Precious Metals

Loco London and the troy ounce

The center of the physical precious metals market is not an exchange. It is a bilateral over-the-counter market in London, and the standard delivery point is called loco London: metal held in a vault in London, transferable across the books of the London bullion clearing banks. Prices everywhere else in the world are quoted as premiums or discounts to loco London. The unit is the troy ounce, 31.1035 grams, about 10 percent heavier than the avoirdupois ounce on a kitchen scale. One metric tonne is 32,151 troy ounces. Traders quote in dollars per troy ounce; mine supply and central bank reserves are discussed in tonnes.

Most loco London metal is unallocated: a credit balance on the books of a bullion bank, fungible and cheap to hold, but an unsecured claim on the bank rather than on specific bars. Allocated metal is the opposite: numbered, weighed bars segregated in the client's name, owned outright, with storage fees. The distinction is the first thing every precious metals client must understand. Unallocated is how the market trades; allocated is how the cautious store wealth. The standard wholesale bar is the London Good Delivery bar, roughly 400 troy ounces for gold and roughly 1,000 troy ounces for silver, refined to LBMA-accredited standards.

From the fix to the auction

For almost a century the reference price was the London fix, set twice daily for gold by a small club of banks on a private conference call, a process that began in a Rothschild office in 1919. That era ended in scandal. In May 2014 the UK regulator fined Barclays for manipulating the gold fix against a client's option, and the benchmarks were rebuilt as transparent electronic auctions. The silver fix became the LBMA Silver Price in August 2014, and in March 2015 the gold fix became the LBMA Gold Price, an auction run twice daily at 10:30am and 3:00pm London time on a platform administered by ICE Benchmark Administration. The platinum and palladium fixes became LBMA-branded auctions the same year. Thousands of contracts worldwide, from miner offtake agreements to ETF net asset values, still settle against these prints; only the mechanism changed.

Leasing, forwards, and central banks

Gold behaves like a currency, and its forward market works like an FX forward market. Metal can be lent and borrowed, so it carries an interest rate: the lease rate. Central banks, which collectively hold roughly 36,000 tonnes of gold, historically lent part of it to bullion banks, who lent it on to refiners, jewellers, and hedging miners. Lease rates are normally a fraction of a percent, which means gold forwards almost always price above spot: a contango that is simply dollar interest minus the lease rate, plus storage. When physical metal gets scarce, lease rates spike and the curve flattens or inverts, which is the bullion market's clearest stress signal.

The bigger change is in central bank behavior itself. In the 2000s central banks were coordinated net sellers under the Central Bank Gold Agreements. After Western governments froze roughly half of Russia's foreign exchange reserves in February 2022, reserve managers in emerging markets drew the obvious conclusion about assets held in someone else's banking system. Central banks bought more than 1,000 tonnes of gold in each of 2022, 2023, and 2024, the heaviest official buying since the 1960s, led by China, Poland, Turkey, and India. That bid is the single biggest structural force behind the 2024-2026 price records.

COMEX and the EFP

The futures leg of the market is COMEX in New York, part of CME Group, where the 100-ounce gold contract and 5,000-ounce silver contract trade. London is spot and forwards; New York is futures and options. The two are stitched together by the exchange for physical, or EFP: a privately negotiated swap of a futures position against loco London metal, quoted continuously by bullion desks as a spread. Arbitrage normally keeps the EFP within a few dollars. When it widens, metal physically moves. Between December 2024 and March 2025, fears that US import tariffs might capture bullion blew the gold EFP out to historic extremes and pulled hundreds of tonnes of gold and silver across the Atlantic into COMEX vaults, a reminder that the paper spread is anchored by bars on airplanes.

The platinum group is a different animal

Platinum, palladium, and rhodium are precious by rarity but industrial by demand. Where gold demand is jewellery, investment, and central banks, PGM demand is dominated by autocatalysts: the devices that scrub exhaust from internal combustion engines. That makes PGM prices hostage to car production, emissions rules, and the speed of electrification. Supply is even more concentrated than demand: South Africa's Bushveld Complex produces roughly 70 percent of the world's platinum, and Russia's Nornickel, mining palladium as a by-product of Arctic nickel, supplies roughly 40 percent of the world's palladium. Two countries, two geological accidents, most of the supply.

Platinum and palladium have futures on NYMEX and LPPM auction benchmarks in London, but the minor PGMs do not. Rhodium, iridium, and ruthenium trade on dealer markets: bilateral deals against posted reference prices from Johnson Matthey and other refiners, with no futures contract and brutal illiquidity. Rhodium is the extreme case, a market of roughly 1 million ounces a year that ran from under $600 per ounce in 2016 to roughly $30,000 in March 2021 when tightening Chinese gasoline emissions rules met fixed supply, then gave most of it back by 2023. Iridium is essential to PEM hydrogen electrolyzers; ruthenium to hard disk media and chlorine production. They are tiny markets with enormous price elasticity, and they trade by phone.

Mined on purpose, or by accident?

A quirk of the precious metals is that several are not really mined for themselves. Platinum is a primary target in South Africa, but palladium comes largely as a by-product of nickel in Russia, and silver is the extreme case: only about a quarter comes from primary silver mines, while the other three-quarters fall out as a by-product of mining lead-zinc, copper, and gold. Gold is the exception, mostly mined for its own sake. The consequence is supply that ignores price: you cannot conjure more silver or palladium by wanting it, because their output rides on the economics of the host metal being dug. The silver fact sheet carries a table of which metals are the target and which are co- or by-products.

When did they become precious?

The four earned the label at very different times. Gold and silver were precious for millennia as money and ornament, long before any industrial use; silver was simply money for most of history. Platinum is a latecomer: eighteenth-century Europeans found it in Colombian gold workings, named it platina ("little silver"), and at first treated it as a worthless nuisance, even using it to counterfeit gold. Palladium, discovered in 1803, is essentially an industrial metal that became precious, its value is the catalytic converter, not any monetary past. So gold and silver are precious by history; the platinum group is precious mainly because it is rare and industrially in demand.

Tiny markets and the squeeze question

The thinness of these markets invites manipulation, though rhodium's own great spike was not a proven case: it ran from under $600 an ounce in 2016 to roughly $30,000 in 2021 on genuine fundamentals, tightening emissions rules meeting a fixed, un-rampable supply, rather than a documented corner. Deliberate squeezes are a separate, well-recorded history. The Hunt brothers tried to corner silver in 1979-80, driving it near $50 before the exchanges changed the rules and broke them. Sumitomo's rogue copper trader Yasuo Hamanaka secretly manipulated the copper market for years until a roughly $2.6 billion loss surfaced in 1996. And in 2020 JPMorgan paid about $920 million to settle US charges that its traders spoofed the gold and silver futures markets. The lesson is that small, opaque metal markets are squeeze-prone, and the regulators tend to arrive after the fact (see the Exchanges and Price Discovery theme).

What scarcity is worth, and what could break it

All of this value rests on scarcity, which is more fragile than it looks. Aluminium is the cautionary tale: in the 1800s it was a precious metal, Napoleon III served his best guests on aluminium plates and the Washington Monument was capped with it as a luxury in 1884, until the Hall-Héroult process in 1886 made it cheap and its price fell more than 99 percent within a generation. A supply breakthrough can turn precious into ordinary overnight. Two are discussed today. Deep-sea mining of Pacific nodules targets nickel, cobalt, copper, and manganese, battery metals, not precious ones, and is held back by cost, technology, and unfinished international rules. Asteroid mining is the platinum case in theory, since metallic asteroids are PGM-rich, but it is economically science fiction for now, and the firms that tried folded by 2019. The point for an investor is the tail risk: gold's monetary premium is partly insulated, but the platinum group and silver are priced on industrial scarcity, and any technology that flooded the market would do to them what Hall-Héroult did to aluminium.