When buying and selling gold, dealers look to the trade body the London Bullion Market Association for guidance. The LBMA monitors the Good delivery list of refineries whose bullion meet certain standards. The trade body was developed by the Bank of England which for many years has monitored the global wholesale gold industry. Gold bars are required to have certain markings so that it can be tracked from first delivery and traced as it moves in and out of specialist vaults until it is used to make other gold products. When you buy gold bullion you need to make sure it is made buy companies on this list.
The LBMA partnered with the Organization for Economic Co-Operation & Development (OECD), in 2012 and added more rules to its standards. Accredited refiners are not only required to meet specific physical standards but they are required to make sure that their suppliers do not deal in conflict minerals or launder money. This means that refineries have to do some serious due diligence which won’t come cheap.
There are currently 68 refineries that are approved on the Good Deliver list. These companies refine by-products from mining, they recycle small investment gold. Upgrade low purity bars and process their own scrap from previous sweepings. The standard of the Good Delivery list has improved and the number of companies on that list may have also grown but there have been criticism that the list has failed to keep pace withe the mining flows globally. This could mean that keeping g illegal conflict minerals out of the global market is working.
According to statistics, in the last decade, the global mining output has been rising by 1,000 tonne per year but in 2018, the London Gold Delivery’s throughput grew only by half that amount. Switzerland which has been a leader in bullion refining has also instituted tighter requirements from its supplies, this has affected the gold imports last year causing them to slip by 6.1%. A lot of refineries are getting more scrap gold than before.
With more refineries coming into the LBMA good delivery list, the competition to source material is high, it doesn’t have anything to do with the fact that a great deal of the Good Delivery capacity has been added in the top gold consuming country in the world, China. This is because China actually bans the export of gold bullion which means its Good delivery production is actually a closed circuit. The same can be said for the second largest gold producer, India. Whilst it’s retiring capacity has grown in the last decade, it still? Has one London Good Delivery refinery. Now, China is looking to develop its own Good Delivery Standards instead of trying to meet the criteria of the LBMA Good delivery list.
Why should the average Joe anywhere in the world care about what is happening in the Chinese and Indian gold Industry? If you have gold to sell or if you ever need to buy gold bullion you should know what the biggest consumers are doing and whether your gold will be worth what it is today if the refining standards are changed or keep getting stricter. As the biggest consumers of gold, what happens in China and India affects the global gold price.
