The LBMA is a ploy of the Central Bank Community

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Published : August 16th, 2017
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This article is about the way the Central Bank Community manipulates the price of gold and the role of the LBMA within. We describe some of the signs that the Central Bank Community manipulate the price of gold and that they are using the LBMA to reach their goal. Is the manipulation of the gold price a classic case of Diffusion of responsibility because so many organizations are involved and avoid taking responsibility?

Manipulation is a joint effort of the Central Bank Community

The signs that Central Banks manipulate the price of gold are written all over the wall, for instance:

“The fifth objective of Central Bank cooperation is the joint effort of Central Banks to influence the price of gold and foreign exchange.” William R. White, Head Monetary and Economic Department at the BIS, 27 June 2005.

“For the purpose of stabilizing the exchange value of the dollar, the Secretary of the Treasury, with the approval of the President, … is authorized to deal in gold and foreign exchange … as he may seem necessary…” The Gold Reserve Act of 1934.

“All Central Banks are in the same boat, that threats in either direction are harmful to all of us, and that the dollar stability is the key-note of the whole thing.” Cameron Cobbold, Governor Bank of England 1949-1961, March 1961.

“From 1962 the Central Banks, operated from the BIS in Basel, played a crucial role in stabilizing the free gold price in the London market.” Gold: talks in Basle, 6/7 January 1962.

“However, at the end of the day, the Gold Pool (also called: Basle Syndicate) was nothing more than a ploy, an artificial device to keep the market in line with official policy.” Secret note UK Treasury D.A. Bleach, 26 March 1968 .

An in 2009 declassified telegram from AM Embassy to the Secretary of State sent in 1968 regarding the end of the Gold Pool speaks about: “Remain the masters of gold” … “A gold price of dollar 35 per ounce it is a matter of urgency to reach international agreement on the “rules of the game” …. These rules will have to be more basic than just a “holding operation”. They have to be so simple and convincing that it become crystal-clear to speculators that there is no point any more in speculating on a increase on the price of gold. It is only than that the speculative demand for gold will subside and that, very likely, dishoarding will take place”. … “A reshuffle club should harmonise the ratio between gold holdings and (gross) asset among gold-holding countries and countries with relatively low gold holdings.”

“The US loses influence in world affairs whenever the dollar is weak in exchange markets…vulnerability to confidence crises…gold is a basic problem…” Declassified memorandum CIA dated 4 April 1968.

“The gold reserves were actually not used for interventions, due to the current practices as evidenced by SWAPS.” The Mechanics of Interventions in Exchange Markets by A.L. Balbach Fed St. Louis, February 1978.

“A higher dollar gold price could possible been seen as a proof of distrust against the dollar.” Dr. J. Zijlstra, former head of the BIS and the Dutch Central Bank, memoirs 1993.

“Investing in gold may have become out of favour, but all Central Banks see gold as the most prominent part of their international reserves.” Dr. J. Zijlstra, former head of the BIS and the Dutch Central Bank, memoirs 1993.

“The price of gold is pretty well determined by us.” Governor Wayne Angell Fed meeting 6/7 July 1993.

The Washington Agreement on Gold was signed of 26 September 1999 in Washington, D.C. during the IMF annual meeting, and the US Secretary of the Treasury and the Chairman of the Fed were present. The agreement was perceived as putting a cap on European gold sales. The agreement limits also their gold leasing and their use of gold futures and options.

According to the Swedish Central Bank (Riskbank) is the aim of the agreement to limit the Central Bank’s sales of gold in order to avoid undesirable effect on the gold price.

A confidential IMF report from March 1999 about the reporting template for Central Banks advices western Central Banks to conceal their gold loans and SWAPS because information about them is “highly market-sensitive” and accountability about them would “hinder secret currency” interventions by Central Banks, in view of the limited number of participants in such transactions.

“Letting gold go to dollar 850 per ounce was a mistake.” Memoirs 2004 Paul Volcker former chairman of the US Fed.

“In reserves management, monetary authorities also may undertake gold SWAPS. …Such gold SWAPS generally are undertaken between monetary authorities and with financial institutions. Monetary authorities may treat gold SWAPS as collateralized loans, leaving the gold claim on the balance sheet… This treatment applies only when an exchange of cash against gold occurs, the commitment to buy back the gold is legally binding, and the repurchase price is fixed at the time of the SPOT transaction. The logic is that in a gold SWAP the “economic ownership” of the gold remains with the monetary authorities, even though the authorities temporarily have handed over the “legal ownership.“ … Usually, the Central Banks receive cash for the gold. The counterparty generally sells the gold on the market but typically makes no delivery of the gold. The counterparty often is a bank that wants to take short positions in gold and bets the price of gold will fall or is one that takes advantage of arbitrage possibilities offered by combining a gold SWAP with a gold sale and a purchase of a gold future.”

Guidelines for international reserves, paragraph 100, IMF, 12 September 2013 .

“The bullion market is often criticised by observers for being secretive and lacking in information and data. Unfortunately, to an extent, this is inevitable given the need for a duty of care to clients which dictates that a high level of discretion is an essential element in so much of the business that takes place in the market, particularly for gold.” Alan Baker, Director Deutsche Morgan Grenfell and LBMA Chairman. January 1997.

“We are not a member of the LBMA, but we continue to play a key role in the London market. We have observes status on the Management, Physical and Vault Committees of the LBMA.” Luke Thorn, Bank of England, 10 March 2013.

“The role of Central Banks in the bullion market preclude ‘total’ transparency, at least at public level” LBMA CEO Ruth Crowell in a letter regarding the Fair and Effective Markets Review to the Bank of England, 30 January 2015.

“The LBMA has a global client base. This includes the majority of the gold-holding Central Banks.”

A guide to the London Bullion Market Association, May 2017.

Central Bankers independence is enshrined in law in many countries, and Central Bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with manipulating of the free gold market. And off course the knowledge of the manipulation makes them responsible.


World Official Gold Holdings 31.978 ton

Sec BIS related Official Gold Holdings 29.805 ton

(Figures World Gold Council, February 2015)

What is the relation between the Central Bank Community and the LBMA?

The LBMA, the London Bullion Market Association, provides for Central Banks a tool for hiding their secret operations in the gold market and their London Spot Price setting. Set up as a quote-driven hardly regulated OTC market through the Bank of England with only 13 Market Making Members.

The LBMA claims to be The Competent Authority for the world Bullion Market.

The LBMA is centred in London with a global Membership and client base including the majority of the Central Banks that holds gold (1).

Important: the London Spot Price is set on the LBMA OTC gold market.

The London Spot Price is the basis for virtually all transactions in gold. It is quote-driven bid/ask price made by the 13 LBMA Market Makers based upon their bilateral trading activity in the hardly regulated LBMA OTC gold market. The London Spot Price refers to the price of gold for immediate delivery (read: two workings days after the day of the deal).

The London Spot Price is published on WebICE and constantly updated by the bullion desks of the 13 Market Makers (2).

Read for the difference between the LBMA Gold Price (Auction) and the London Spot Price our paper dated 23 September 2016 . For now it is enough to know that the London Spot Price is the Standard (Benchmark) for the price of gold and thus all other gold-related products.

The LBMA in focus

The LBMA is a trading association, not an exchange.

The LBMA produces the Good Delivery Lists for gold; detailing the names of accredited refiners. The lists are universally recognised as the de facto standard for the quality of gold bars.

The LBMA has no regulatory responsibilities for the bullion market; this had traditionally been the responsibility of the Bank of England and more recently the Financial Services Authority (3).

The LBMA was set up in 1987 by the Bank of England, which was at that time the bullion market’s regulator (1). It is very strange that a Central Bank set up a commercial trading organisation with no regulatory responsibilities for the bullion market and as founding Members (4):

N.M. Rothschild & Sons Limited, London

J. Aron & Company (UK) Limited, London

Mocatta & Goldsmid Limited, London

Morgan Guaranty Trust Company of New York, London

Sharps Pixley Limited, London

Rudolf Wolff & Company Limited, London

In 2017 the LBMA has 82 Members and 63 Associates, located in more than 30 countries. Under the Members the 13 Market Makers:

Full Market Makers

Market Makers


Bank of Nova Scotia

Societe Generale

Goldman Sachs

BNP Paribas (No 7 of Top 10 Banks)

Standard Chartered Bank

HSBC Group (No 5 of Top 10 Banks)

ICBC Standard (No 1 of Top 10 Banks)

Toronto-Dominion Bank

JP Morgan (No 6 of Top 10 Banks)

Merrill Lynch


Morgan Stanley

Remarkable: The power in banking is unquestionably shifting eastwards to China. Out of the World’s top 10 largest banks, the top 4 are Chinese banks, only 2 banks are American banks. Although the Chinese gold market is the world’s largest physical gold trading market, only 1 Chinese bank (ICBC as of 4 April 2016) is a Market Making Member in the LBMA OTC gold market (5).

Chairman of the LBMA is dr Paul Fisher. He has been a senior figure at the Bank of England for 26 years. From 2002 he ran the Bank of England Foreign Exchange Division where he worked with the LBMA (6).

The LBMA chosen Market Organization: OTC instead an Exchange

Key-aspects OTC market (7)

  • Managed by Market Makers
  • Opaque Market
  • Lack of transparency in price setting
  • Quote-driven market only on bids and asks of Market Makers (bilateral trading)
  • Well–organized network of banks and other highly sophisticated parties
  • Inaccessible to individuals and retail trade through minimum traded amounts
  • Lack of supervision and coordination between regulators

Key-aspects Exchange

  • Institutional rules that govern trading and information flows about the trading
  • Clearing facilities for post-trade activities
  • Order-driven market displays all of the bids and asks
  • Centralized communication of bid and offer prices to the whole market
  • Level playing field for all market participants

So why is the LBMA gold market set up as an OTC market and why do they persist in this choice?

According to LBMA CEO Ruth Crowell on 27 April 2015 the LMBA won’t move from OTC to an exchange (8).

The LBMA OTC market: lack of transparency

The LBMA OTC market does not require its members to report on turnover, worse the LBMA published a Global Precious Metals Code on 25 May 2017. This applies to all market participants involved in the global wholesale Precious Metals market. Chapter 4 is about Information Sharing. Leading Principe: Markets Participants should not disclose Confidential Information, such as Precious Metals trading information:

  • details Market Participant’s order book
  • spread matrices provided by Market Participants to their Clients
  • orders for and during the Benchmark Process (read setting the London Spot Price), and
  • details of an individual Client’s vault holding

The OTC market provides confidentiality, as transactions are conducted solely between the two principals involved. According to the LBMA is this particularly important for Central Banks activity in the market (9).

As the London Gold market is an OTC market, no comprehensive data is published. The LBMA currently only reports monthly net volumes of gold and silver transfers between 6 association’s clearing members (HSBC, ICBC, JP Morgan, Scotiabank and UBS). It is widely acknowledged that the clearing statistics dramatically understated the true amount of gold traded on the LBMA OTC market.

Joke in the LBMA Alchemist, January 1997

The LBMA OTC gold market: unwanted ad hoc figures

Stewart Murray, Chief Executive LBMA carried out a survey of LBMA Members trading turnover in the Loco London gold market in the first quarter of 2011 to quantifying the real size of the LBMA OTC gold market. Why did the Management Committee of LBMA decide to authorise a survey of members gold trading? The answer lies in Europe, or more precisely, in the discussions within the Basel Committee on Banking Supervision on the new liquidity regulations for banks (10).

Results of the survey in daily averages:

Conclusions based upon the survey

The Loco London Turnover in ounces is 9 times the amount according the Clearing Statistics. Logical, as the BIS is from the 1930s the clearinghouse for Central Bank gold transactions. The LBMA cleared figures excluded Central Banks figures. The only reason that those gold transactions are led through the 13 LBMA Market Makers is for setting the price of gold.

SPOT transactions were 90% of the LBMA OTC gold market turnover. Remember such gold SWAPS (SPOT transactions) generally are undertaken between monetary authorities and with financial institutions (Guidelines for international reserves, paragraph 100, IMF, 12 September 2013).

Based upon the foregoing we made the follow table:

The turnover in tons of the Central Banks is 8 times the LBMA clearing turnover.

The number of transfers of the Central Banks is 2,2 times the LMBA clearing numbers.

The average ounces per transfer of the Central Banks is 3,8 times the LBMA clearing numbers.

The Central Banks gold transactions turnover is 89% of the total turnover.

The Central Banks gold transactions determines the price of gold (bilateral quotations sets the world benchmark London Spot Price).

The average duration of a gold contract on the LBMA OTC gold market is $ 468.000.000.000 amount outstanding (11) divided by $ 60.684.945.818.992 (4 * $ * 260 is 2,00 days.

Terry Smeeton, Head of FX Division of the Bank of England and member of the (secret) Gold and FX Committee at the BIS on 7 April 1997 held also a survey in the 1990s (12). The outcome was comparable with the survey of 2011.

According this survey approximately 7 million ounces gold were traded daily during May 1996, compared with 7,5 million ounces in May 1994. Spot transactions were 75% of the turnover.

The dominant operating agents on the LBMA OTC gold market: BIS, JPMC and ICBC

Interesting is the role of the Industrial and Commercial Bank of China (ICBC) within the LBMA. At 23 December 2011 ICBC was officially admitted as a full member of the LBMA. ICBC was the first commercial bank in China to join the LBMA. At 4 April 2016 the ICBC is reclassified as a Spot Market Making Member of the LBMA. So the bid/asks quotes of ICBC are part of the price setting of the London Spot Price. Notable is that ICBC (temporarily?) acts for its own account (opposed to JPMC).

The derivative position 2016 (commodities and other, separate figures not available) of ICBC is 35 times the derivative position in 2011 and at the max 39% of the global total. .

16 May 2016: ICBC buys from Barclays vault in London that can store 2.000 ton bullion.

18 October 2013: Fusun International (China’s largest private-owned conglomerate) buys former JPM building in New York (opposite to Fed building), used to contain up to 20% of the world’s gold.


The gold trading activity on the OTC market is hardly transparent.

In January 2009, the G20 asked for substantial reforms to OTC derivatives markets in order to ‘improve transparency, mitigate systemic risk, and protect against market abuse’. The G20 reform agenda requires standardised OTC derivatives to be cleared through central counterparties on exchange or electronic trading platforms.

Well-known shortcomings are on the so-called pre-trade transparency (information about price quotes and trade sizes is available to the two parties involved in the trade prior to executing the trade), the post-trade transparency (information about executed trades made available to market participants other than the two parties involved in the trade, or a narrow set of dealers).

Through this information asymmetry are uninformed participants at risk of making the wrong trading decisions (13).

It is important to note that the London Spot Price is dominated by a few large banks that trade gold on behalf of their clients or directly with their clients (as principals). Because the banks can become buyers or sellers themselves, the bank have a considerable influence on the price at witch they are willing to buy and sell (14).

Viswanathan and Wang (2002) show that when the number of Market Makers is small (thirteen in the case of gold), Market Makers will no longer provide competitive quotes.


So what is there to say about the LBMA OTC gold market?

  • The LBMA is a ploy, an artificial device to keep the market in line with policy of the Central Bank Community
  • Ideal for the Central Bank Community to their secret interventions on the gold price
  • Without severe costs for the Central Banks to control the gold price on the free market
  • The Bank of England is at arm’s length
  • A well organized network
  • Without regulatory responsibilities for the bullion market
  • Bilateral quotations sets the world benchmark London Spot Price
  • Non transparent
  • Leading to a information asymmetry on the gold market
  • With a lack of supervision and coordination between regulators
  • Real turnover is 9 times the LBMA cleared volume
  • The LBMA Clearing Statistics excluded Central Bank gold transaction
  • The BIS is the clearinghouse for Central Banks gold transactions
  • Central Bank gold transactions determines the price of gold
  • Under growing Chinese influence
  • There in no free market price of gold
  • Contraire to the substantial reforms as wanted by the G20 in January 2009

Diffusion of responsibility

Diffusion of responsibility is a psychological phenomenon in which people or organisations as being part of a group may reduce their sense of responsibility. It looks like the US succeeded to “Remain the masters of gold.” The other organizations like the BIS, individual Central Banks, IMF, the LBMA and their 13 Market Makers, Supervisors and Regulators look like subordinates who claim to be following orders to avoid taking responsibility for what they logically know to be illegal or immoral actions.

(1) A guide to The London Bullion Market Association, May 2017

(2) Bron Suchecki, VP Monetary Metals, 1 June 2008

(3) Website LMBA, June 2017

(4) Memorandum and Articles of Association of the LBMA, November 1987

(5) Bullion Star 15 August 2016

(6) Website LMBA, 13 July 2016

(7) European Commission, 11 September 2016 (partly)

(8), 27 April 2015

(9) Letter 30 January 2015 from LBMA CEO Ruth Crowell to the Bank of England.

(10) The Alchemist Sixty Three, Stewart Murray CEO LMBA, 2011

(11) BIS report, OTC derivatives market activity 1H2011

(12) The Alchemist, London Bullion Market, Survey of Turnover January 1997

(13) Bank of England Quarterly Bulletin 2011 Q4

(14) Investingsanswers 19 April 2016

Nico Simons is a Dutch investigative journalist on financial issues, especially monetary issues. His articles are regularly published on

The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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