coin, and the Royal Canadian Mint, which produces the gold and silver maple.

Despite being the second largest gold miner in the world, Australia has only two Good Delivery gold refiners. The Perth Mint, located in Western Australia, and ABC Refinery, which is located in New South Wales, and produces all of ABC Bullion’s physical gold products.

Provided Australian investors buy physical gold produced by an LBMA accredited gold refinery they can be assured that they are investing in internationally recognised and tradeable investment grade gold bullion.