Gold Business


GOLD INFORMATIONS

Gold Price Guide The international gold price is a US Dollar price for gold established via gold trading on the world’s largest gold markets. In practice, the international price for gold is set by the gold markets which have the highest trading gold volumes and gold liquidity, namely the London Gold Market and the COMEX gold futures market. Between them, these two gold markets essentially determine the international gold price, as they account for a combined 85% of global gold market turnover. In other words, the London OTC and COMEX gold markets are jointly responsible for gold price discovery of the international gold price. Local gold markets around the world are gold price takers and take in the international gold price, using it as a basis for setting and quoting their own local country gold prices.

Futures Price for Gold The Futures Price of Gold is a price at which delivery of gold could take place on a future delivery date based on a gold futures contract agreement between transacting parties. A gold futures contract is said to be in contango when the futures price is higher than the spot price. Conversely, a gold futures contract is in backwardation when the gold futures prices is below the spot price.

The London OTC Gold Market The London Gold Market is a wholesale gold market in which participants trade bilaterally, either by phone, via broker, or over electronic platforms. The London Gold Market is not an exchange-based market and so is referred to as an Over-the-Counter (OTC) gold market. The majority of gold trading in the London OTC gold market is spot gold trading (for immediate delivery of gold) in large quantities, generally between quantities of 5,000 to 10,000 troy ounces of gold. However, the unit of settlement in the London OTC gold market is not physical gold but unallocated gold. Unallocated gold is a form of synthetic gold which is fractionally-backed by bullion banks and where trades are predominantly cash-settled. Huge volumes of unallocated gold trades are executed on the London gold market each day that are many multiples of the amount of physical gold underlying these bilateral contracts. See BullionStar's Infographic of the London Gold Market for more details.

The COMEX The COMEX is an exchange-based derivatives market which lists gold futures contracts and which facilitates the trading of these contracts. The most actively traded gold futures contract on the COMEX is the 100 oz gold contract. Although this gold futures contract offers a physically deliverable option of gold, i.e. to receive 100 ounces of gold in the form of a 100 oz gold bar or three 1 kilogram gold bars, nearly all COMEX gold futures contracts are closed out, cash-settled or rolled over, and only a tiny fraction of contracts are ever delivered. See BullionStar's Infographic of the COMEX gold futures market for more details. The international gold price is therefore set by 2 markets, the London OTC gold market and the COMEX gold futures market, both of which are paper gold markets and both of which generate trading volumes far higher than the amount of physical gold underpinning this gold trading.

LBMA Gold Price The LBMA Gold Price is a benchmark gold price derived in an electronic gold auction which takes place twice per business day at 10.30 am and 3.00 pm London time. Direct participants in the gold auction are limited to a small number of bullion banks and other similar institutions which are members of the London Bullion Market Association (LBMA). However, other gold market participants such as gold refineries can participate indirectly through one of the direct participants. The gold price published as the reference price after each auction is the US Dollar gold price derived in the final round of each auction when the auction’s buy volume and sell volumes are in ‘tolerance’, i.e. with less than 10,000 troy ounces between buy and sell volumes. Prices are also published in 11 other currencies in addition to the US Dollar price such as in Euros, Singapore Dollars and Swiss Francs. The LBMA Gold Price auctions are administered and operated by ICE Benchmark Administration (IBA) on behalf of the LBMA, with the LBMA owning the intellectual property rights to the auctions and the auction data. The LBMA Gold Price auctions were launched on 20 March 2015 and replaced the previous London Gold Fixes which had fallen into disrepute. The underlying asset traded in the LBMA Gold Price auctions is not physical gold bars but unallocated synthetic gold (which IBA refers to as “Spot Loco London Gold (unallocated)”). However, the LBMA gold price reference rate is used widely in the global bullion industry to value everything from gold-backed ETFs to OTC gold swaps, and also to value transactions in the wholesale gold market such as gold trades between gold mines and gold refineries. ICE Benchmark Administration is also now the administrator for the LBMA Silver Price auctions, after the previous administrator and calculation agent, Thomson Reuters and CME, stepped down in 2017.

LME Gold Reference Price The London Metal Exchange (LME) publishes daily gold reference prices at 10:30 am, 12:00 midday, and 3:00 pm London time, and also publishes silver reference prices at the same times. The 10:30 am and 3:00 pm publication times coincide with the LBMA Gold Price auction times, while the 12:00 midday time coincides with the timing of the daily LBMA Silver Price auction. Unlike the LBMA Gold Price which is derived from buy and sell orders within daily auctions, the LME gold price is a volume-weighted average price calculated based on trades executed in the LME’s Gold spot contract over a 2-minute period starting at the above times. These LME Gold spot contracts trade electronically on the LMESelect trading platform. However, similar to the LBMA Gold Price, the LME gold reference prices also represent trading of unallocated (synthetic) gold in the London market, and not the trading of physical gold. The LME’s gold reference prices were first published in late August 2017 but these references prices are not very widely used in the global bullion industry. However, the LME is making its gold reference prices available free of charge to market participants, and at some point in the future, the LME gold reference prices may gain some market share from the dominant LBMA Gold Price benchmark. See BullionStar coverage of the LME gold reference prices for further details.

Shanghai Gold Benchmark Price

The Shanghai Gold Benchmark Price is a benchmark gold price derived twice daily on the Shanghai Gold Exchange (SGE) via an auction of 1 kilogram gold bars. As such, it is the world’s only major gold price benchmark that is based directly on the trading of real physical gold bars. The actual trading unit in the auction is physically-delivered 1 kilobar lots of 99.99% purity gold or higher, with delivery locations in the SGE’s network of gold vaults across China.The Shanghai Gold Benchmark Price auction (also known as the SGE Gold Fix) takes place at 10:15 am and 2:15 pm Shanghai time, and is conducted on the SGE’s electronic trading platform. Trading in the auction is conducted in Renminbi (RMB), and the benchmark gold reference price is published in RMB.Like the LBMA Gold Price auction, the SGE Gold Fix auction seeks to establish a benchmark gold price at which demand and supply in the auction are in balance. The demand-supply tolerance within which the Shanghai auction settles (the point at which the auction rounds can complete) is a tolerance / difference of 400 kgs (12,860 troy ounces) between the bid and ask volume.The SGE auction opens with a ‘reference price’ which is based on gold prices entered into the trading system by ‘Fixing Members’ and ‘Reference Price Members’' before the auction begins. There are 12 Fixing Members, all of which are banks, and the majority of which are Chinese banks. There are 6 Reference Price Members which comprise non-bank participants such as Chinese gold jewelry and Chinese gold mining companies. The SGE’s Gold Benchmark Price auction was launched on 19 April 2016, exactly one year after the LBMA Gold Price was launched. See BullionStar article on the Shanghai Gold Benchmark Price for further details.

Gold Trading Hours The gold market is global in nature and it follows the sun around the world as gold marketplaces and gold exchanges open and close throughout the day. At any given time, the gold price is practically the same around the world, with arbitrage trading keeping prices in convergence. The exceptions are frictions caused by local country rules, such as gold import tariffs and gold sales taxes (e.g. in India) or gold import and gold export restrictions causing local premiums or discounts. One of the two dominant venues for gold price formation, the over-the-counter wholesale London Gold Market, trades from 8:00 am to 4:30 pm London time with daily LBMA Gold Price auctions at 10:30 am and 3:00 pm. The other dominant venue, CME’s Globex electronic trading platform, on which COMEX gold futures are traded, is open practically 24 hours a day from Sunday evening New York time, right through the week. This platform sees significant trading during Asian hours as well as during the US and European trading day. Within Asia, both the Shanghai Gold Exchange (SGE) in mainland China and the Chinese Gold and Silver Exchange (CGSE) in Hong Kong are important components of the global market that are located in the same time zone. The SGE has three trading sessions throughout the day, a night trading session from 8 pm to 2 am, a morning session from 9 am to 11:30 am, and an afternoon session from 1:30 pm to 3:30 pm. The CGSE in Hong Kong is open Monday to Friday with a morning trading session of 9 am and midday, and an afternoon trading session of 2 pm and 5 pm. In Japan, one hour ahead of Shanghai and Hong Kong, gold trading also takes place on the TOCOM futures exchange. Heading west from China, other important gold trading centres are Singapore, India and Dubai, each of which has an active wholesale market as well as gold futures platforms, e.g. India’s MCX and Dubai’s DGCX. West of Dubai, Turkey’s Borsa Istanbul also hosts a physical gold trading market and a gold futures market. Within Europe, the gold markets of Russia, Switzerland and Germany are notable, with Zurich in Switzerland being a particularly famous and historical gold trading centre. When looking at the gold price during the day, it's often useful to think about which of the world’s gold trading centres are open and active at that particular time.

The Gold Rate in India India does not have a centralized gold exchange, although such an gold exchange has been proposed at various times with the backing of the World Gold Council. Instead, India operates a decentralized gold market and is the world’s second largest gold importer. Designated banks and other state authorized entities import gold into India in the form of refined bars and gold doré through major ports of such as Delhi, Bangalore and Chennai. The gold then passes through a large network of gold wholsealers and gold refineries on to gold retailers.The gold price in India, known as the Gold Rate, differs from the international gold price due to gold import duties and goods and services tax (GST). Various benchmark gold rates are calculated in India by polling wholesale gold market participants in a number of Indian cities. These include gold rate polls by Platts and Indian Bullion and Jewellers Association (IBJA).

Gold Price Weights A number of gold weight measurements are used around the world for the trading of gold and for gold price quotations for gold trading. These weight measurements include the Troy Ounce, the Kilogram / Gram, the Tola, and the Tael. However, other weight measurements also exist. The gold price is most often quoted in US dollars per troy ounce because this is the standard quote convention used for gold trading in the world’s largest gold markets, the London Gold Market and COMEX. A troy ounce is a standard and traditional weight unit used for measuring precious metals, with 1 troy ounce approximately 10% heavier than the more commonly used avoirdupois ounce. Since most gold markets around the world are price-takers, these markets either directly use this US dollar per troy ounce gold price quote, or else indirectly use the US dollar price per troy ounce in calculating and adjusting their local currency denominated gold prices. In China, the Shanghai Gold Exchange’s gold contracts are quoted in Yuan per gram, with the most commonly traded gold contract being the gold kilobar contract. In Hong Kong, the Chinese Gold and Silver Exchange (CGSE) quotes some of its gold contracts in kilograms (a Hong Kong dollar Kilobar gold contract and a Renminbi Kilobar gold contract), some of its contracts in terms of troy ounces (loco London gold contracts), and some in terms of the weight measurement Tael. The Tael, also known as Tael Troy, is a traditional Chinese precious metal weight measurement. In Hong Kong, the Tael is equal to 37.429 grams or 1.20337 troy ounces. This would mean, for example, that a 5 Tael gold bar weighs 6.01685 troy ounces. The Tael weight specification is not standard across Asia and can vary. In Vietnam, the Tael equals 35.5 grams, or 1.2057 ounces. The Tola is a traditional precious metals weight measurement used in India and other parts of Asia. A Tola equals 0.375 troy ounces. Common gold bars weights as denominated in Tolas are the 5 Tola gold bar and the 10 Tola gold bars. This means that a 10 Tola bar weighs 3.75 troy ounces, and a 5 Tola bar weighs 1.875 ounces. In Thailand, the standard gold weight unit is the ‘Baht’ unit, with 1 Baht equal to 15.244 grams or 0.4901 troy ounces. This should not be confused with the ‘Baht’ Thai fiat paper currency which derives its name from the traditional ‘Baht’ weight measurement. 1 troy ounce = 31.1035 grams 1 kilogram = 1000 grams = 32.1507 troy ounces 1 Tael = 37.429 grams = 1.20337 troy ounces 1 Tola = 11.66 grams = 3/8 troy ounce (or 0.375 ounces) 1 Baht = 15.244 grams = 0.4901 troy ounces

Global and National Gold Markets, Gold Trading Venues and Gold Exchanges There are many gold markets and gold trading venues around the world, some far larger than others, and some that are very influential for gold price discovery due to their large trading volumes and high liquidity. London is a wholesale gold market and the global centre for Over-the-Counter (OTC) gold trading where market participants range from bullion banks, central banks and institutional investors, to refineries, gold mining companies and gold jewelry companies. Gold also trades OTC in the Swiss financial centre of Zurich. Physical spot gold trades on China’s Shanghai Gold Exchange, Hong Kong’s Chinese Gold and Silver Exchange (CGSE), Russia’s Moscow Exchange, and also on the physical spot exchange of Turkey’s Borsa Istanbul. Apart from COMEX, which is the dominant global centre for gold futures trading, gold futures also trade on the TOCOM futures exchange in Tokyo, China’s Shanghai Futures Exchange, India’s MCX futures exchange, the Dubai Gold and Commodity Exchange (DGCX), Singapore’s SGX, Russia’s Moscow Exchange, Korea Exchange, and Borsa Istanbul’s Precious Metals Futures Market. Gold Krugerrands even have their own listing on South Africa’s Johannesburg Stock Exchange. There are also gold futures contracts offered by the London Metal Exchange and Hong Kong’s HKEx exchange. In New York, gold futures also trade on the Intercontinental Exchange (ICE), while ICE also offers loco London gold futures. Gold also trades locally OTC in physical gold centres such as Thailand, Vietnam, and in the Singapore bullion market.

Gold Mints and Refineries A number of national gold mints are acknowledged for their expertise in the production of investment grade gold bullion coins. These national mints include the Royal Canadian Mint, Australia’s Perth Mint, the US Mint, the Austrian Mint, Britain’s Royal Mint and the Chinese State Mint. The Royal Canadian Mint, for example, is well-known for its fabrication of Gold Maple Leaf bullion coins, while the Perth Mint produces a number of flagship gold bullion coins such as the Gold Kangaroo and Gold Lunar series. The Austrian Mint is famed for its production of the Gold Philharmonic bullion coin series. Many of the well-known investment grade gold bar brands are produced by specialist gold refineries. These include popular investment gold bars from the Swiss refineries PAMP, Argor-Heraeus, Valcambi and Metalor, and German precious metals refiner Heraeus. Some of the national mints also operate their own gold refineries, and so leading gold bar choices also include gold bars from the Perth Mint and Royal Canadian Mint.

Gold Premiums on Gold Bullion Bars and Gold Bullion Coins As the world’s physical gold markets are price takers that use the international gold price as established on the London OTC and COMEX gold markets, these physical gold markets take in the gold spot price feeds as discovered on these international gold markets. Prices for gold bars and gold coins therefore reflect the spot gold price but additionally they also contain a premium which is that part of the gold bar or gold coin price in excess of the gold value of the gold metal contained in the gold bar or gold coin.

The gold price premiums are based on a number of factors such as gold refining, gold fabrication and minting costs and other costs of the refiner or mint, for example, distribution, insurance and marketing, and in some cases precious metals wholesaler costs. Some of the most popular gold bullion coins that derive their prices from the international spot price of gold are the Canadian Gold Maple Leaf from the Royal Canadian Mint, the Australian Gold Kangaroo Nugget from the Perth Mint, the Gold Brittania from the Royal Mint, the Gold Philharmonic from the Austrian Mint, the American Gold Buffalo from the US Mint, and the Chinese Gold Panda from the Chinese State Mint.As per all physical precious metals, the market forces of demand and supply will also affect the size of a gold bar’s or gold coin’s premium. If a particular gold bar is in short supply, its price premium will be higher. Likewise, if demand for a certain gold bar is relatively high, its price premium will increase, and vice-versa.Premiums on gold coins will generally tend to be higher than those on gold bars due to higher fabrication costs. Premiums on larger gold bars and gold bars will tend to be lower than premiums on smaller gold coins and gold bars, as fixed costs comprise a lower percentage of the overall price of the product.


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