The Most Trustworthy Gold in the World?
Posted on November 10, 2022
Whether it's a misconception that all gold is created equal or not is a matter of perspective. On one hand, sure. Ore is ore. On the other, as we get away from the periodic table and more towards the consumer side, we understand that there are certain needs.
Needs for an assurance of quality, honesty, integrity and so forth. Nearly any bullion vendor will assure you of this, but the way this is truly facilitated is through certificates. And one of the primary ones comes in the form of the London-based bullion market trade group's Good Delivery certification.
What is the London Bullion Market?
Although the relevant London-based market association goes back “only” to 1987, London’s history in both finance and gold is a lot older. It hasn’t escaped observers
that it’s a kind of oddity that London acts as the headquarters of the Western gold market. It’s not quite
as odd as Switzerland’s domination of the gold refining industry – neither nation has Canada’s or Australia’s or South Africa’s rich veins of gold ore.
So why London? Why not the Johannesburg Bullion Market Association, or the Vancouver Gold Exchange?
Even though London isn’t known for its mining chops, you know what they are
known for? Trade – global trade, since the UK has played a crucial role in exploration, import and export. Even though Amsterdam was the home of the first stock market, London wasn’t far behind. By 1675, coffeehouses in the old neighborhoods of the city served as informal stock exchanges (famously, Lloyd’s of London, the one that’s still around
, the world’s biggest insurance company, was born in Edward Lloyd’s coffeehouse in Threadneedle Street).
So London had a busy international port and a thriving financial market from the mid-1600s. That naturally led to a key role in facilitating transactions between buyers and sellers. The Bank of England was formed in 1694 to facilitate trade.
As Bagehot’s Lombard Street
tells it, by the mid-1850s, London had become the clearing-house for virtually every foreign currency payment
in Europe – which, back in those days, was settled in gold or silver:
But since the suspension of specie payments by the Bank of France, its use as a reservoir of specie is at an end. No one can draw a cheque on it and be sure of getting gold or silver for that cheque. Accordingly the whole liability for such international payments in cash is thrown on the Bank of England.
It’s mostly an accident of history that London plays such a critical global role in the gold market. Any major international port city could’ve
won the prize, but London did.
Today, London is where the gold market gets its “price fix,” adjusted daily
, something that certain Asian nations would no doubt want to replace with their own figures.
The association itself is loosely associated with the Bank of England and acts as the governing body for physical precious metals.
Now, you might say you don't need or want
a governing body for bullion, and that's fair.
But you probably want one for bullion quality.
The Good Delivery list
Not unlike ISO certificates and similar industrial certifications, Good Delivery accreditation is an accolade that every refiner wants
Why? For starters, if you can get that accreditation, you're put on a "Good Delivery" list
of trusted bullion suppliers. Your refinery and your logo become a trusted brand that nobody will doubt. And there's a number of good reasons
Good Delivery-certified gold bullion bars don’t just have to be assayed and proven to be pure – they have to be manufactured according to a strict set of guidelines
These include the following, stamped on every gold bar:
- a serial number
- an assay stamp
- a fineness reported to four significant digits (for example, “0.9875 fine” or simply “0.9000”)
- the year of manufacture
While the association managing the London bullion market has only been formally established in 1987, London Good Delivery gold bars (LGD) date back to 1919. That's more than a century of quality assurance.
Good Delivery bars
As this source explains, more than 100 refiners
over the past 90 years have produced LGD bars. But really, that's not such a high number when we take into account every refinery in the world. That means a relatively small number of refineries are able to obtain and keep their LGD status. You might not have heard of non-Western manufacturers, but the names in the Western category almost have a celebrity status: PAMP, Johnson Matthey, Valcambi…
And, of course, government mints themselves. That's right: even the government falls under the London group's bullion scrutiny.
Why buy Good Delivery certified gold?
Gold not being traceable is one of its main selling points. But more often than not, the buyer wants a chain of custody. And how couldn't they? A lot can go wrong during the process of gold manufacture. The certification, in essence, tells you that nothing went wrong
The certificate acts as an easy guarantee of what you're getting. It's like a lifetime warranty
on something that isn't known to come with a warranty in the strictest sense. If you end up feeling like making your gold "anonymous" down the line, you could always scrape off the serial number and the bar becomes anonymous. (Of course, voided warranty also means lower resale price.)
Generally speaking, gold bullion that doesn’t come from a reputable sovereign mint or a Good Delivery refiner is suspicious
. Unless you dug the gold out of the ground yourself, how sure are you it’s the real thing?
The precious metals world is based on trust
. The London association plays “quality police” and has the ability not only to institute standards, but to enforce them – and to kick individual refiners off the list. There’s a formal, bureaucratic 11-step “incident review process”
they work through before sanctioning a refiner.
When those sanctions happen, though? Loss of Good Delivery certification is the equivalent of “canceling” a refiner. This happened to Kyrgyzstan’s state-owned gold miner and refiner Kyrgyzaltyn (literal translation: “Kyrgyz gold”) back in 2021
over allegations of improper handling of tailings
, accidents that killed workers and spilling two tons of sodium cyanide
into a river…
Everybody wants gold – and some shady operations are willing to do anything
to produce gold. The London bullion association is the only authority, as far as I know, that can draw a line in the sand (I’m sure there’s sand in Kyrgyzstan, it sounds like a sandy place) and say, “No.” They can’t actually make
you stop – rather, they just deprive you of access to the vast majority of global markets.
The bigger concern, it seems to me, is this: if a miner/refiner is willing to cut corners to get the gold, it seems equally likely they’ll cut a lot of other corners, too
In the absence of certification, buyers are dependent on individual assays, which cost money and can generally be a hassle to work with. (Initial assays, which ship with your product, are done by the refiner
. If the refiner’s already
not Good Delivery-certified, what do they have to lose by shipping you counterfeit product?)
You never, ever
want to be the person who bought a 1-oz tungsten bar electroplated with a gram of gold. And that’s why I personally
only buy gold bullion bars
from Good Delivery-certified refiners and mints.