With lockdowns resuming in Europe, concerns rise that London, a major vaulting center, will face logistical challenges in transporting and servicing gold and silver bullion, similar to what happened in March that led to shortages of the physical precious metals markets. Ruth Crowell, chief executive of the London Bullion Market Association (LBMA), said that vaults and service providers are more prepared this time around. “This is something we talk about in terms of potential market disruptions, and part of our role in terms of being that point of contact for the infrastructure providers here in London is talking to the vaults and the carriers about how are you ready…for COVID challenges as well as Brexit challenges. I think the overwhelming response is that they’re very prepared,” Crowell said. “And in some ways having had the challenges of the pandemic in March and April has made the market more resilient to those challenges up ahead.”
Do logistical challenges still remain for the bully of market and what would happen to premiums and coins? Joining me today is Ruth Quill CEO of the LBMA to discuss these challenges. Ruth, welcome back to the show. It's a pleasure speaking with you today. Thank you so much, David. I'm really happy to be here.
Let's uh, talk about, um, logistical and, uh, and the challenges surrounding the physical market. But before we get into that, can you give us a brief overview of the LBMA, the London bullion market and sort of the origins and the mission statement of the LBMA? Sure. So LVMH is the world's independent authority for precious metals.
And really our mission is advancing standards for the common good of the global industry. So we have three major standards in terms of what is called good delivery. And that's all about physical quality of the metal. Um, our global precious metals code, which covers ethics trading, and then responsible sourcing, which is about setting standards in terms of the sourcing of the metal itself.
The other thing we also provide for the industry is solutions when there are challenges to the market. And I think your point on logistics is certainly one of them that we've seen this year and we continue to get questions about, okay, so let's start with the logistics first. Before we talk about the standards, COVID obviously was a phenomenon that impacted all markets, not just the gold and silver markets, but in particular, in regards to the bully of market, how severe was the impact?
On the transportation of the physical, uh, bullying market this year as lockdowns happening across the world, analysts were worried that, uh, transportation problems were the main cause of the supply crunch that we saw was that true? So I think there was a lot of perception of challenges to logistics.
However, the record stocks in both London and New York, For gold are a Testament to the logistic companies following through on that delivery. Um, one of the jobs of LBMA, as I mentioned, in terms of solutions and acting as a point of contact for the local London market was really to try to get facts out there in terms of questions like refinery capacity, um, challenges, diligence sticks, so that people could, could trade, um, and operate from.
Th the truth of what was going on as opposed to just what was in the media. Um, and certainly that's something that we continue to do as we sort of look forward into perhaps challenges in the winter. Um, as well as Brexit coming up in the UK. Yeah. We're going to talk about Brexit and just a bit stocks in New York and London were, uh, were still high.
How is that possible group? How were they able to restock their inventory? Well save, say during March and April, as I said, gold tends to have some logistical problems, which I think we talked about too. And the reason for that is a lot of people don't know that gold travels on passenger airline. So if people aren't moving, then there's less gold moving.
So if there's less lights, there's less opportunities. And that was probably one of the major challenges. I would also say, um, you know, London is very much a physical market and certainly the, the, the amount of gold held there, it's currently 560 billion us dollars. Underneath the streets, um, is a Testament to that New York.
Does it tend to have the same physical stocks, um, to the extent that London does, but this year has been an exception. Um, you have seen enormous amount of material coming in. Um, and, and that's been reflected in the night. Yeah. One thing we've seen this year was premiums for. Uh, bullions and coins, particularly silver coins, uh, is just one example.
Premiums really Rose as the supply of the bully and, uh, diminished as several factors weighted. I mean, what were some of the factors behind the supply crunch? You mentioned logistical challenges. Uh, what else was that? The main reason you think. Um, I would also say, you know, like we tend to see very much from the wholesale side of things, but certainly in terms of some of the comments on the retail and the coin that you mentioned is that a lot of refiners and producers were focusing on core business items.
So they weren't making the whole variety of sweet in terms of the products that they would normally make because they're having to function on a major point. So taking decisions with gold to make just London, good delivery bars and sort of pausing some of the, um, Some of the production of other materials.
So certainly those aspects, how to hit on the retail market and that, but we certainly on a wholesale, we didn't see those same impacts. Yeah. I think, uh, what some retail investors and, uh, uh, buyers of metals are interested in knowing now is that as a Europe and London go back into another round of lockdowns as COVID cases rise.
Can we possibly see the same problems emerge again. I mean, premiums have come back down to near normal levels, but people are wondering and worried that they might, they might spike again, the premiums. Well, you know, certainly it's something we, we talk about in terms of potential market disruptions and, you know, part of our role in terms of being that point of contact for the infrastructure providers here in London is talking to the vaults and the carriers about how are you ready and certainly ready for COVID challenges, but also ready for Brexit challenges.
And I think the overwhelming response has been they're very prepared. Um, and in some ways having had the challenges of the pandemic in March and April has made the market more resilient to those challenges of ahead. Um, cause you know, I think something people would worry about is we're all faced with pandemic fatigue.
Dare I say. Um, but you know, certainly in terms of the professionals who are looking after the stocks of the carrier of material, that is not the case, I think they are they're ready. Um, and taking steps in place to, to ensure that service to clients is smooth. Has the LPMA, uh, worked with the mince around the world at all.
And have you heard from the minced Perth men, for example, where the U meant about corn production and meeting the, um, extra demand that we've seen in 2020? So we're in with some of the men's particularly the ones that are also accredited by us as good delivery refiners. So the Royal mint person at these, these are the Royal Canadian mint as well.
All of these are accredited by LVMH. So we're certainly in touch with them, um, in terms of their supply to the wholesale, in terms of. Stocks in terms of coins. I think it's more of a question for them directly, but I think anyone who's wishing to sell these materials has certainly worked hard to make sure that it's available, um, for investors who want to purchase and getting ready for the further demand.
That may be ahead. Yeah. You mentioned Brexit. So let's talk about the market impact of Brexit. I think that in terms of Brexit, ultimately, um, as I said, the, the market has got a lot of resilience because of the challenges in March and April. So when we look at Brexit, ultimately there'll be no change in UK law.
So the smooth functioning of the wholesale market here will continue. Um, There are some concerns people would raise about what about the border in the case, as of hard Brexit gold, we expect to be prioritized because of its high value and the fact that it's coming in on passenger planes. Um, but if there were to be any disruption, we would work with the carriers and the faults as we did in March and April to make sure that it's smooth.
Um, but again, that's not expected for gold. It could be more a case for a silver because that's transported by, you know, freight in terms of coming across the border. It's really to set people's minds at ease that as it's been a long journey, getting us to Brexit, um, that industry players have taken it very seriously and getting ready, not just in terms of the logistics providers, but also let's say some of our members who are our banks and providing services to clients in Europe, many of them have set up European entities in order to make sure that that services.
Well, I know it's a, it's sort of not a, not a concern right, as it were, but it's certainly something we want to make sure that people are confident that, um, people have prepared an addict. Well, I know that some financial institutions are considering if not already in the works of moving their headquarters away from London and the way Brexit, uh, I wonder if yeah.
Storage facilities for bullions, uh, in, in inland and are thinking of doing the same thing in London, still maintain its status is one of the preeminent vault, uh, storage facilities in the world. I think absolutely that is because I know a lot of the thinking when the vote happened, um, you know, a few years ago and caught by surprise really all the market players and infrastructure providers went through various scenarios in terms of what would be the most efficient approach, both for themselves as well as clients.
And I think ultimately the unique thing with precious metals is you do have the, um, You know, the security, the vaulting side of things, which is, is crucial. So one having that expertise and having those facilities is costly as well as difficult to replicate. I think the other thing, yeah, I would say, which is unique certainly to the London setup is the involvement of the bank of England vault.
Um, you know, the bank got involved 300 years ago when the, when the market was originally set up when gold traded. Much more explicitly as a currency. Um, and they continue to have two thirds of the gold voltage in London is still, um, in their faults. They're on Threadneedle street. So yes, it's potential, but it's, it's very unlikely.
And I would certainly say the commercial players having gone through their own. Um, research to, to consider that that ultimately decided that they're going to stay here in the UK. Okay. Let's talk about your market outlook on gold. Um, as a commodity recently, and by recently, I mean the last several months actually gold has been trending downwards ever since hitting all time highs in August.
I think the concern from a lot of investors is whether or not gold is maintaining its safe Haven asset status in the wake of this decline in prices. What do you think. I think gold performed exactly as it should as a safe Haven asset. So compared to 2019, the price for 2020 is, is up 22%. And if you compare that to the S and P 500, which is up 13.3%, so gold has done exactly as it should.
Act as an insurance product during difficult times. I think what you mentioned in terms of some of the profit taking that we saw in early November is to be expected given the high price. But I also think it's, you know, some of the movements, what we've seen this month has really indicated how gold responds in terms of the fears and hope of the world.
And if you looked at the news of when the Pfizer vaccine was announced between number eight and nine, You almost immediately saw a 4% drop in the price as we all became a lot more hopeful in terms of the outlook for the future, both from a political, but as well as an economic stance. So certainly gold has, I think performed absolutely as a safe Haven.
I would also, you know, there's some, some points in terms of Asia what's happening in Asia. I think in terms of 2020, we haven't seen the demand that we've had previously happy to report that analysts, um, in terms of who are based out there are very bullish for 2021 and that you should see a return to you too.
Yeah. I'm curious as to how they've made that judgment. If you were to consider gold as an insurance play as a safe Haven asset, as you described it, And if you were to consider that, like you said, the vaccines in the works of being rolled out and we see less risk going into 2021. Uh, could you not expect more profit taking Ruth?
It depends on which investors you're talking about. So for Western investors, you would expect some profit taking, particularly as hopefully we're headed towards the light edit. What's been a long tunnel, um, in terms of the world. But if you turn to Asia, you know, cases have been down for a while. Um, and certainly when gold prices are higher, you tend to have less physical demands.
Um, you did have a lot of selling coming out of the Chinese as well as the Indian lockdowns, partly because people consider gold, you save it for a rainy day. And certainly with COVID believe that rainy day came. Okay. Perfect. Let's talk about the standards of the LPA may. Now this is an interesting subject.
Uh you've. Well, the LBMA has addressed standards that, uh, countries with large gold markets have to comply with. Can you tell us about some of these standards and what they mean in terms of regulating, uh, uh, flows, regulating, sourcing, money laundering, illegal activities, and so on. Sure. Let me first talk about, say our core standard, which is good delivery.
And then maybe I can take you onto what we're trying to do on the international bullying center work. So in terms of good delivery, ultimately, we've been looking after this list for over 20, 27 years since our inception, but ultimately the list goes back to 300 years to the beginning of the market itself.
And it was originally done by the bank of England. And in really that list is the list of those brands that are acceptable in the local London, the world's largest physical market for gold. So what that means is that to be honest, our list as a refiner, it's not a nice to have or something you do from a branding perspective for anyone who's producing ours in the professional market, it's a necessity.
So they need to be listed in order to sail to London, as well as in other jurisdictions who recognize that list because it's truly a, the international gold standard. So that's sort of first thing to understand about that aspect. Um, the second, in terms of the responsible sourcing side of life, and, you know, news we've talked about with international bullying centers.
So we've been running our other standard, I mentioned, which is responsible sourcing since 2012. So we, what we basically did is extend the scope of good delivery to say, it's not just about purity anymore. You've also got to prove it's been responsibly sourced and we made that mandatory for the refiners on our list.
Um, and that's meant that the 92% of all the gold that's mine that goes through our refineries, um, has been meeting international standards when it comes to responsible sourcing. Okay. I know that earlier in November, the LBMA has issued statements regarding the UAE and potentially, uh, banning gold, uh, from UAA, from entering the market.
Can you, can you describe, uh, the circumstance around that? Well, first a correction, because we did not, um, mention anything specific to a country. We actually mentioned 12 jurisdictions, um, or centers around the world who have. Large markets of recycled gold. So our international bullying centers initiative is really starting a call for advancing standards globally.
Um, and our mission really is to work collaboratively and collectively to advance these standards for the common good of the global market. Um, and that continues to be the case. So, so far, in terms of the reaction to that work, it has been overall very positive. Um, and we're looking forward in the new year to talk about how we can work together to address some of these issues.
As an industry, when you say that the, uh, the, the, uh, bullying has to be responsibly sourced, what exactly do you mean by that? Can you define, um, how responsibly source should be, uh, should be measured? Yeah. Um, so we basically take part in the OECD, um, Guidance when it comes to responsible mineral sourcing and meeting their requirements.
Um, and what we did is draft something specific in terms of those management systems that are recognized, not just by LBMA, but by all OECD countries and other adhering countries as to what responsibility looks like for a refiner. Um, and that's what we've rolled out across the industry. And we've also done that for silver.
Um, we've had our final round of implementation. Um, on, on silver as well. And in the past year, we've had our first round of audits bringing the ESG factor in. So we expanded the scope. Originally. It was about money, laundry, just threat financing, generally, um, terrorist financing, as well as human rights. Um, and then we also put in requirements to address the environmental, environmental, sustainability, and governance issues.
Um, and that's something as I look forward to next year. That we think we can use that unique leverage of LVMA to support some of the good work of our colleagues at the ICM, em, as well as the world gold council, in terms of really defining what responsible. Um, ESG looks like professional. Do the standards affect a specific corporate entity?
Jesus. Well, let's say we're, if a minor were to operate in, let's say a jurisdiction like the democratic Republic of Congo, where conflict minerals is a big issue, uh, with the LBMH have any, um, authority over, uh, how that is sourced. So any material that's been going into one of our refineries, which does include flows almost everywhere in the world.
We actually published a report in September, which I'd encourage you to have a look at, to make public for the first time, in terms of down to the gram where all the gold and silver is coming from, and also where we're able to identify the destination country in terms of where it's being refined. And that was really interesting in terms of having this overall picture of the flows.
Um, and it's something that we're going to continue to improve on. One of the things that came out of that was really looking at the percentages of what type of material, because we asked for the gold and silver, but we also ask it to be broken down on type of material. So whether it's large scale mines or recycled gold or artisanal small-scale mining and actually 55% of all the gold that was being refined was recycled.
Um, w we thought that was particularly important, given some of the challenges, basically, I think investors would like to know if there are any particular jurisdictions or corporate entities that are close to being blacklisted so that they can avoid them. Can you comment on that? So I think ultimately the message we want to get across is we're here for collaboration and continuous engagement.
Obviously, if those diplomatic processes break down, then we do reserve the right to ask to take action. But it's an ongoing process, which you can imagine. We're not just engaging with industry. But also, um, with governmental bodies around the world. So when we have more to report, we will, and that we're really relying on those national authorities to, to make their points.
I look forward to following up on those reports finally. Um, ESG, can you comment on the global ESG movement, how that affects the industry, how industries are, uh, how companies, uh, corporate entities are complying and the effects in the market. What I would say is I think the challenge with ESG is to have to speak with a common voice on this.
And like I mentioned, there's a really great steps forwards from ICM CMM and the world gold council. Um, but we do as you rightly point out, look beyond gold as well in terms of what's happening on PGMs. Uh, on the silver side. And I think what would be really valuable in the next year is looking where we can consolidate and coordinate some of these standards and audit processes so that certainly investors can understand what what's a high, credible standard, um, and how that's being applied as well as enforced when it comes to LVMH.
Okay, perfect. That was a fantastic talk. I appreciate you coming on the show today with your time. Thank you very much. Thank you. Thank you for watching Kiko news. I'm David Lynn.