What is LBMA and why is it important?

 

What is LBMA and why is it important?

 

Today we touch upon a topic that many of us precious metals investors are familiar with – London Bullion Market Association (LBMA). However, how many of us understand exactly the role they play and why we should take notice of it?

 

Most of us have heard of the term “LBMA Approved” when we invest in physical precious metals. In fact, a common nugget of wisdom is “Don’t buy if it’s not LBMA approved”. We will explore what exactly is “LBMA approved” and if we should allow “LBMA approval” to play an important role in our investment decisions.

 

London Bullion Market Association (LBMA) is “the pre-eminent standard-setting body for the global wholesale market for precious metals. We have some 150 members based in over 30 countries and they encompass every part of the journey in precious metals production.”  It aims to promote good trading practices and sets objective criteria and standards such that physical Gold and Silver bars can be traded efficiently in the wholesale market. To put it in a nutshell, LBMA works together with industry players to ensure that the bars that are being physically traded meets international standards.

 

One thing to note, LBMA is a trade association comprising of industry players, with the aim of providing good governance of precious metals. It is not a trading exchange.

 

Why is this international standard important?

One of the tough aspects of accurate jewellery valuation is the vast variation of it. Some are 91.6% pure, some are 99.9% pure. Some come with stone designs which affect the weight, others have hollow inner parts that should not be considered as part of the total weight. While this variation and uniqueness is good for the wearer (no one ever boasts that their gold ring is the same as thousands other after all), it creates a lot of checks and works to be done by jewellery dealers in order to accurately valuate the jewellery. In short, jewellery pieces are NOT STANDARDISED, making it more difficult to be traded in a very efficient manner. LBMA thus plays this very important role in setting standards and ensuring good governance across the precious metals industry. For more information on what exactly they do, please refer to this link.

http://www.lbma.org.uk/what-we-do

 

What does it mean then to be LBMA approved?

Gold Refiners worldwide obtain accreditation by LBMA, which show that the bars which the particular refinery produces have met the LBMA standard and can be delivered into international financial markets. Similarly, physical investors also follow suit and look out for Bullion that are produced by LBMA Accredited refineries. What this means then is that when end consumers buy an LBMA Good Delivery Bar, they know it meets a certain standard that is internationally recognized.

 

Bear in mind that accreditation is refinery specific, hence a particular brand for eg, Argor-Heraeus, which have multiple refineries in different locations, would appear multiple times on the Good Delivery List.

 

You may refer to the list of LBMA members that is published on their website.

http://www.lbma.org.uk/good-delivery-list

 

Note: Members may cease to be on the LBMA membership list, however they will still fall under the Former Good Delivery list and their bars are still considered to be “LBMA Approved”. Some markets do however take a slight discount in their sellback prices as the liquidity in the local market for Former Good Delivery Bars may not be as high compared to Current Members.

 

(If in doubt, check in with your local bullion dealer before making your purchase)

 

So why should I care if my gold is LBMA approved or not?

The international recognition of your gold is very important! After all, one of the main draws is that Gold has no counterparty risks because it is widely recognized. (I.e A gold bar that was purchased in Australia could be sold off in Singapore easily) Thus, when your Gold is non-LBMA approved, that results in it being “lesser recognized”. Any serious Bullion dealer (GSC buys back all forms of Gold, LBMA / non-LBMA / jewellery , etc) would probably still buy your non-LBMA gold, however bear in mind that local markets price their sellback prices differently, with non-LBMA gold bars often being substantially lower than their LBMA counterparts. This is to factor in the melting costs that the dealers have to bear and risks that they carry if they are unable to resell it. The same logic applies also for jewellery pieces also. Hence do not be surprised if your jewellery shop quotes you sellback prices that are a 40% deduction of the international Gold Spot Prices. This covers their expenses and costs also.

 

You can compare GoldSilver Central’s Sellback prices for jewellery here.

https://www.goldsilvercentral.com.sg/sell-gold-jewellery-highest-prices-singapore-goldsilver-central/

 

Can I still buy non-LBMA gold bullion/jewellery for investment purposes?

Well, it is your money after all and we aren’t the sort to impose our views upon our customers. Personally, when I go into an investment, I would wish to know where are the screw ups that could kill my investment. And it’s the same here as well. As long as you know what you are getting yourself into, I would say that’s good in itself already. Some serious investors I know do buy into Jewellery pieces still, as they see it as a wearable investment. Yes, there’s higher buy-sell spreads, but I get to enjoy my investment in the meantime.

 

Point to note in case you are unaware, is in Singapore, non-LBMA Good Delivery Bars / Jewellery are subjected to 7% GST taxation.

 

Is the LBMA Price Fix related to any of this?

Yes! It was previously known as the London Gold Fix – a benchmark price by which institutions worldwide use to price and agree on with their counterparts. Having a reference price facilitates transactions in the financial markets and the history dates back to 12th September 1919 when the first gold price fix was done. The name was recently amended to LBMA Gold Price and a new commercial model was introduced. It is currently administered by ICE Benchmark Administration (IBA). http://www.lbma.org.uk/lbma-gold-price(Click link to understand more about LBMA Price Fix history)

 

Read more about LBMA Price Fix in our previous article: https://www.goldsilvercentral.com.sg/blog/10-gsc-reference-price/

 

 

So that’s it for today, a very brief look into LBMA as well as how it affects you as a precious metals investor. If you wish to know more about the history / the mechanisms of how LBMA operates, please take a look at their website.

 

Stay tuned in as we continue our updates.

 

 

Fun Fact: Gold and Silver falls under the LBMA framework, but Platinum falls under London Platinum & Palladium Market (LPPM) instead.

 

 

Jason