Goldreporter met Ruth Crowell, CEO of the London Bullion Market Association (LBMA) in Frankfurt. She talked to Jürgen Fröhlich about the London gold price, shortages on the precious metals markets and the challenges for global gold trading.
Mrs. Crowell, can you tell me in a few words what the LBMA is and what it does.
LBMA is the world’s independent authority for precious metals. We’re quite unique as an organization because we accredit gold and silver refiners for delivering their metal to the world’s largest market for precious metals, which is physically based in London. But clients are certainly all over the world. We’ve been doing that quality control role since we were set up in 1987. Certainly the history of the London Market goes back over over 300 years.
When did you join the LMBA?
I joined the LBMA in 2006. I came as a temp, finishing my Master’s at the London School of Economics, and was looking for a job to pay the rent. And just by chance, I got a job as a maternity cover for the EA to the CEO. I’m not quite sure what Bullion was. I thought it might have something to do with soup, but ever since then they had me back and now it’s been 15 years.
Let’s talk about the London reference price. Can you speak to the meaning and the importance for the industry and how it has changed since 2015? Because we know there was an incident of price manipulation. How did LMBA price has evolved since?
Well, I would clarify, there was an incident of attempted price manipulation. The actual auction itself came out clean. It was not compromised.
But one person was proven to have tampered, he was fined and banned from the profession [James Plunkett, Ex-Barclays].
He attempted and was fined, yes. But the auction itself was not compromised. The gold auction dates back to 1919 and was really set up by the Bank of England in an effort to ensure that sellers would be confident they would get the best price and that buyers would be confident they would get the best price in the world, on a daily basis.
This unique double auction still goes on to this day, and significant changes took place since LBMA took the ownership of the intellectual property, which formerly belonged to the Gold Fixing Company. Administration and oversight are now conducted by ICE Benchmark Administration and LBMA owns the intellectual property on behalf of the market. We have seen the list of companies which it can directly participate in the auction grow from what was four or five firms to a larger number. I think we’re at 14 today. There’s some back and forth on a few. But definitely a healthy volume there. We’d love to see it grow further. We’ve been delighted to see the Chinese banks that have taken part. We still have an ambition for an indian bank to step forward.
So this is a challenge?
Yes. I think the challenge is that Indian banks are, I have heard, restricted by the Reserve Bank of India in terms of what they can do offshore. However, India is a key market for gold and has big ambitions on the international stage. So we continue to work on that.
What are the key challenges facing the gold industry today and how is LBMA working to address them?
I would say key challenges in gold are not dissimilar from other commodities in terms when it comes to ethical sourcing or sustainable sourcing. We have been at the forefront of ethical sourcing since 2010. This was in response to US regulation that came out about sourcing from the Democratic Republic of Congo. And it was really in 2012 LBMA put mandatory requirements in place. So for that good delivery list I talked about, they are the highest standards in the world.
We are unique in that we can enforce these standards because on the LBMA accredited list as gold refiner is not a nice to have. It’s a necessity if you want to access the world‘s price.
So we’ve been doing that work for a while, but I think more recently we are turning our eyes to what else to do on the environmental side. And in particular looking at sustainability. So we have a new draft strategy we will be announcing in the coming weeks, asking for feedback from the industry and from investors as to are we meeting investor expectations on what progress looks like from a sustainability perspective.
What are the criteria for inclusion in the good delivery list?
To be a good delivery refiner you have to put a minimum tonnage of ten tonnes a year. You have to have a substantial tangible net worth and you have to be involved in the business for at least three years, so in existence and in production for three years. So those are prerequisites.
You then have to pass a series of double blind tests for the lab’s ability to assay gold. As well as of course pass a Responsible Sourcing audit which review’s refiners’ management systems and due diligence. If all of these are passed, refiners ultimately go to the casting section of the test where they’re sending bars to London and these are being inspected.
It’s about us at least six months. Well it was at six months, maybe, prior to COVID. Given the amount of interest as well as the backlog, it’s a bit longer these days and we are at a point that interest in becoming a good delivery refiner is higher than ever.
So there is already a long application list for new companies to apply?
Yes, we are to the point that we’re having to expand the vaults that deal with the inspections, as well as our list of the referees which do double blind inspections in the labs.
Recently, a number of German and Austrian companies have joined as LBMA members. What are the concrete advantages of membership?
It depends on what type of company you are in terms of what you get from the membership. For a bank or for someone who is trading directly in London you must be an LBMA full member if you want to take advantage in the UK of the VAT efficiency.
For the gold now you have the EU gold directive, so it’s less of an issue.
But certainly for silver, if you want to take part in the market, you have to be recognized as part of LBMA. So that’s the first aspect. In terms of why are people affiliated, for most it’s a mark of credibility in terms of their attesting to the precious metals code. They’re signing up to the number of rules in terms of what integrity looks like for the gold market. But then they’re also benefiting from meeting their peers, on the various working groups.
For some of them it’s marketing, some of it’s networking, and some is industry know-when we come together. Whether it’s tax or regulatory issues, we bring experts together under the trade association to ask, how can we help you get ready or to address these challenges?
Can you tell how much gold is effectively physically moved at the London bullion market?
Well, we know how much is held, since we’ve got the statistics now. I’m very proud to say it’s under my tenure that we got those published for the first time.
So we publish how much gold and silver is stored in the vaults, but we also give the daily turnover, so what is traded. And that’s only part of it. Yes, it is an interbank market. But we do require our members to report. And there is a lot of information about how big the trade is. We provide the statistics.
Switzerland is the main gold hub in Europe, if not worldwide. Approximately 60 percent of all refined gold is going through Switzerland. How does it relate to the business of LBMA?
For LBMA certainly the good delivery refiners based in Switzerland are substantial, as you say, and you see the large tonnage going through them.
Certainly, they’re a big partner. There are members of the Association. They are good delivery refiners. Still though, you know there is vaulting and certainly refining in Switzerland. But most vaulting is held in London. Despite, aspirations amongst other European countries like France in particular.
The Bank of France has been very public about its aspirations, particularly post-Brexit. And I think those are ongoing. But you can certainly see from the trading and volume numbers that London continues to be the strongest there.
We always observe large movements of gold from London to Switzerland in certain periods. In 2021, it was around 300 tons. And, of course, one wonders what the reasons are for that.
I think there’s some simple explanation: London requires its bars in 400 ounce form. Other markets around the world, other major ones, like the Comex in New York accept kilo bars or 100 oz bars. So it’s a different shape and size issue. And it’s something I would say we saw most clearly during 2020. I’m sure you followed this dramatic moment in April 2020 and London and NY had a dislocation.
It was not a shortage of gold. It was just in a wrong shape. And then the Swiss government understandably during the Covid crisis shut down those factories close to the italian border over the weekend. And because, as you rightly say, so much refining is done there, there started to be a panic in the market: could people who had positions on COMEX actually deliver to fill those obligations?
Yes, is certainly the answer to that question, because you see these huge stockpiles in New York, which traditionally is a paper market in some way. In some some ways they have a problem now because of too much metal there.
But get back to your earlier question about why the big tonnages moving from London to Switzerland? This tends to be because you want the bars put into a different form either, for example, for delivering onto COMEX into, say, Shanghai Gold Exchange, depending on where the market is. A lot of work undertaken by the Swiss refineries is focused on melting and recasting bars, say from 400 oz to kilos.
I remember getting questions from the UK government regaring 2013 figures because they had also seen the large volumes going out and they had said, the reason we call is because this is the larger value than we see of food being imported into the UK. But we explained the price had come down, and there was this huge push to put kilo bars into the Chinese market, which in Switzerland is kind of the shortest distance.
Does this also have to do with the fluctuating demand for ETF gold? Because the gold is stored here in the form of investment bars and these must be sold when demand falls. So it is leaving for the Far East.
The London market is always a place that you can sell metal but certainly they get more value, when they sell on retail markets or which include kilo bar markets in Asia. So it’s a more profitable business for banks, but also for the refiners as well. They’re not making money on the 400 ounce to the same extent that they’re making on these value added products. So when demand is high for physical bars on point of sales, there is obviously an interest in doing that.
Recently, there was a story about so-called „doped“ gold from the Perth Mint that was more of an academic discussion than a real problem for the industry. What’s your take on that?
You mention doping. That‘s the correct scientific term, but it it definitely gives a very negative impression. And it’s the same for ‘fixing‘. I think as an industry, we need to come up with some better words!
There is always criticism in the market. You know that.
But I think, you know, if you see the fixing, they should have changed its name many, many years before. But I think in 1919, fixing was a very popular term. You had loads of fixings in London and those were just price benchmarks. And I think the industry didn’t keep with the times in terms of recognizing that it would cause concern for investors who don’t understand.
So, going back to Perth Mint. We never had an issue in terms of concerns about the lab. We launched an incident review process. But this was strictly looking at the responsible sourcing allegations that were made by the media at the time. And then we’ve come out and said that we have green-lighted them for now, with the outcome that they remain on the Good Delivery List. We also clarified that there’s not never been a concern in terms of ‘doping‘. But actually, you know, the Perth Mint I think addressed this themselves quite well. And because it was with regards to the Shanghai Gold Exchange, it was good to see them coming out publicly, and hopefully educate those who actually read the news.
How do you deal with falsified gold which has been coming into German markets quite a bit in recent years?
I think gold is attractive and the higher the price goes, the more interest there is from the counterfeiters, because they can make the most money. And this is not something new. This goes back to this great book on Sir Isaac Newton and his fight against the counterfeiters [editor’s note: „Newton and the counterfeiter“ by Thomas Levenson].
What we are doing actively is we are working with the industry on how can we develop better controls. One of these is in terms of bars and points of sales to recognize the security features that we think are quite promising.
And we’ve published seven ‘security features ‘ on our website. But we are also encouraging the fabricators of coins and bars who are on the Good Delivery List actively to try to cut off the supply side in terms of telling people not to buy from eBay, for example, and instead buying from known, accredited dealers who where they’re sourcing from.
Unfortunately, this doesn’t stop people. But it’s in the industry’s interest to try to stop that supply from being out there.
You know, if they’re pretending to have a brand listing, say for the Perth Mint. Perth Mint should be taking it up with eBay. And certainly I know members who have done that have had a lot of success and the chance of getting the site to take them down. Yeah, it’s an ongoing struggle, but I think we have to try to address it on both sides. So encouraging the good delivery refiners to address the supply side as well as improve as much as they can in terms of the controls that are in place.
The LBMA is working on developing a global standard for the one kilogram bars. How is this going forward?
It is going well. I mean, it’s work that sort of started pre-COVID and has everything to do with agreements between the China market and the Shanghai global stage and the wider world. So we are very close, I think, to announcing that. I think it has more to do with when can China leave its shores.
But I would say that things have gotten significantly better due to the challenges of COVID. People woke up and said actually making this as seamless and as fungible is in the interest of the global market. So you don’t have these dislocation issues like you saw between London and New York. So these conversations with China continue. But I would also say we made big steps forward, particularly on the silver side with the COMEX as well in terms of aligning the list. We saw the COMEX as actually ensure that all of LBMA refiners were also on its lists to make things more seamless. And we continue conversations about how can we streamline as an industry.
So who’s going to benefit?
I think the investor benefits, for example, by taking away concerns that we might have another 2020 dislocation incident. The more the two markets are talking, the better. And ultimately New York and London are linked. So many people are trading on the COMEX, but then balancing that trade in terms of their London position. They are trading spot and then you are seeing their long position in London. I think until we started public trade statistics, this was a challenge for some of the conspiracy theorists because they only saw one side of the trade. But now, we publicly have both sides visible.
A while ago you launched Version 9 of the Responsible Sourcing Program (RSP) initially introduced in 2012. How does this program benefit the gold industry and promote responsible sourcing practices?
We are in many ways unique as an organization, but also as an industry that we have the LBMA as this very centrist, independent authority originally set up by the Bank of England and the market to ensure that the carratage of the gold is accurate. And that still remains a strong benchmark of what we’re doing.
But we have expanded that to responsible sourcing which, you know, has made us a bit unpopular at times with the miners, certainly in 2012. I think the majority of the industry saw the reason for doing this. But there are certainly people who had to be convinced.
And it means that it’s an even playing field as opposed to one or two brands doing the right thing. We can say, „You want to to sell to London? This is what quality looks like now and it has to include responsible sourcing“. So I think the challenge has been how do we keep up with consumer and investor demand as to what does that mean in 2023 compared to 2012.
How do you assess the silver market? In recent years, nominal demand has regularly exceeded supply. Some silver investors believe that the silver price should be much higher and doubt the fundamental price formation process.
Silver has been the most interesting of the precious metals, certainly. And we only really look at price once a year. We bring the world’s analysts together and forecast. And certainly silver was the 2023 metal to watch for all of them. And that was for a combination of reasons.
So we saw strong Western demand in terms of coins and small bars, partly reflecting concerns about what is the Fed going to do, what’s going to happen to the economy of the U.S., given high inflation, etc. The other aspect is we have been talking probably for over a decade as an industry as to what’s going to happen with the green agenda in photovoltaic. And I think we’re finally seeing that become a factor in demand.
And then on the other side, you’re seeing investment demand in India, similar to the US, but at very high levels as well to the point that there it was worth the cost of flying silver to India as opposed to letting it go by boat, because that’s the typical way that silver moves.
I think the supply is out there. It’s just whether people are willing to pay to get it there faster than its normal routes in terms of maritime channels.
Well, the other aspect, is scarcity which depends on what you talk about. If it’s coins, there’s also a challenge in terms of metals. So I think the production levels have less to do with a lack of metal and more to do with production challenges to meet demand.
How does the LBMA assess the impact of geopolitical developments and global economic trends on the price of gold and the gold market as a whole?
I think the combination of geopolitical and macroeconomic uncertainty will keep gold in focus for several more years. And the common question we get asked is, if things are looking so bad, also on the inflation perspective, why is the price of gold not higher?
I think a strong US dollar has been a big factor in that. And a big driver is the central banks. What are the central banks going to do? I think that fear is the overarching challenge. And the other interesting thing regarding the gold price has been the incredible central bank buying program that started in 2022 and which has continued inro this year.
And to some extent, geopolitical concerns can change into concerns about U.S. dollar holdings, and the will of central banks to shift them into more neutral gold holdings.
I just came from the OECD conference in Paris, where you had producer central banks who are wanting to get much more involved in the gold markets – like Ghana, for instance. They’re very public about this. You know, they’re the sixth biggest producing nation for gold, but they have very low holdings which haven’t altered in 40, 60 years.
They want to change that now. So they have big ambitions to certainly increase their holdings. But ultimately they’d like to see a good delivery refiner in Ghana which is something LBMA would support. But they will have to meet all the independent tests and requirements, but certainly I think this is a positive move possibly for central banks around the world. And also a model is that one of our refiners, the Central Bank of the Philippines, has been on the list since 1979.
It can be a very interesting, because I think central banks could play a very helpful and interesting role for developing countries which have a richness of natural resources in terms of gold that they are wanting to turn that into reserves that help the economy.
What is your relationship with the Chinese market? There is competition in the form of the Shanghai Gold Exchange. Or do you not consider them as competition?
Oh, no. I think we see each other as as peers in the market, you know, And certainly there’s a big interest in China. I mean, we have been involved with the Shanghai Gold Exchange since when they were founded and have always been encouraging them to internationalize. And I think they’ve taken big steps. I still think they could go farther. It’s still a very domestic market and there’s still big limitations on international opportunities.
They trade gold in their own currency …
I think it is a big development for them. It makes sense. You know, when you’re asking about what’s happened with the price. We’ve also seen other prices around the world, which is good. A silver trader in Chicago is using a 12:00 London time silver price at 6 p.m. in Chicago and wondering why it’s maybe not accurate. Maybe they should be looking to develop their own pricing network that sort of follows the sun.
And so I think we’ve seen that certainly in China with their own benchmarking. And I think they can continue to grow. But they’re very complementary markets.
But we also, if you’re interested, we have stats in terms of we keep track of the turnover. So from London it’s 56 Billion US dollars a day. And so it’s really London and New York that are competing in terms of the largest. Shanghai Gold Exchange is significant, but it’s much smaller.
So which market has the biggest impact on the price of gold in the Western world?
London, certainly. I mean, London is the a physical market. The COMEX is more paper based. So it depends on how you see the world. London is the spot side of the trade and I think continues to be the dominant force because of the metal held there as well as the history, the market side; the sort of gravity of that time-zone is also helpful when you’re trying to reach Asia as well and bridging that global.
How do you see the German market?
It’s an important center when it comes to refining. But it’s quite unique in the West as a key destination for gold consumption given public interest and investment in gold. German people have an affinity for gold due to experience with hyper inflation and that affinity is only growing. At the moment, you don’t have, for instance, like the Krugerrand, a sovereign mint producing a coin in Germany. Perhaps you should given the investor interest.
There are the German euro gold coins, of which three issues are produced each year. Of these, at least the 100-euro variant has established itself to some extent as a bullion coin on the secondary market. On the secondary market, however, there is always the danger of getting counterfeit gold.
There are all sorts of challenges on the secondary market. It’s why, you know, in the gold bullion industry we talk a lot about a chain of integrity. Certainly wanting to take metal directly from the refiner. I think we need a mint in this retail arena.
And, you know, there are amazing technologies that can improve, but you also have to know what you’re looking for. And I think, unfortunately, too many people are willing to take what they think is a good deal because they see it on eBay, Amazon or Alibaba. They should be going to accredited dealers.
And when you’re asking about affiliates and what do they get out of it – the mark of being LBMA is that you have to sign up to our code. You also have to sign up to LBMA rules, which requires you to conform with U.S. / U.K. EU sanctions rules as well. This commitment to ethical business conduct is important to investors.
Have there been any sanctions against members who have violated LBMA rules?
Yes. Russian sanctions are a good example of us moving quickly to respond to market demands. LBMA actually had Russian refiners, but we suspended them 7th of March last year following the invasion.
We were the first major market to do that, which in many ways was good, because when the the global gold sanctions came out in June, the U.S. was the first country. But the gold market had already taken a lot of steps.
And most of that was because as an industry, they were making the decision that this wasn’t acceptable anymore and we had to make sure we ensured an orderly market. But I do think it is something that certainly all professional institutions are more highly alert to than ever in terms of concerns about laundering a metal and wanting to shorten the supply chain and know that they’re getting it from source.
So that we can be confident. Because it’s not just about the carratage, it’s also about where’s it come from, has it been ethically sourced? Certainly no one wants to be breaking sanctions here.
Ms. Crowell, thank you very much for the interview!