In March of this year, the London Bullion Market Association (LBMA)
released a series of short videos about various aspects of the London
precious metals markets and the role the LBMA claims to plays in those
markets. In the words of the LBMA:
“LBMA, the Global Authority for Precious Metals, has released five
short films highlighting the pivotal role it plays in the
global wholesale precious metals market by setting standards and developing
market services thus ensuring the highest levels of integrity, transparency
and quality.”
While calling these short clips ‘films’ is a bit ludicrous, the series of
videos – which are indeed very short – are as follows, and they can be seen
on the LBMA website as well as on the LBMA’s YouTube channel:
- ‘Who We Are’ (2:33 minutes)
… in which Paul Fisher (LBMA Chairman) and Ruth Crowell (Chief
Executive) “discuss the central role that LBMA plays in the global
OTC precious metal markets. From setting standards on the purity, form and
provenance of the bars to the way in which they are traded.”
Links: LBMA website. LBMA
YouTube channel.
- How the Market Works – OTC Overview (1:14
minutes)
… in which Jonathan Spall, LBMA Head of Communications “looks at how
LBMA is at the heart of the 24-hour a day global OTC precious metals market
with its bespoke transactions, which are tailored for clients’ needs.“
Links: LBMA website. LBMA
YouTube channel.
- How the Market Works – Five Elements (2:01
minutes)
… in which Jonathan Spall, LBMA Head of Communications “highlights how
LBMA plays a crucial role in the five main elements that allow the
smooth functioning of the global OTC market.”
Links: LBMA website.
LBMA YouTube channel.
[Note: This video is called ‘Market Infrastructure Key Elements’ on the
LBMA website.]
- Good Delivery (1:08 minutes)
…in which Neil Harby (Chief Technical Officer) “takes you through the
stringent Good Delivery criteria – the de facto standard trusted across the
world – that enable the global trade in gold and silver bars.“
LBMA website.
LBMA YouTube channel.
- Responsible Sourcing (1:27 minutes)
… in which Sakhila Mirza (General Counsel) and Neil Harby (Chief Technical
Officer) “discuss LBMA’s Precious Metals Integrity and Provenance
initiatives, ensuring the responsible sourcing of precious metals and the
protection and integrity of the global supply chain.“
LBMA website.
LBMA YouTube channel.
The commentary of each of the videos is also in transcript form on the
LBMA website, and given that the videos are so short, the transcripts are
likewise bitesize. While the Good Delivery and Responsible Sourcing videos
deal with technical aspects of the the LBMA’s interaction with precious
metals refiners, it is the ‘Who we Are’ and ‘How the Market Works’ videos
which are worth discussing in the context that neither answers the questions
that their titles suggest.
Who we Are
With a title of ‘Who We Are’, a newbie viewer might think that the first
LBMA video would provide some insight into who is behind the LBMA and what
really goes on in the London Gold Market and London’s other precious metals
markets. But not surprisingly, it does not.
Instead, the LBMA’s chief executive Ruth Crowell, and LBMA
chairman Paul Fisher take turns in reciting sound bites that focus
exclusively on aspects of the physical precious metals markets while ignoring
the vast fractionally-backed paper (synthetic) gold market and the secretive
London gold lending market.
LBMA video – Who We Are’ (2:33 minutes). Source: YouTube
The video begins with a claim that the LBMA is “the world’s authority
for precious metals“. An authority appointed by whom? There is no
mention in the video that the LBMA is a private organisation established in
1987 by the Bank of England, or that the original founding members were 6
bullion banks involved in the London Gold Market including Rothschild, J Aron
(Goldman Sachs), and Morgan Guaranty (JP Morgan). For details of the LBMA –
Bank of England symbiosis, see BullionStar article “Blood
Brothers: The Bank of England and the London Bullion Market Association
(LBMA)”
Ruth Crowell states that “our Board has an independent Chairman, as
well as Non-Executive Directors, which ensure the independence of the
governance of the LBMA.” But the chairman she is referring to is of
course Paul Fisher, 26 years at the Bank of England, head of the Bank of
England’s FX and Gold Division in the 2000s, and an observer on the LBMA
Management Committee from at least 2004.
You would be hard pressed to find less of an insider than Fisher for the
role of ‘independent’ chairman of the LBMA. But not surprisingly, the LBMA
video makes no mention of Fisher’s background. As James Rickards commented at
the time of Fisher’s appointment to the LBMA:
Banks pick central banker to head #gold market. Like
putting an oil exec in charge of Tesla: https://t.co/mwHzNQCBZU
pic.twitter.com/k2oJJPdYnh
— Jim Rickards (@JamesGRickards) July 13,
2016
For details of what Rickards was referring to, see BullionStar article “From
Bank of England to LBMA: The ‘independent’ Chair of the LBMA Board“.
In the video, Crowell’s use of the words ‘Non-Executive Directors’
is also misleading since, apart from Fisher, there is only one non-executive
director on the Board, Andrew
Quinn. Nor does she mention that the LBMA Board still contains a
Bank of England observer, namely Andrew Grice.
Crowell states that ‘there are also elected Market Directors who
sit on the Board and ensure the market is steering the development of the
Association‘, but fails to say that half of these directors, the market
makers, are from the powerful bullion banks which dominate the LBMA, such as
JP Morgan and UBS.
Nowhere in the ‘Who we Are’ video does it mention that the LBMA system
trades vast -quantities of unallocated fractionally-backed synthetic gold
positions, that the LBMA publishes no trade reporting of any trades in the
London market, that the LBMA Gold and Silver auctions are dominated by
its powerful bullion bank members, that the LBMA oversees the secretive
London Precious Metals Clearing Limited (LPMCL) clearing cartel for paper
gold and silver, and that there is a hidden gold lending / gold swapping
market in London between central banks and bullion banks, facilitated by the
Bank of England.
Instead, there are multiple references to physical bars and real metal,
something that is very thin on the ground in the world of the LBMA, but that
gives the impression of a predominantly physical precious metals market, when
in fact the opposite is the case. For example, the video refers to the
following:
- ‘the standard-setting organisation that defines how
precious metals are refined’,
- ‘the quality and the integrity of the metal’,
- ‘mined from rock in the ground, being refined, being
transported’,
- ‘the appearance and the shape of the bars themselves’
- ‘physically inspect each bar as it comes through the
door’
As per usual with the LBMA, this ‘Who we Are’ video also makes claims that
the activities of the LBMA promote a ‘transparent market‘, when the
exact opposite is the case. This must be some kind of inside joke that they
insert into all LBMA media publications, i.e. that the LBMA promotes
transparency. For details on how opaque and non-transparent the London Gold
and Silver Markets that the LBMA oversees really are, see ‘The
Gold Market – Where Transparency means Secrecy’.
LBMA
Video Shoot
The Transcript of the LBMA’s ‘Who we Are’ video can be read below:
Ruth Crowell: The LBMA is the world’s
authority for precious metals.
We’re the standard-setting organisation that defines how precious
metals are refined, as well as traded around the world. It’s our job to
ensure the quality and the integrity of the metal itself, as well as the
market participants.
Paul Fisher: Our members are leading
firms involved in the full lifecycle of precious metals. From being mined
from rock in the ground, being refined, being transported, being stored and
then finally being sold, whether as a bar or as a piece of jewellery. These
miners, refiners, banks, trading houses, ETF providers, security companies,
vaults, even central banks must follow LBMA standards for the benefit of
customers around the world.
RC: Our Board has an independent
Chairman, as well as Non-Executive Directors, which ensure the independence
of the governance of the LBMA. But they’re also elected Market Directors who
sit on the Board and ensure the market is steering the development of the
Association. Beyond that we have many sub-committees and working groups, in
which market participants can be engaged and steering everything that LBMA
does.
PF: We provide quality control for the
metal produced and we set high standards for business conduct. And we are
also the voice of the market for governments, regulators and investors.
RC: We do that through the Good Delivery
List and the Global Precious Metals Code. The Good Delivery List defines
what’s acceptable when it comes to the appearance and the shape of the bars
themselves. It’s also considered the de facto international standard for gold
and silver.
The Global Precious Metals Code is a code of conduct which promotes a
fair, effective and transparent market. It provides market participants with
principles and guidance, to uphold high standards of business conduct. All of
this creates confidence in the market for all participants.
We work closely with the commercial vaults, as well as the Bank of
England. And the vaults only accept bars which meet the Good Delivery
Standards. They also physically inspect each bar as it comes through the
door, to make sure that it’s up to standard. As such, they act as the
gatekeepers of the Market.
PF: We’re also leading the world in
Responsible Sourcing, thanks to the strength of our Responsible Sourcing
Programme.
RC: Our aim is to maintain integrity, as
well as proactively develop the Precious Metals Market. That means we are
always looking forward and anticipating any future needs and requirements.
How the Market Works
For whatever reason, the LBMA decided to split the ‘How the Market Works’
(the London OTC precious metals Market) into 2 separate videos, each of which
is very short, lacking in any substance, and whose content is practically
pointless.
Viewer discretion is advised because it will surely lead to disappointment
for anyone wanting to find out how, for example, the London OTC Gold Market
works. Despite the titles, this duo of videos will not tell you, and they are
so short that the transcripts of each video are not more than a few
sentences long. The entire exercise is a missed opportunity to properly
explain details of how the London market really works.
LBMA video – How the Market Works 1 (1:14 minutes). Source: YouTube.
The first video is titled “How the Market Works – OTC Overview”
and is just 1 minute 14 seconds long. The second video is titled “How the
Market Works – Five Elements” (with an alternative title of “Market
Infrastructure Key Elements”, and this is just 2 minutes long. Both videos
are narrated by Jonathan Spall, who is now LBMA’s Head of
Communications.
For those who don’t recognize the name, this is the same Jonathan Spall
that was one of the Barclays directors of the London Gold Market Fixing
Limited (LGMFL) until 2014 (see “Meet
The People Who ‘Fix’ The Price Of Gold“), and who was a director
alongside such luminaries as Deutsche bank’s James
Vorley who has just been charged in the US for manipulative trading
of precious metals futures contracts while at Deutsche Bank.
Spall also worked on the same precious metals trading desk in London with
Daniel Plunkett (of mini-puke fame) who was charged
by the FCA for manipulating gold prices, and with Marc
Booker, head of spot gold trading at Barclays, who left Barclays abruptly
in May 2014. So if anyone knows ‘How the Market Works’ it would be Spall, but
unfortunately he doesn’t spill the beans on this topic, preferring to narrate
a wooden narrative of truisms.
The first of these videos claims to “look at how the LBMA is at the
heart of the 24-hour a day global OTC precious metals market with its bespoke
transactions which are tailored for clients’ needs” but at a mere one
and a quarter minutes long, how is this possible even if the will was there?
The second of these videos aims to “highlight how the LBMA plays a
crucial role in the five main elements that allow the smooth functioning of
the global OTC market.”
The (exceedingly short) transcript of the How the ‘Market Works –
OTC Overview’ video is as follows:
Jon Spall: Internationally, precious metals are traded on a
24-hour basis. Either for immediate delivery, known as spot, or for a date in
the future. LBMA accredited refiners annually refine approximately 5,000
tonnes of gold and more than 30,000 tonnes of silver.
Good Delivery Bars of gold and silver are traded globally in what is
referred to as Over The Counter or OTC market. Approximately 25 billion dollars
worth of gold is settled each day in the global OTC market, with London at
its centre. This means all transactions are conducted between two parties
without the need for an exchange.
An OTC market offers flexibility, in that two parties can negotiate bespoke
transactions that precisely meet the needs of the customer. For example, in
terms of price, amounts to be bought or sold, and time to maturity. It
maintains confidentiality and means that all risks, including those of
credit, exist only between the two counterparts. Typical market clients
include miners, central banks, governments, fabricators, investors, hedge
funds and refiners.
Despite its title, this video does not discuss how the OTC market
works. The commentary, short that it is, opens with a reference to gold
and silver refiners and good delivery bars, which are a very small percentage
of trading in London. There is no reference to the fractionally-backed
cash-settled synthetic
gold claims which make up the vast bulk of trading.
LBMA
Video Shoot
The reference to approx 25 billion dollars worth of gold
being settled each day is actually referring to the value of paper gold that
is cleared
each day by the secretive London Precious Metals Clearing Limited (LPMCL)
run by five bullion banks (e.g. 18.7 million ounces of gold equivalent
cleared each day in London during March 2018). There is no mention in the
video of gold or silver trading statistics since this data is still
off-limits to the public despite years of promises from the LBMA that it
would publish such information.
This video has no reference to the secretive gold lending
market between central banks and bullion banks, a market where outstanding
‘gold deposits’ owned by central banks are constantly passed around between
the LBMA bullion banks and never closed.
How the Market Works – Part Deux
The second ‘How the Market Works‘ video, covering “five key
market infrastructure elements” of the market is as lacking in detail and
revelations as the first, and is again narrated by Jonathan Spall. These ‘key
elements’ are LPMCL clearing, good delivery, vaulting, pricing, and
unallocated accounts.
How the Market Works – Five Elements (2:01 minutes). Source: YouTube
The secretive LPMCL gets a one line
mention with no explanation that its a private company run by JP Morgan,
HSBC, UBS, ScotiaBank and ICBC Standard that keeps the either
fractionally-backed London gold market afloat. Luckily, you can read about
the LPMCL here in ‘Spotlight
on London Precious Metals Clearing Limited‘.
Spall says that ‘there are a number of vaults in the London area
operated by eight companies, including the Bank of England, which physically
hold either gold or silver bars or both’, but this is as far as it goes
and there is no discussion of the vault operators or the vault locations. For
those interested, some of the vaults locations can be viewed here,
here
and here,
and of course the Bank of England vaults here.
While ‘London is home to one of the world’s largest physical holdings of
gold’ as the video says, it does not mention the fact that most of this gold
is held by central banks and ETFs, and that the bullion bank float of gold
underpinning the entire market is quite low. See ‘LBMA
Gold Vault Data – How low is the London Gold Float?‘ for discussion of
this issue.
On the issue of pricing, the coverage is again lacking in any substance
and fails to mention how the bullion banks control this aspect of the market
too. There is no reference to price discovery of the international gold
price, discovery which predominantly is based on the interactive trading of
gold derivatives and cash-settled OTC gold positions between the London OTC
Gold Market and COMEX. See ‘What
sets the Gold Price – Is it the Paper Market or Physical Market?‘ for
details.
And instead of explaining and coming clean about the fact
that nearly all trading in the OTC market is in the form of unallocated
precious metals positions that are merely claims against bullion banks and
that the unallocoated system lies at the heart of the London market,
the video merely says that ‘Most OTC transactions settle via unallocated
accounts. The customer does not own specific bars, but has a contractual
claim against the clearer.’
The video ends with the audacious claim that:
“The LBMA is at the very heart of this global market,
providing standards, promoting transparency, instilling confidence, and thus
maintaining integrity for all.”
That the LBMA did not make films (or videos) really
explaining who runs the show in the London Gold Market, or how that market
really works, is not surprising. Anyone acquainted with the writings of
ANOTHER will understand this, when he wrote the following lines, which in
these circumstances, appear particularly apt:
“Did you think that the high powered world of the LBMA
would operate in a fishbowl for all to see? We cannot take what is on the
outside as evidence for what is on the inside.”
Likewise, we cannot take what is in these LBMA videos as
evidence of what goes on in the London Gold Market, at the Bank of England,
in LBMA Board meetings, or in the dealings of the high powered bullion banks
that control the London Gold Market.
Ronan Manly
E-mail Ronan Manly on:
Follow @BullionStar
Follow @ronanmanly
