In This Issue

The London Bullion Market Association ISSUE 83 October 2016

In this issue

Fifty Years on the Gold Trail By Timothy Green Page 3

The LBMA - Providing a Chain of Integrity in the International Gold Market By Ruth Crowell Page 6

Gold Demand Highlights Economic Risks - Global Uncertainty Impacting the Precious Metals Market By Ben Robinson Page 9

Links Between the Chinese and International Gold Prices By Neil Meader Page 12

Atomising Broadens the Realm of Precious Metal Utility By Roberto Guidali Page 14

The Singapore Bullion Market By Sunil Kashyap and Albert Cheng Page 16

New LBMA Members’ Portal – Bringing Members & The LBMA Team Closer By Ed Blight Page 19

Regulation Update By Sakhila Mirza Gardens by the Bay above, set in 250 acres in the centre of Singapore, is the stunning location for the Page 20 Conference Dinner. Read about the precious metals market in Singapore in the feature article by Sunil Kashyap and Albert Cheng on page 16. The Singapore Conference also takes centre stage in the Editorial LBMA News by Edel Tully on page 25. By Ruth Crowell Page 22

Editorial Comment By Edel Tully Page 25

Facing Facts By William Tankard Page 27 ALCHEMIST ISSUE EIGHTY THREE

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Fifty Years on the Gold Trail

By Timothy Green, Author and Journalist

Consolidated Goldfields, who then instigated an international research project on budding gold markets and the impact they might have on markets for South African production. He took me out to lunch and offered me a territory from London to Hong Kong to make friends in local gold markets and find out about local demand. From that was born the unique GFMS research team, which survives today and will celebrate its 50th report next year. For me, this led to 30 years of travel from the souks of Saudi Arabia and then onto India where I built relationships with the Bombay Bullion Market and the local gold hero Madhusudan Daga. Every year, Daga met me in Bombay, off the plane from Dubai, eager for clues on how much gold was going through Dubai. Amusingly, Indian customs also invited me in for coffee on the spot to hear what the gossip was.

For the next 30 years, I spent four or five months of the year on the road, or rather in the air, visiting local gold markets, particularly Traditional freight boat dhows on the creek in Dubai in the Middle East, including Beirut, Saudi While he was at Cambridge, where he studied history and edited the Arabia, Dubai and all the Gulf states, as well as India and Thailand, where I flew up from University newspaper, Timothy Green began to write as a journalist. Bangkok to Vientiane in Laos on a plane He then joined the London office of Time-Life, where he was a writer that took gold to the local branch of Banque working with some of the great LIFE photographers. Here he looks l’Indochine. An armoured car from the bank took the gold from the plane and so I was back on his long career in the gold business. able to assess local demand for jewellery and investment. If the souk there was busy with My interest in gold stems from an article I As I reflected in a new book in 1980, the eager local people buying gold and jewellery, wrote in 1966 for the American business gold business had been transformed more you sensed that the price of gold was deemed magazine, Fortune, on the London gold market radically over the previous decade than to be low. But if the souk was quiet that and the private buying of gold. In my research, at any time since the great gold rushes meant that the price was near the top. I looked for an authoritative book. There of the 19th century. Not only was there a wasn’t one, so I wrote it. I spent two years renaissance in gold mining everywhere from researching for the World of Gold, setting off Australia, Brazil and Canada to the United on the gold trail around the world, tracking the States and Zimbabwe, triggered by the high metal from London to Switzerland, Beirut and prices of the 1980s, but the establishment Previously, people had held Dubai (then a mere creek, with dhows loaded of new markets in Hong Kong and New York gold for protection, now they with tola bars secretly headed for Bombay), created a worldwide trading game. And a sought profit. And the whole gold then checking in through Hong Kong and Tokyo host of new players were attracted by the before turning down to South Africa, which at possibility of making money through the market from then on must be that time accounted for 70 percent of gold volatility of the price, which could fluctuate by seen in that new light. mine production worldwide. You see no mention $50 or more in a single day (whereas before of the Americas, because American citizens it was stable for centuries at a time). The had not been allowed to hold any gold privately gold price moved from $35 in 1970, to $850 since 1933 (and would not be able to do so in 1980 and to $350 in 1984, and the whole Over the years, I grew up with many souk until 1975). landscape had transformed. families all over Asia who would pass me on to the next generation with the advice Meanwhile, when my book came out in 1968, it The gold business was growing so rapidly that ‘tell Mr Green what he needs’. Actually, that coincided with the historic change that saw the I was from then on required to write a new happened with many families also in Dubai gold price freed to float on the London market book every five years or so. These were The and the Gulf. We all grew up together. in contrast to a fixed price, which had prevailed, World of Gold Today, The New World of Gold, often for centuries at a time. The world of gold The Prospect for Gold, The View to the Year And it was around this time that the LBMA changed for ever. Previously, people had held 2000 and a completely new edition of the grew as a unique leader for the gold industry. gold for protection, now they sought profit. And original The World of Gold in 1993. At the same time, of course, the gold the whole gold market from then on must be business widened using new technology seen in that new light. The rapid expansion of My role also had been transformed. I set out and even deviating increasingly, to my mind, the gold market in the 1970s happened once originally as a journalist, but my book had into a situation where the last thing anybody Americans could again hold gold. attracted the attention of David Lloyd-Jacob at wanted was to actually hold the bullion itself.

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Derivatives became all important, resulting in books on derivatives, including one from our own small publishing business in a title called The Derivatives Revolution, with Jessica Cross as author which was part of a series called New Frontiers in Gold. It announced that ‘it answers all your questions on forwards, funds, futures, gold loans, hedging, options, spot deferreds and warrants’. We sometimes received panic-stricken faxes ordering this book from South Africa and other gold- producing countries for delivery by air for the next week’s board meeting, so that the directors received a copy each to work out what it all meant. Gold jewellery for sale in the gold souk (or traditional market) in the deira district of Dubai

In tandem with all this activity, the LBMA the mines, markets, merchants and goldsmiths became an international institution with from Egypt to Troy, Rome to Byzantium, and annual gold conferences worldwide, in the Venice to the space age. My travels took me China became more interested United States, Dubai, Tokyo and even Peru. By from the gold-encrusted tomb of Philip of again in gold in the 1980s through this time, in the late 1990s, I had retired from Macedon, the father of Alexander the Great, issuing new coins of its own, which my travels for the GFMS annual gold survey. near Thessaloniki, to the treasures of Troy in My last conference speech was at the LBMA the Pushkin Museum of Fine Arts in Moscow. it hoped to export. conference in 2000, which appropriately The Ages of Gold was published by GFMS, was in Dubai, where I originally sailed up the with the support of Philip Klapwijk, Executive, creek all those years before. The new Dubai Chairman of GFMS. overwhelmed me. Meanwhile, on the physical gold front, there were some interesting newcomers, notably China, which had been a gold producer back in the year 1,000AD when it has been estimated So I spent the next five years that it produced about 400 tonnes spread on the trail of gold’s history for over a few decades. But then China switched, a new book, The Ages of Gold, until modern times, to a preference for silver. China became more interested again in gold which covered the mines, markets, in the 1980s through issuing new coins of its merchants and goldsmiths from own, which it hoped to export. It was therefore eager to make contacts with the international Egypt to Troy, Rome to Byzantium, gold market and I had an opportunity, based and Venice to the space age. on the reputation of the GFMS annual gold surveys, to visit the central bank in Beijing. They sent a car to my hotel the morning after I landed to take me to the central bank where The greatest pleasure in researching The Ages we talked the whole morning, with the Chinese Gold funerary mask, Mycenae c1600-1500 BC reputed to be of Gold was that my wife was able to join me in that of Agamemnon, legendary king of Mycenae and leader asking me questions about the international of the punitive Greek expedition against Troy. museums and ancient sites to admire gold’s gold market and how they might be involved. legacy. I shall always remember the morning, They were reluctant to tell me anything about I then took the opportunity to go back into the shortly after dawn, when we stood alone on China’s gold scene. I had to calculate from history of the London gold market. I tracked the hilltop of the palace of Knossos on Crete, their questions what their thinking was. Then the chronology of the London market from looking out on the landscape of Cyprus trees they took me to a lavish lunch, followed by a 1663 to 2010 with much help from the Bank and olive grows below, little changed since thorough tour of Beijing. From then on, we had of England’s library. This embraced everything Minoan times 3,000 years before. It was an a useful relationship. Their real interest proved from the introduction of the guinea in 1663 exceptional experience to link the modern to be how they could get mining advice and (named after Guinea on Africa’s gold coast) to world of gold with the ancient one. possibly finance from South Africa. identifying in 1671 that Moses Mocatta moved from Amsterdam to London, establishing the oldest member of today’s market (now Scotia Timothy Green, Author Mocatta). Moses Mocatta first shipped gold and Journalist has been to India with the East India Company in 1676, writing about gold for 50 shortly followed by the establishment of the years. His first book, The Bank of England in 1694. The Bank became World of Gold, came out the heart of the gold business in London for the in 1968 and was revised next 300 years. This chronology was building a several times. He also wrote The Gold global brand for gold. The report was called The Companion: The A-Z of Mining, Marketing, London Good Delivery List. Building a Global Trading and Technology for the Swiss company Brand, published by the LBMA in 2010. MKS Finance SA. His latest book, The Ages of Gold, on the 6,000 years’ history of the metal, I had retired from reporting on the gold market, was published in 2007 by GFMS, the precious but that then gave me the unique chance to metals research company, for whom he was research the history of gold from earliest times also a consultant on world gold markets for through the last 3,000 years. So I spent the three decades. In 2010, he wrote Building a next five years on the trail of gold’s history for Global Brand, The London Good Delivery List a new book, The Ages of Gold, which covered 1750-2010 for the LBMA. Building a Global Brand, 1750 to 2010

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The LBMA - Providing a Chain of Integrity in the International Gold Market

By Ruth Crowell, Chief Executive, LBMA

And the label on the tin has changed, particularly if you want large multinational companies to buy or finance gold. Not only does it have to be gold, but it also has to be Responsible. And this brings me to the second main question I get. “Is Responsible Gold really necessary for me?” Many consider it a US or European problem and something they can ignore. I said at the beginning that it is nice to be amongst friends, and I mean that. But sometimes friends need to tell each other harsh truths. And this is one of those. You cannot escape Responsible Gold. or Responsible Silver for that matter. It is coming for you, so why not get ahead of your competitors. If India is to become the jeweller for the world under Make in India, you need to become leaders in Responsible Gold. You cannot simply sign a letter and expect large international jewellery companies to accept your word. Customers This is a transcript of the Keynote address which Ruth delivered at demand meaningful independent verification the 2016 India International Gold Convention (IIGC) in Agra, India, of responsibility and other markets are providing it. China is now taking this seriously on 11 August, 2016. and becoming a leader in this space. India needs to do the same to be competitive. Good evening Ladies and Gentleman. It’s relies on the London Good Delivery List that it great to be back in India. It’s also a pleasure can be trusted. In order to have that integrity, to be back amongst friends here the IIGC, we must safeguard the standards and be speaking to you tonight. Sincere thanks to the consistent with their application. We do not organisers for the invitation to address you aim to be the accreditor for every refiner Chain of integrity is vital in this evening. around the world. We look for global partners the gold market, and the LBMA who can consistently deliver large quantities Good Delivery List provides a Every time I come to India, I am reminded of of quality metal into London and around the how lucky we are. As Chief Executive of the world on a long-term basis. The global aspect crucial link in that chain. LBMA, I get to travel the world and meet with is important as we can all appreciate the so many gold market participants who are ability to grow the precious metals market keen to do more, to innovate and develop, when we look to set an international, not a and to have a bigger seat at the global table. local standard. And long term is of course And that is where the LBMA can help. We can They look to the LBMA to provide solutions important as gold plays that fundamental role provide the tools, the training, our experience, to their problems or to give integrity to their as a safe haven for families, investors and the best practice examples and put you in ideas. My job is to identify where we can help governments alike. We are looking for refiners touch with industry experts. But we cannot do and explain clearly when we cannot – and who will be there for decades, not years. the work for you. Integrity has to be earned. also to spread the news that the LBMA is It cannot be given. The goal of our on-going changing and there have never been more Chain of integrity is vital in the gold market, engagement in India is so we can help grow opportunities to engage. and the LBMA Good Delivery List provides a capacity and help bring the Indian market crucial link in that chain. If we compromise voice to the table. We can give you all the It may surprise you, but a lot of the questions our standards, the banks, central banks, tools and help you join the global discussion. I get from these markets are actually the refiners, investors, mints, jewellery and We can even bring the world to India to talk same, regardless of where I am. For Good electronic companies who rely on us would about physical issues or Responsible Gold. But Delivery, the question I always get is, ‘Please all suffer commercially. They would also India needs to do the heavy lifting. There is a can you create an LBMA B list, because have enormous difficulty and costs trying to need for stability and consistency in the Indian the standards are too high, particularly on individually manage the quality of the metal market that is transparent and gives confidence tonnage, financial net worth, etc. ’ ‘No’ is they use/produce. If there is to be confidence to the outside world. And industry leaders need of course the short answer, but the longer in the gold market, clients must fundamentally to engage externally as well on a consistent answer gives the important reason why. It’s get what it says on the tin. And that’s what and ongoing basis to demonstrate that stability important to everyone around the world who the LBMA brand must provide. and transparency. There are numerous ways to

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I alarmed a few people yesterday with the have to keep the standards high, for the sake unintended consequences of the Basel III of all of gold as a brand. But the doors are liquidity ratios. This is international, G20- open - get involved. level regulation intended to avoid another financial crisis – a good intention, with some worrying potential consequences. The LBMA is Ruth was appointed Chief concerned about banks exiting and financing Executive of the LBMA becoming not only scarce but exponentially in January 2014. She is more expensive. Gold has not been singled responsible for the success out as a market; instead, it has been swept in and strategic development with all commodities, even though we all know of the LBMA, in partnership it also acts as a global currency. We need to with the Chairman and the Board. She is also have a strong, global voice to champion the responsible for maintaining accountability strength and liquidity of the gold market, and to and the quality of, the Association’s India should be part of that voice. We need Membership and Good Delivery Refiners as well the regulators to understand the integrity of as representing the interests of the Association the gold market and we need to provide more in relation to regulators, investors, media and The LBMA Executive take a “selfie” in front of the Taj transparency to demonstrate that to them on a international precious metals markets. Mahal in Agra during a break at the convention consistent and ongoing basis. Before being appointed Chief Executive, she do this, for example, international bodies and spent seven years working in the Association, events set up to help market players improve initially as Commercial Director and then as how they do business, whether it is regarding Deputy Chief Executive, where she acted as refining, assaying or trading. But there has With the help of senior the main lead on Governmental Affairs. She been limited involvement to date from the government, India could be a was also responsible for the Association’s Indian market. That needs to change in order real voice for gold not just in the work on supply chain due diligence, with for India to continue to grow. A few players particular regard to the creation and cannot do it all on their own. You need to speak local market, but around the implementation of the LBMA’s Responsible with one clear and consistent voice. world. That recognition is also an Gold Guidance. She has represented the Association at industry, governmental and opportunity for the industry to multi-stakeholder regulatory forums. She get real support in your plans for continues to serve as Vice Chair of the OECD local innovation. Multi-Stakeholder Governance Group for It is not just about doing Responsible Minerals. As Commercial Director, the right thing. It is about she oversaw the development of the LBMA doing the right thing when no Conference, the LBMA’s quarterly publication the Alchemist and the LBMA website. one else is watching. When trying to defend the integrity and the liquidity of the market, it helps if people have Prior to joining the LBMA, she worked in bank heard of you. The UK has the largest financial finance and US corporate law at the law firms gold market in the world, but we have never of White & Case and Norton Rose, and also I know you are going through your own had the Prime Minister championing the gold acted as a monitor at the UN Commission on innovations and strategy sessions to see how market like you have here in India. It continues Human Rights in Geneva. She has an MSc you can achieve that stability, build the Indian to remind me of the work ahead when we in History of International Relations from the market and have a larger seat at the global speak to UK government officials who are not London School of Economics and a degree in table. Again, this is happening worldwide, aware of the London Gold Market. English Literature from Kenyon College in Ohio. including at home in London. My advice to you would be not to try to reinvent the wheel. With the help of senior government, India could Instead, embrace the ideas and opportunities be a real voice for gold not just in the local that are currently out there and look to see market, but around the world. That recognition where you can add unique value. At the LBMA, is also an opportunity for the industry to get we are currently focused on bringing real real support in your plans for local innovation. technology to the global market. This is initially For London, central bank and treasury support for reporting and helping to demonstrate has always been crucial in the efficiency and transparency to the regulators. But we are also attractiveness of the market to local and looking at how we can use technology to grow international players. the market on an international basis. And if we decide to do something, we want to do it well. I do not have to tell you that there are real pressures and changes going on in the global We were recently asked to develop a global gold market. Physical demand is down, Precious Metals Code, following the example regulation is high and all players –including set by the Forex markets. And we look forward refiners, traders, banks – have been affected, to receiving your views once we open it for with some even forced to shut down or exit. public consultation. But one of the reasons But with those changes and challenges come we have not released it yet is because, in the opportunities. We are going to hear over the gold market, we do not just want to do things next few days from many industry experts the same as other markets, we want to do about the innovative ideas that they have had. things better. And that’s where the integrity And as always, the LBMA will be here, to listen comes in. It is not just about doing the right and to engage with you in the dialogue. I just thing. It is about doing the right thing when no hope that we can continue to see India present one else is watching. in the meetings, dialogues and innovations outside of India. As I said at the beginning, we

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Gold Demand Highlights Economic Risks - Global Uncertainty Impacting the Precious Metals Market

By Ben Robinson, Economist, Official Monetary and Financial Institutions Forum (OMFIF)

bank, and of course China has been steadily accumulating gold in part as a way to stabilise the renminbi ahead of its inclusion in the IMF’s special drawing right reserve currency from 1 October. At the same time, developed country central banks have stopped selling their gold reserves, reducing the available supply.

OMFIF has covered this topic extensively over the last few months, producing two in-depth reports, the ‘Seven ages of gold’, tracing central bank policies on gold since 1835, and the Global Public Investor 2016 report on the growing use of gold by public sector investment institutions. Since the end of the gold standard in the early 1970s, gold’s role in the Brexit effect on gold world economy has closely tracked periods of economic and political turmoil, expanding when confidence declines and retreating when As the above examples show, the sensitivity confidence returns. The rise in demand for gold among investors, savers, of gold demand to economic and political uncertainty is an important factor driving central banks and consumers since the onset of the financial crisis in markets. The global economy faces a series 2007 owes much to the safety and liquidity of gold relative to other of challenges over the next few years which assets. Over the last few years, the negative yields on large portions may have implications for gold and other precious metals. of other traditional safe assets such as government bonds have further increased gold’s attractiveness and reduced the opportunity costs of The UK’s decision to leave the EU on 23 holding this non-yielding asset. The sensitivity of gold to developments in June sent gold prices soaring as investors moved out of sterling assets, which fell by the broader global economy creates both opportunities and challenges around 15% in the weeks following the vote. for the various sectors of the gold industry. The uncertainty over what relationship the UK will have with the EU is delaying investment Changing fortunes for gold decisions across the continent and weighing on market sentiment, auguring a period of This year, gold miners have been caught underperformance for assets from stocks and between opposing financial forces. While corporate bonds to property, and of potential they have benefitted from growing demand, weakness for both sterling and euro. which has contributed to price increases of around 27% since January, they have also The longer-term impact this will have on been vulnerable to signals over US monetary gold depends in part on the response of the policy. The prospect of a further interest rate European Central Bank and Bank of England to rise later this year strengthened the dollar the post-Brexit challenges. A £10bn, 18-month in August and weakened the outlook for gold corporate bond purchasing programme prices and mining shares. announced by the Bank of England in August could help boost confidence and limit the On the consumer demand side, the rapid growth Chinese investors suffered during the 2015 stock market crash shift out of these assets into safe havens of Chinese gold retail investors has been driven such as gold (similar programmes by the ECB in part by volatility in China’s stock and property On the central bank front, Russia has stepped managed to stabilise markets following their markets, which have previously provided the up its gold purchases and has sold dollars and announcement). The cut in interest rates to 25 two main sources of investment for domestic other reserve currencies as it seeks to reduce basis points, however, and the falling yield on investors. Since last summer’s stock market its dollar liabilities, leading to the highest share government bonds could see greater demand crash, gold has made significant headway, of gold as a percentage of its official reserves for gold. Future stimulus measures by the ECB aided by a rapidly growing array of investment since early 2000, at 16.2%. Kazakhstan has to offset the impact of Brexit could have a products, including exchange traded funds and also increased its holdings substantially and has similar consequence. gold accumulation plans, although it partly banned gold exports. Turkey has incentivised reflects weakness elsewhere in the economy. commercial banks to purchase more gold from the general public and deposit it at the central

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A bigger risk may be the weaknesses in Emerging market outlook Second, investors that piled into gold to European banks, which could drive the next protect themselves from negative yields euro crisis. Low interest rates have hit bank In India, which vies with China for the position may have a shock when yields and interest profits and share prices across the continent, of the largest gold market, demand tends rates eventually rise and they find they are and could limit future lending. The size of bad to track confidence rather than pessimism. holding large amounts of non-yielding assets loans in Italy, the hardest hit country, is around Markets were rattled earlier this year when at a time of rising costs. The outlook for €360bn. The interlinkages between European the governor of the central bank, Raghuram gold therefore faces substantial risks. As banks, and the overdependence on banks Rajan, announced that he would not serve a investment takes up a growing share of rather than capital markets for raising funds second term. The rupee weakened against gold demand, especially from hedge funds, in the EU, suggest that a banking crisis, or the dollar and increased the price of gold in ETFs and others, prices may become more even the threat of one, could have a significant Indian markets by an additional 2 percentage volatile and more sensitive to monetary policy negative shock. Meanwhile, with sovereign points relative to the dollar price, contributing announcements. US investors pulled over credit ratings at risk of a further downgrade, to weak jewellery demand. Rajan’s efforts to $600mn from commodity funds in the last European sovereign bonds may become less tame inflation, resist political pressure to cut week of August alone in anticipation of the attractive, boosting demand for gold. interest rates, maintain the independence next rise in US interest rates. Meanwhile, of monetary policy and address India’s there are substantial concerns over the These financial challenges are exacerbated unhealthy bank balance sheets provided a effectiveness of future monetary policy by political ones, with a series of national period of stability and confidence. This helped stimulus in the EU, Japan and UK, given elections and referenda due to be held across India maintain growth of around 7% over the the already low rates and the shortage of Europe before the end of next year. Presidential last few years, boosting household incomes assets for central banks to buy in any further and general elections in France, Germany and and attracting foreign investors – India is now quantitative easing programmes – in August, the Netherlands (all countries that are fighting the largest destination for FDI in the world. the Bank of England failed to find enough rising anti-EU sentiment) and a referendum in The appointment of Urjit Patel as Rajan’s gilts to fulfil its purchase quota. Italy later this year that could topple President successor, who supported these policies Matteo Renzi provide ample opportunity for as deputy governor, helped to reassure confidence to suffer further setbacks, which markets of continuity and stability, and helped may have an impact on gold demand. strengthen the rupee. The interlinkages between This should be positive for jewellery, one of European banks, and the the largest sources of gold demand. With overdependence on banks rather demographic trends expected to result in an estimated 15 million weddings a year in India than capital markets for raising over the decade, demand for gold, which funds in the EU, suggest that features prominently in such ceremonies, will be heavily influenced by the country’s a banking crisis, or even the economic prospects. threat of one, could have a significant negative shock. India’s positive growth projections could Hilary Clinton and Donald Trump go head to head in the however be upset by higher prices for oil and US Presidential election later this year other commodities, of which India is a large net importer. Private consumption, including US election risks gold demand, has been boosted by falling As global monetary policy divergence inflation over the last few years, which is, in continues, the dollar price of gold is likely to The US election campaign has raised part, a result of lower import prices. As a net rise relative to other currencies, increasing concerns over what a Trump presidency would importer, China has also benefitted from this the cost and weighing on jewellery demand in mean for the US and global economies. Talk trend. However, oil prices have risen above markets such as India, China and the Middle of trade wars, protectionism and confrontation $50 a barrel several times this year and East. The uncertainty of the global economic over currency values, in particular with China, remain substantially higher than their context, which makes gold an attractive mean a period of uncertainty may be ahead. January low. Along with a stronger dollar as investment, thus carries with it many risks It is not clear whether, if elected, Trump would US interest rates rise, this could mean that that could negatively affect overall demand. be as confrontational as he has been during higher dollar-denominated commodity imports The growing demand for gold as a safe-haven his campaign. Domestically, however, Trump reduce Indian and Chinese spending power, asset is neither a good sign for the global has outlined an economic plan that would see which will impact on gold. A rise in oil prices economy nor necessarily for the long-term higher borrowing, a larger debt-to-GDP ratio, could, however, see increased gold demand in prospects of gold itself. a weaker dollar and interest rates that are the Middle East, which has fallen substantially lower for longer. All of this is likely to be felt in over the last year. financial markets. Ben Robinson is an Two long-term trends Economist at the Official These cyclical factors have played a large Monetary and Financial part in gold demand and prices this year, Longer term, two trends will be important Institutions Forum in with gold ETFs posting a record 568 tonnes factors for gold’s performance. The first is London, where he is of demand in the first half of the year. This that the low interest rates, disinflationary responsible for research demand has been concentrated in Europe pressures and low yields that have made gold and analysis on issues relating to the global and the US, reflecting uncertainty in those an attractive investment are creating strains economy. His main focus is on international markets. The size of the ETF market in China, for institutional investors such as pension monetary policy, emerging markets, and public though growing quickly, is still relatively funds and insurance companies. While gold sector asset management, and is responsible small. The majority of demand there is for may offset some of the nominal losses of low for the Global Public Investor annual report physical gold could increase as China’s or negative yields, its lack of return – and the on sovereign wealth funds, central banks and economy slows down and other investments vulnerability of prices to market sentiment – public pension funds. He holds a Master’s prove more risky (although gold demand mean it is not a long-term solution for those degree in International Political Economy from could be hit by weaker consumer spending kinds of investors. King’s College, London. as economic growth falters).

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Links Between the Chinese and International Gold Prices

By Neil Meader, Research and Consultancy Manager, Metals Focus

In order to confirm and even quantify any linkage, we examined patterns between the Shanghai Gold Exchange (SGE) premiums’ and the LBMA AM gold price. First, we calculated simple correlations over long periods as well as rolling one-week, two-week and one-month periods. We estimated correlations of the daily change in the LBMA AM gold price against:

(1) percentage SGE premiums (versus the LBMA AM gold price) (2) percentage deviations of the SGE premium over its long-term mean (January 2005 through to August 2016), and (3) the daily change in the premium.

We also examined correlations between daily price change and premiums lagged by one day.

If there is a robust price premium on the Shanghai Gold Exchange, it is logical to expect that this will be positive for the As US monetary policy and nagging tail risks continue to take centre international price, as bullion stage, it is tempting to view gold’s fundamentals, among them Chinese gets sucked into China. demand, as irrelevant to gold price moves. A review of historical price data, however, suggests that China’s appetite for gold can influence the price. The results were disappointing. Over longer Since it started liberalising its gold market, and some gold may even find its way out onto periods, the correlations between daily price China has grown to become both the world’s the world market. Finally, investor attitudes changes and same-day premiums were in biggest producer and the world’s biggest towards gold could be coloured by perceptions fact negative. One explanation for this could consumer of gold. This has had a profound of demand strength or weakness of the world’s be the reverse of the relationship we are impact on the structure of the global bullion largest market. investigating: namely, the negative impact of market. Lists of the major market players and rising prices on Chinese demand. principal vaulting and refining centres, as well as traditional physical flows, have all changed dramatically. What is less clear is the impact SGE LMA AM G this transformation has had on the dynamics 2,000 3.5% of the gold price. Our analysis of historical trends in local and international prices 1,800 SGE Premium (%), 30-day moving average below illustrates that, while modest, there is 1,600 2.5% evidence of Chinese demand having had a positive impact on the international price. 1,400

Links Between SGE Premiums 1,200 1.5% and the International Price 1,000

If there is a robust price premium on the 800 0.5% Shanghai Gold Exchange, it is logical to 600 expect that this will be positive for the LBMA AM Gold Price / US$/oz international price, as bullion gets sucked into 400 -0.5% China. Similarly, if there’s an uncomfortable discount on the SGE, other things remaining 200 $/oz 30 dma % equal, it should weigh on the international 0 -1.5% price, as bullion imports into China dry up Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

12 ALCHEMIST ISSUE EIGHTY THREE

The correlation coefficients we calculated SGE C LMA SGE C LMA AM G between price changes and the previous day’s AM G M premiums were positive but very low and M statistically insignificant. Rolling correlation coefficients were more in line with our thesis, being generally positive. However, for the 35 Premium 1% or more All days Discount 0.2% or more most part, they were statistically insignificant. 0 30 -2 25 -4 20 -6 -8 15 -10 The results of these 10 -12 estimations suggest that SGE 5 -14 average change in price over specified period average change in price over specified period

0 in $/oz from day SGE premium = specified level -16 premiums have a modest in $/oz from day SGE premium = specified level Premium 1% or more All days Discount 0.2% or more but positive and statistically

10 days on 1 month on 10 days on 1 month on significant impact on future *January 2005 - September 2011 *September 2011 - December 2015 gold price moves. two contrasting periods – the earlier bull run (which for this exercise, we have delimited Neil Meader is the Research at 4 January 2005 and 5 September 2011, and Consultancy Manager We then investigated the marginal impact when the price topped out at $1,896.50) and at Metals Focus. The role of premiums on prices in the context of a the more recent retreat (which we have taken centres on the creation more complex model. Over the past ten as 6 September 2011 to end-2015). and supervision of the years, the most consistent driver of gold company’s main consultancy price moves has been the US dollar and, as The results of this exercise also support a contracts and the top-down review of all its such, we decided to include it in the model. positive link between SGE differentials and precious metal supply and demand statistics. Moreover, we considered the possibility that the LBMA AM gold price. For example, during Prior to that, he ran Metallis Consulting the impact of Chinese demand and SGE the bull run, the gold price on average rose Limited, an independent precious metals premiums on gold prices comes with a lag. by $33 one month on from days in which consultancy, which, among other studies, Intuitively, a high premium today can trigger the SGE premium was 1% or greater, but by produced the first truly comprehensive report increased shipments of bullion to China over only $2 one month after days that had seen on country-level jewellery and retail investment the next few days, which in turn can affect an SGE discount of 0.2% or more. China’s gold stocks. the price. We therefore attempted a series influence was also apparent when the bear of regressions of daily gold price changes market had taken hold. For instance, on Before that, he was Head of Precious Metals against changes in the dollar index and lagged average, the gold price only fell by $1 within Research & Forecasts at Thomson Reuters percentage SGE premiums. The results of a 10-day window after days when the SGE GFMS, where he was ultimately responsible these estimations suggest that SGE premiums premium was 1% or more, but declined by for the unit’s supply/demand numbers and have a modest but positive and statistically $14 following discounts of over 0.2%. price forecasts. This marked the culmination significant impact on future gold price moves. of 12 years at GFMS, where he worked his way up from junior analyst to research director. During that time, he was responsible SGE for the field research in Italy, France, Germany A The two thresholds were and Canada plus aspects of the United chosen as they represent one States, Mexico, the Middle East and India.

300 standard deviation from the 10% His early career saw him working as an 250 mean. This was done for two analyst for soft commodity trading companies 8% Probability 200 contrasting periods – the earlier and, prior to that, for one of the oil majors. 6% He has a degree in economic history 150 bull run and the more recent from Exeter University, which featured a 4% 100 retreat. dissertation on grain trading.

Number of Observations 50 2%

0 0% -3.00% -2.00% -1.00% -0.00% 1.00% 2.00% 3.00% 4.00% Conclusion SGE Close Premium over the LBMA AM Gold Price To conclude, although the relationship is far from straightforward, historical data points We finally examined possible links between to a positive link being in place between the stronger than normal premiums and international price and developments in China, discounts, and price moves. Specifically, and so monitoring SGE differentials remains we looked at average price changes for the important. This is particularly the case if, LBMA AM gold price, following days when the as we believe, investor sentiment can be SGE price was at a premium of at least 1% influenced by the underlying physical market. or a discount of at least 0.2% compared to That certainly appears true at present, with the LBMA AM gold price. The two thresholds some participants’ enthusiasm seemingly were chosen as they represent one standard cooled by India’s currently sluggish bullion deviation from the mean. This was done for imports and the hefty loco-Mumbai discount.

1 We used the difference of the US$/oz equivalent of the SGE closing price to the LBMA AM gold price, the latter being the international reference price that is nearest in terms of time to the SGE close.

13 ALCHEMIST ISSUE EIGHTY THREE

Atomising Broadens the Realm of Precious Metal Utility

By Roberto Guidali, CEO, Italimpianti Orafi S.p.a.

State-Of-The-Art of PM Powder Production

There are four fundamental procedures that constistute the state-of-the-art of PM powder production today.

• Mechanical methods: Comminution of solids • Chemical and electrolytic methods: Reduction of metal oxides and electrolysis • Physical-chemical methods: Gas phase precipitation and plasma technologies • Other methods such as mechanical alloying and spray granulation.

Most of these processes generate significant problems: 1) For chemical processes: a) non-spherical particles b) greater porosity c) impurities d) the need to filter and wash the powder.

Atomising creates fine-grade precious metal (PM) powders which 2) For plasma technologies: a) the difficulty in controlling the size have made a compelling impact on world markets. It liberalises alloy b) the limited production composition for PM refining and produces powders for many distinct c) the expense. industrial applications. PM powders have triggered the creation of Powder Production By Induction heretofore unimagined products, and new industries have been forged Melting And Water/Gas Spraying with slashed costs and bolstered profits. (Atomisation) Powder Metallurgy – The The use of atomising technologies permits In atomisation, the molten metal (melt) ‘Wonderland’ of Precious Metals the synthesis of a variety of alloys. It is produced by induction melting furnaces is now possible to fabricate components that bombarded with ultra-high speed jets of water Water and gas atomisation (WA and GA otherwise would decompose or disintegrate. or gas. The high energy of the jets destroys the respectively) have broadened the range of PM All considerations of solid-liquid phase liquid surface of the melt, effecting a transfer products, advancing from ‘standard’ ingots, changes can be ignored, so powder of energy which results in the fractioning of the bars, medals, etc. to atomised powders. processes are more flexible than casting, melt into droplets and then into powder. The value of PM ingots (and their jewellery) extrusion or forging techniques. For example, depends on the world market for that PM, we can now have a controlled and uniform and on the fluctuations in the demand for porosity of solids. them. As the capacity to form new alloys and chemical compounds from a PM powder develops, then in tandem, the PM takes on an elevated and stable value. The use of atomising The production of PM powders by WA permits technologies permits the synthesis the broadening of the composition of raw gold of a variety of alloys. alloy to be refined directly by wet chemical processes, i.e. by one process rather than by two, making it faster, and saving energy, chemicals and manpower. Now we can directly refine gold alloys with up to 20% silver. For PMs in the form of metals, alloys and GA-formed powders, the vast quantity of their chemical compounds have found wide industrial applications has led to a stable utilisation in metallurgy, glass and ceramic demand for those PMs. production, nuclear power, lighting, television and laser techniques, the chemical industry, medicine and agriculture.

14 ALCHEMIST ISSUE EIGHTY THREE

When a gas jet is taken to supersonic speeds, porosity. With greater water pressure, the This powder is used in alloys for 3D printing and we can see a parallel situation that we are all particle form degrades considerably to greater electronics, etc. GA is used for the commercial familiar with. Turbulence is created when a irregularity. Particles of WA powder generally production of powders of copper, copper alloys, supersonic airplane ‘breaks’ the sound barrier, have a pronounced uneven surface compared aluminum and its alloys, magnesium, zinc, i.e. goes faster than the speed of sound to GA powders. The combination of irregular titanium, titanium alloys, nickel-based alloys, (approximately 1,235 km/hour), and we hear shape, surface roughness and porosity is an cobalt-based alloys, lead, tin, solder, precious a ‘sonic boom’ which is a physical expression important feature of WA powders. metals, refractory metals, beryllium, etc. of that turbulence. Some GA processes in fact Specialty alloys based on aluminum, copper, blast the melt with a supersonic gas jet to This procedure is less expensive. For nickel, cobalt and titanium can undergo GA to achieve that more intense turbulence, yielding high-yield, low-cost production and safe exacting compositional specifications. a finer powder. engineering, WA is usually preferred over GA, as long as the powder characteristics are The quantity of GA powders produced worldwide The design of the atomising plants varies compatible with the application. is far less than that of WA powders, but in greatly. Generally, there is a tundish crucible market value terms, they are about equal. melting chamber equipped with induction WA is used for the commercial production heating. By definition, all induction heating is of copper, copper alloys, nickel-based alloys The Future Of PM Powders without a flame. The chamber may have an and zinc powders as well as bronze powder. atmosphere of inert gas, with a pneumatic WA-produced powders are used in alloys for The future of alloys and chemical compound’s stopper closed orifice at the bottom. When dental work, electrical contacts and brazing attained from PM powders is radiant. It the stopper is elevated, the melt flows pastes. Significantly higher water pressures signals an imminent and substantial growth in downwards into a second crucible which are used to manufacture the finer powders profits for those who have made investments diffuses the liquid into a large collection used for metal injection molding (MIM) in PMs, far beyond the equivalent value of bin whose size is consistent with that of processes, binders in diamond tools, sintered PM ingots in terms of weight. Possibilities the diffusion. Then nozzles introduce jets of bearings, sintered filters, corrosion-resistant for the use of these powders, far from being high-speed water or gas at a short distance paints, coatings and conductive pastes. exhausted, are being briskly expanded as from the falling melt as it leaves the second properties of new alloys and compounds are crucible. It is also possible that there is no The main limitation of WA is powder purity, studied, a true wonderland of opportunity. second crucible and the jets impinge the especially for metals and alloys inclined melt as it escapes the first crucible. The to oxidation. However, owing to the higher homogeneous impact of water or gas on the cooling rate of the melt, the average Dr Guidali holds a M.S., melts results in the homogeneous size of thickness of surface oxides is similar to that Ph.D. in Chemical the particles of the resulting powder. This in GA powders. This is realised, in particular, Engineering, and is very different from the results of powder in WA aluminum alloys. specialises in work on created using other technologies, e.g. PM refining processes plasma, which have no control over the size Gas Atomisers (GA): and technology as well as of the powder particles. Impingements during plasmas deposition techniques. He is the atomisation influence particle size, particle In GA, the melt is dispersed by a high-velocity current CEO of Italimpianti Orafi in Arezzo, size distribution and particle shape. jet of air, nitrogen, argon or helium. This Italy. He worked extensively in the field of atomiser design aims to contact the melt Precious Metal refining in Switzerland with The method of collecting the powder varies stream with the gas close to the gas jet exit Argor-Heraeus Group, one of the world with water or gas atomisation. plane where the highest velocities exist. leaders in the field. He also worked in It leads to efficient break-up of the liquid, plasma PVD applications for coatings and Water Atomisers (WA): resulting in finer powders. powders manufacturing. Since his return to his native Italy in 2008 he has applied When the diffused stream of melt is blasted The use of GA results in the regular spherical his experience in both administrative skills by high-velocity jets of water, the resulting form of the powder particles and there is a and technical knowledge to help Italimpianti powder cools before it reaches the bottom tighter particle size distribution. The relatively achieve international prominence. of the collection bin. The powder solidifies low cooling rates intrinsic to GA result in fine- faster than by gas atomisation. The faster the scale microstructures and so the surface of GA solidification rate, the bigger the particles. particles is generally smooth, resulting in little The use of WA also results in the irregular or no porosity. There is a notable absence of form of the powder particles and a wider impurity effects and surface oxide films. particle size distribution, resulting in greater

Particles of Powder Formed With Water Atomisation Particles of Powder Formed With Gas Atomisation

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The Singapore Bullion Market

By Sunil Kashyap, Chairman, and Albert Cheng, CEO, of the Singapore Bullion Market Association (SBMA)

banks and secured logistic companies also expanded, and the infrastructure for the precious metals sector in Singapore began to take shape.

At the 2014 London Bullion Market Association (LBMA) Bullion Market Forum, the Singapore Trade and Industry Minister Lim Hng Kiang announced the Singapore Kilobar Gold Contract, the first wholesale 25 kilobar gold contract to be offered globally. A joint initiative of IE Singapore, the World Gold Council, the Singapore Exchange and the SBMA, the contract introduced centralised trading and clearing of a physically-delivered gold contract in Singapore. It comprises a series of six daily contracts, which gives buyers physical access to competitively-priced kilobars. This was This year, the annual LBMA/LPPM precious metals conference will be held enhanced by the launch of the ICE One-Kilo in association with the Singapore Bullion Market Association (SBMA). Gold Futures on Nov 17, 2015. In this feature, Sunil and Albert chart the growth of the bullion market in The Singapore Market Singapore and the role the SBMA has played in helping to shape it. History Rising Global Demand and to service nearby countries, which includes two Singapore’s role key demand centres, China and India, as well Since the 1960s, Singapore has been a gold as the rest of ASEAN. distribution centre for Southeast Asia, with its Asia is the driver of the rising demand for gold largely sourced from London and Zurich. gold, and Singapore is located at the heart The SBMA regularly offered market knowledge In 1969, in the wake of a global evolution of this trade flow. Global investment in gold and advice to IE Singapore in developing of the free gold market and a two-tier price has more than doubled since 2009 to 1,377 Singapore’s bullion strategy, and later the structure following the collapse of the London tonnes in 2013, with East Asia and the Indian Inland Revenue Authority of Singapore (IRAS) Gold Pool, Singapore established an over- subcontinent accounting for more than 70% and Singapore Customs during implementation. the-counter (OTC) gold market. However, of global physical bar investment. In addition, Three strategies were identified and executed from 1969 onwards, only non-residents could about 50% of the world’s scrap gold comes in order to create a more conducive business perform gold transactions in Singapore, from Asia (source: Thomson Reuters). environment to nurture this concept, namely, and banks and bullion dealers trading gold required authorisation from the Singapore The physical allocation of gold in the portfolios • Goods & Services Tax (GST) exemption Government. Beginning in 1973, Singapore of wealthy investors has been growing, and on investment grade precious metals – residents were finally allowed to trade gold, Singapore has the largest pool of private gold, silver and platinum, effective from 1 and the gold dealer licensing requirements banking assets in Asia, with $470bn in 2015 October, 2012. were abolished. (source: Deloitte). Private and institutional • Anchoring a first-class globally accredited investors are also demanding that their gold refinery – Metalor Singapore began In November 1978, a group of Singaporean physical assets be stored in a neutral and operations on June 26, 2014. bullion dealing banks and brokers formed the alternate location, and Singapore is well-paced • Create a trading marketplace that Gold Exchange of Singapore (GES). Founder to accommodate this demand. Singapore’s includes price discovery, physical member banks included United Overseas innate attributes of neutrality, economic and settlement and storage. The SGX Kilo Bank (UOB), N.M. Rothschild and Overseas political stability, excellent connectivity and Gold Physical Contract and ICE Kilo Gold Chinese Banking Corporation (OCBC). The reputation as an important centre of finance Futures were launched in 2014 and GES listed two physically deliverable gold have long appealed to global traders in precious 2015 respectively. futures contracts, a 100oz and a 1kg. The metals. In addition, it has a strong, efficient and GES also established its own clearing house, transparent legal and judicial framework. Recognising that investment grade precious the Singapore Gold Clearing House, whose metals (IPM) are essentially financial assets clearing members were OCBC, UOB, Overseas Domestic Growth just like other actively traded financial Union Bank (OUB), DBS Bank and the Bank instruments like stocks and bonds, and to of Nova Scotia. The GES gold contracts saw To capitalise on the growing global demand facilitate the development of IPM refining strong initial interest but trading volumes had and to leverage Singapore’s strengths, and trading in Singapore, the government tailed off by 1983. International Enterprise (IE) Singapore, the announced in early 2012 that GST would be Singapore government’s trade promotion exempted from October 1, 2012. In late 1983, GES was integrated into a agency, began consulting the bullion industry new financial futures market –the Singapore in 2012 about making the country a hub for Storage facilities for precious metals grew, International Monetary Exchange (SIMEX), bullion activities in Asia. The initiative would with Brinks beginning operations at its vault a collaboration between GES and the build up Singapore’s bullion refining, trading, at Singapore Freeport on June 26, 2014. International Monetary Market (IMM), a division clearing, storage and logistics capabilities for it Subsequently, storage facilities by bullion of the Chicago Mercantile Exchange (CME).

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In 1984, SIMEX launched a cash-settled 100oz Role of the SBMA documents, testing, assaying and operating gold futures contract, based on loco London procedures. The SBMA wants to look beyond prices. However, this contract also saw a The SBMA was formed in 1993 with an the immediate horizon to further develop the gradual demise in demand and ceased activity original membership base of 16 companies Singapore and ASEAN gold markets through by 1996, which led to it being phased out from the gold industry. With fears that advocacy and research activities. in 1997. SIMEX then merged with the Stock the GST scheme to be introduced on April Exchange of Singapore in 1999 to form the 1, 1994 would kill the physical bullion About the SBMA current multi-asset Singapore Exchange (SGX). business and the country’s role as a physical hub for bullion in ASEAN immediately, JP The SBMA is a non-profit organisation Singapore’s role as a redistribution centre for Morgan’s head of bullion, Mr. Tim Gardiner currently representing 35 key stakeholders the region reached record levels in 1992, when and World Gold Council regional CEO Mr from the precious metals industry in gold imports reached a total of 414 tonnes Kerr Cruikshank felt it was necessary for a Singapore and beyond, including bullion (almost half of Asia’s total consumption). single voice to represent the bullion market. banks, exchanges, refineries, bullion Since then, imports have declined as a result The SBMA was successful in getting the merchants and secured logistics support of market liberalisation measures adopted by Singapore government to lift the GST for re- companies. Its mission is to develop the some of its immediate neighbours. exported gold bars. bullion market in Asia, including setting standards, drafting promotion, developing Consumption by domestic jewellers had, for best trade practices and documentation, many years, hovered around 18-22 tonnes driving thought leadership and enhancing the at saturation level. The introduction of a 3% professionalism of the industry. GST in 1994 softened the demand for gold products. In 2003, GST was increased to The SBMA plays a pivotal role in market 4% and then to 5% in 2004. In 2007, it was development in Singapore and beyond, increased further to the current level of 7%. connecting regulatory bodies and industry players, as well as promoting the Characteristics Asian bullion market internationally. Its international partners include the LBMA, The SBMA Management Team, with Sunil and Albert • The Singapore market is evenly split featured in the centre of the front row with whom it partners on various initiatives, between gift giving and self-adornment, with including this year’s annual LBMA/LPPM 22 ct as the dominant caratage. Among The association was relatively inactive in conference. The SBMA aims to have consumers aged 25 to 35 years, who have the late 1990s due to the departure of key widespread representation in ASEAN and a strong preference for more contemporary personnel within the gold industry and the beyond, and is actively recruiting members. designs, 18 ct gold jewellery has been closure of gold desks in some of the bullion We welcome your participation, opinions growing in demand. However, there has houses and banks. However, there has and enquiries. Please contact CEO Albert been a recent resurgence of interest in been an increase in the number of bullion Cheng at [email protected] or 24-carat pure gold due to marketing and a market initiatives and activities since the Executive Director Hawk Namiki at hawk. surge in gold prices. 2006 financial crisis, with many players that [email protected] for more information. exited the market prior to 2006 becoming • Over 50% of gold products are bought active again. from traditional goldsmiths, but the retail Albert L. H. Cheng, jewellery trade is very conservative and Until 2012, the SBMA remained an informal CEO of the SBMA and fragmented, dominated by a number association and only met occasionally for Advisor to the World Gold of chain stores. In the last 20 years, business networking, but with the Singapore Council (WGC). Albert retired manufacturers have been relocating their government aiming to establish Singapore from the WGC at the end of factories from Singapore to Malaysia or as a gold hub, the SBMA began developing March 2015 after many years China to take advantage of lower production its competencies to become the central body of service, but was then appointed as an Advisor costs. Currently, more than 95% of products for the bullion industry. It formally adopted to the WGC with effect from April 1, 2015. in the market are imported, mostly from this role in early 2015, under the leadership He has been an Advisor to the International China, Malaysia and Indonesia. of Mr Ng Cheng Thye. At its annual general Advisors Committee of the Shanghai Gold meeting in 2015, a revised constitution was Exchange (SGE) since its inception in 2002. In • Investment-grade bars and coins are passed to incorporate a three-tier governance November, 2015 he was also appointed as the exempt from GST, while jewellery is structure, with the Management Committee honorary CEO of the SBMA. subject to 7% GST on both local and as the core of the Association, guided by imported products. an Advisory Board and supported by a Secretariat under the leadership of a CEO Sunil Kashyap is the • Design is the key factor among buyers and his team. Managing Director, Head of under 34 years old, while price is of greater Asia, ScotiaMocatta, Asia importance to older buyers. Today, the SBMA is now looking to develop and Chairman of the SBMA. Singapore as the ASEAN hub for global players He joined Mocatta Bullion in • The peak period of demand for gold each in the physical bullion market. This includes 1996 which was then taken year is between December and March. providing vaulting/storage facilities as well over by The Bank of Nova Scotia in 1997. He Sales tend to peak during the Chinese as developing a clearing mechanism for gold is primarily responsible for managing The Bank wedding season and during celebrations kilobars and harmonising procedures and of Nova’s Scotia’s metals business in Asia like Christmas and Valentine’s Day. industry standards specific to the Singapore covering operations in Hong Kong, Singapore, and ASEAN market, such as the SBMA Good China, India and Dubai. He is a member of • Many traditional and family-run goldsmiths Delivery List, the Singapore Kilobar Gold the International Advisor’s Committee of have closed down over the past 20 years, Contract and ICE Kilo Gold Futures. the SGE and was a member of the inaugural giving way to major retailers like Lee Hwa/ Gold Committee of the Dubai Metals and Aspial Group, Soo Kee Group, Poh Heng The SBMA also hopes to create a more Commodity Exchange. He holds a Master’s and others, who have a combined total of harmonised tax regime, regulatory degree in Business Administration from more than 100 outlets located at high-traffic infrastructure and industry standards Cornell University, Ithaca, New York and is an locations and major shopping malls. among ASEAN jurisdictions, including legal engineering graduate from IIT, New Delhi.

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The conference by the industry for the industry The LBMA/LPPM Precious Metals Conference 2017 Hotel Arts Barcelona 15-17 October, 2017 Save the Date!

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New LBMA Members’ Portal – Bringing Members Closer

By Ed Blight, Operations Director, LBMA

• Efficient contact management • Workflow-based membership management • Workflow-based LBMA governance and committee management • Integration with the existing LBMA financial management systems • Workflow-based integrated event registration, invoicing, payments, planning and delivery • Integrated communications and public relations workflow processes • A workflow-based regulatory, standards and due diligence management capability The LBMA is launching a new online Member portal to enhance for the market communication with and service to its Members. The portal launches • Future-proofing to integrate existing and new business processes, systems, web in early 2017 and will use the UK’s leading membership management services offerings and portal-based solution, Silverbear Customer Relationship Management (CRM) technology. services.

Member Benefits integrated system means that all transactions or activities undertaken will be automatically The new LBMA Member Portal will allow fed into the Silverbear CRM Solution, so Members to manage their Membership through that there is an up-to-date, single profile a self-service portal. The portal will be a one- of the relationship. Bringing Membership stop shop for all Members needs including and Good Delivery applications online will subscriptions to LBMA events, publications, mean enhanced efficiency for both the billing, contact information and much more. LBMA Executive team as well as applicants. In addition to the existing services, the Applicants will be able to view the status of LBMA Executive is also developing a range their application at any time by logging in to of services, such as the newly launched the secure portal. Regulatory Briefings. Once logged on, Members can tailor their subscriptions and Organisational Benefits let the LBMA team know what they are most interested in. This in turn can help to develop The LBMA’s ability to design and deliver content to fit Members’ needs. greater efficiency into its communications and business management is key to serving the market in the most effective way. The strategic intent of the LBMA has always been to deliver Solution and Delivery Partner ‘best in class’ membership engagement, and the Silverbear CRM solution provides us From these high-level capability statements, with the 21st century technology to do that in 204 business requirements were defined a meaningful way. Setting the conditions for to form the basis of a tender document success has required the application of Lean against which potential suppliers submitted Principles’ to ensure that customer (member) proposals. Since then, the LBMA Executive value and benefit remains at the forefront of has reviewed a number of submissions thinking. Value and benefit to the membership and consulted with several suppliers. has been defined through the vision of a After an extensive due diligence process, ‘one stop’ portal to manage membership, it was decided to partner with Silverbear. event registrations and two-way engagement Its system is built on the framework of between the LBMA and its members. To do Microsoft Dynamics CRM and is the UK’s Member & Good Delivery application this has also required a fundamental review leading membership management solution. processes will become an online service with of the LBMA’s business processes in order to Additionally, it is uniquely awarded with non-members able to access the portal to define capability gaps to fill and inefficiencies Microsoft’s Certified for Microsoft Dynamics apply for Membership to the Association or to eradicate. The ‘future state’ for the LBMA (CFMD) accreditation. be accredited for Good Delivery. Membership requires a business support system that can reclassification applications will also be deliver the following benefits and solutions to managed through the portal. Being a fully both its members and the association:

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Silverbear Limited Goes Live in Early 2017 The LBMA team will be reaching out to Member contacts for their feedback during the Silverbear Membership is the UK’s leading The journey towards delivery of the system testing as well as the launch in 2017. Please membership management solution. Built and its associated benefits began on 12 contact us if you have any thoughts, concerns to address the needs of the mid-market, July 2016 and the LBMA has a dedicated or suggestions as to how we can improve this Silverbear has a proven ‘product-led’ team participating in the core development offering. We look forward to working even approach to sales engagement and solution of the product. Final integration work is closer with the Membership in how we design delivery. This approach reduces the risks expected to commence in late November the service to suit the Market’s needs. often associated with CRM build and with the aim of going live in early 2017, in deployments. Silverbear first opened its time to support all membership renewals. doors in 2000 as a CRM system integration It’s also anticipated that the first event to be Ed Blight is the LBMA’s and development house. During its formative piloted through the Members Portal will be Operations Director. He is years, it quickly gained a reputation for the LBMA Annual Party 2017. There will be responsible for directing working with large, not-for-profit, organisations further communications to support members and overseeing the and helping them to solve their specific throughout the portal development and general administration of membership relationship challenges. implementation, but the intent is to deliver a the Association including Silverbear is now a thriving, award-winning seamless transition experience to portal use. overall responsibility for issues relating to CRM solution company which is 100% Finance, Human Resources, IT systems, focused on meeting the challenges of the contractual arrangements, commercialisation membership and trade association industries. opportunities and Office Management. Final integration work is expected to commence in late November with the aim of going live in early 2017.

1 The core idea is to maximise customer value while minimising waste. Simply, lean means creating more value for customers with fewer resources. Lean management is an approach to running an organisation that supports the concept of continuous improvement, a long-term approach to work that systematically seeks to achieve small, incremental changes in processes in order to improve efficiency and quality.

Regulation Update

By Sakhila Mirza, LBMA General Counsel

Responsible Gold Guidance (RGG) with best practices is strongly encouraged. In the meantime, there remains some Refiners have made excellent progress to uncertainty and market participants can only It has been four years since the LBMA further improve their internal processes and speculate as to the direction that the UK-EU launched its RGG. The LBMA RGG extends procedures, and to be proactive in complying negotiations will take. the OECD Gold Supplement for Refiners and with the updated RGG provisions. Failure to builds on existing Anti-Money Laundering and comply with the RGG has led to refiners being Market Abuse Regulation (MAR) Know Your Customer management systems transferred to the Former List. In parallel, and auditing practices. It also makes the the LBMA has been working hard to further The effective implementation date of 3 July voluntary OECD Guidance system mandatory strengthen the Auditor Review Programme. 2016, saw significant developments in the for all LBMA Good Delivery gold refiners financial market under the new MAR regime. wishing to be accredited for the London Brexit Implications The purpose behind the new regulation, Bullion Market. Reports under the first wave which replaces the existing Market Abuse of the 2016 Responsible Gold audits are Almost three months following the result Directive (MAD) from 2003, is to ensure being reviewed. of the referendum vote that saw the UK the integrity of the financial markets and vote to leave the European Union (EU), the improve the standards of protection for This year saw the release of Version 3 of the implications of that decision remain unclear. investors to restore confidence in financial LBMA’s Third-Party Auditor Guidance to bring Insofar as the UK retains domestic regimes instrument dealings. The changes include it in line with the amendments to Version 6 based on those in the EU, it is widely various developments related to disclosure of the LBMA RGG, which was issued in 2015. hoped that the EU Commission will reach information, insider lists, managers’ These changes represent efforts toward a a conclusion of reciprocal arrangements to dealings and market manipulation. The more transparent and more robust auditing EU requirements regarding most of the UK outcome of the Brexit vote does not affect process, and include stricter timeframes for financial services regime. implementation of MAR. The main concern to corrective actions and the confidential review of LBMA members remains the interpretation of more detailed information captured in the new Whilst we await further developments, the certain terms to help determine the scope documents now required under deliverables. domestic markets continue to prepare for of the regulation. In the meantime, firms will the implementation of upcoming European need to review their systems and controls Both refiners and auditors have been working regulations. MiFID II, Market Abuse and identifying insider dealing and market diligently with the LBMA to ensure that Benchmark Regulations will all continue manipulation as well as the identification of the implementation of the RGG guidelines to apply in the UK and will need careful suspicious activities and reporting. continues to be successful. Compliance planning and considerable resources.

20 ALCHEMIST ISSUE EIGHTY THREE

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LBMA News

By Ruth Crowell, LBMA Chief Executive

Membership Subcommittees Membership Committee The Committee continues to focus on the The Membership consists of 147 companies, Regulatory Affairs Committee review of the new Due Diligence policy and including 13 Market Makers, 57 Full Members, The Committee is developing a number of ongoing monitoring process for Members. 10 Affiliates and 67 Associates. regulatory updates which the LBMA will be The Executive is currently carrying out a publishing going forward. These will take the pilot scheme and, following review by the Good Delivery List form of a regular series of financial regulatory Committee, the application process will be Hunan Jinwang Bismuth Industrial Co., Ltd briefings that will look into the most significant revised to reflect these additional checks. in Chenzhou City, China was added to the legal issues faced by the precious metals Once this scheme is finalised, the changes to LBMA’s Silver Good Delivery List, with effect market. The first briefing issued in September the application process will be implemented in from 13 September, 2016. covered the new Market Abuse Regulation the new online application process. This online regime as well as the rules concerning the application process will be launched in early There are presently 71 refiners on the Gold initial margins and variation margins that 2017 (see page 19 for more information). Good Delivery List and 80 on the Silver Good came into effect on 1 September, 2016. Delivery List. There are currently three active Members who would like to contribute to the The Committee is also processing a number applications for silver, two of which are in the MAR response work are invited to contact the of new applications for Full Member, Associate initial review stage and the third is moving LBMA with any questions or issues that could and Affiliate status. Any companies including into Stage 2. affect the market. The LBMA is proposing refiners, producers or central banks that may to set up a working group to ensure that be interested in applying for Membership are LBMA Board the appropriate people can respond to any invited to contact the LBMA Executive at The main focus of the Board has been consultations in a timely manner. [email protected]. the LBMA’s governance and strategic development. With regards to governance, The Committee is also focused on other Public Affairs Committee the focus has been on the appointment of developments in relation to international The Public Affairs Committee’s attention in independent Non-Executive Directors (NEDs) regulations, including NSFR, EU regulations recent months has been very much focused as well as a review of the Subcommittees’ and developments in the US. Further on preparations for the 2016 Conference, Terms of Reference. The LBMA’s new regulatory information can be found in the with particular emphasis on the speaker independent Chairman, Dr Paul Fisher, took Regulation Update on page 20. programme. Edel Tully, Chair of the PAC, office on 5 September as Co-Chairmen summarises the highlights of the speaker with Grant Angwin. Following Dr Fisher’s Physical Committee programme in the Editorial on page 25. appointment, the Board is now shortlisting Contracts are now being drawn up for the candidates for the other NED positions. production of a new series of Certified The Committee is also finalising preparations NEDs are important in order to safeguard Reference Materials (CRMs). Market research for the Biennial Dinner, details of which you the interests of the Members, while also has shown that there is still significant can find below on the next page. empowering the Board to make decisions. demand for such materials. Finance Committee In terms of decisions, the Board is also The LBMA has launched a market-wide The Committee continues to focus upon focused on the LBMA’s strategy and market consultation on the potential implementation the current 2016 financial position, which development work. Following further feedback of a Responsible Silver Guidance (RSG) moves from strength to strength, along with from potential providers, the Board has for silver refiners. This follows demand setting the three-year forecast to 2019. In been reviewing potential Heads of Terms in from downstream users as well as from the latter half of this year, the emphasis will relation to the RFP (Request for Proposal) the London Good Delivery Gold and Silver be on delivering improvements in account final providers. The LBMA will announce Refiners themselves. The RSG would be management processes to provide even the successful solution provider at the based on the OECD Due Diligence Guidance, further transparency and forecasting capability Conference in Singapore. as well as Know Your Customer, Anti-Money for both the LBMA and its subsidiary, Precious Laundering and Combating Terrorist Financing Metals Pricing Limited (PMPL), as separate Other important items that the Board is regulations. A webinar was held in New York entities. Looking to the future, the Committee discussing include further lobbying for the on 15 September during Platinum Week and is monitoring the financial management reduction of the Net Stable Funding Ratio this was followed up with a similar webinar integration workstream of the LBMA’s exciting (NSFR) for gold and all precious metals. It has tailored for European and Asian participants new customer relationship management also provided assistance on preparation of on 29 September. (CRM) project set for launch in early 2017. two other important publications, the revision This is featured in an article by Ed Blight on of the Guide to the London Precious Metals The LBMA Executive is working with the page 19. Last but not least, the Committee Market as well as the drafting of the new Committee to help co-ordinate REACH remains fully committed to playing its part in Precious Metals Code. registration for PGMs on behalf of the market the successful transition to the new LBMA before the May 2018 deadline. governance structure. The Board thanked Bob Davis for his meaningful contribution to work of both the Executive Travel and Events Board and the Physical Committee, and The LBMA Executive recently attended a series wished him well on his retirement. of meetings and events during Platinum Week, 12-16 September, in New York. The LBMA also co-hosted a cocktail reception with the LPPM on 14 September.

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Future LBMA Events LBMA Assay & Refining Conference, 19-22 March 2017 LBMA Biennial Dinner, 1 December 2016 Royal Garden Hotel, 2-24 Kensington High Market Moves Goldsmiths’ Hall, Foster Lane, Street, London W8 4PT. London EC2V 6BN The biennial Assay & Refining (A&R) The 2016 Biennial Dinner is a black tie event Conference is a technical forum designed for for Members, Associates and guests of the assayers and laboratory analysts, refinery LBMA. This year, the dinner will take place in managers and engineers, but will also be of the salubrious surroundings of Goldsmiths’ interest to anyone interested in hearing about Hall in the heart of the City of London. The the latest technical developments within the proceedings begin at 18:30 with a cocktail assay and refining industry. Bringing together reception followed by the dinner at 19:30. experts from refineries located around The keynote speaker for the event has been the world, it naturally presents the perfect confirmed as the Right Honourable Michael opportunity for those attending to network with Jeff Klein joins Portillo, former MP and Cabinet Minister, and their peer group. Registration for the event is Heraeus Metals now a renowned broadcaster and journalist. now open. Please refer to the LBMA website Jeff Klein joined Heraeus Metals New York, For those coming to the event by train, don’t for further details. as a Senior Trader on July 18th. He began forget to take your George Bradshaw Railway his career as a Trainee with UBS in New York, Guide. Registration for the event is now open. and was promoted over time to Chief Spot Dealer dealing with Gold, Silver, Platinum and Palladium. His next role was as VP/ Senior Forwards Dealer at Credit Suisse First Boston. He worked at the NYMEX running a DIARY OF EVENTS FOR 2016/2017 brokerage business servicing OTC market in trading futures, options and spreads in the gold and silver markets until moving on to OCT 31 - NOV 04 2017 LME Week Commerzbank. At Commerzbank, he worked in New York as the Director of the precious London, UK FEB www.lme.com metals desk working with refiners and private 06-09 banking customers. He supported the Investing in African Mining Indaba NOV transition of the Metals Desk from New York Cape Town, South Africa to Luxembourg in 2014 and remained there 02-03 www.eiseverywhere.com/ehome/ until he decided to return to the US in early 2016 Precious Metals Summit indaba2017/home Park Hyatt Zurich, Zurich, Switzerland 2016. In his current role he is responsible www.precioussummit.com/event/2016- MAR for trading and developing the platinum and summit-zurich 02 palladium books at Heraeus NY. LBMA Annual Office Party 03-04 Bounce Gianluca Vitelli joins International Precious Metals & 241 Old Street, London, EC1V 9EY Sharps Pixley Commodities Show Munich www.lbma.org.uk Gianluca Vitelli has joined Sharps Pixley MVG Museum, Munich, Germany Ltd in London as a Business Development www.edelmetallmesse.com/ 19-21 Manager. He was previously with Baird LBMA Assay & Refining Seminar & Co as a precious metals dealer before 04 Royal Garden Hotel moving into wealth management at Old 2016 Precious Metals Summit London Kensington, London, UK, W8 4PT Park Capital and Charteris. He brings with Hyatt Regency The Churchill, London, UK www.lbma.org.uk him an excellent understanding of the www.precioussummit.com/event/2016- precious metals markets coupled with summit-london/ APR extensive experience in building new client 19-20 relationships, especially in the wealth 14-15 European Gold Forum 2017 management sector. Silver & Gold Summit and Resource Park Hyatt, Zurich, Switzerland Expo 2016 www.europeangoldforum.org/egf16/ TD Securities San Francisco, USA Following a successful career spanning over cambridgehouse.com/event/53/the-silver- MAY 25 years, Tim Gardiner is retiring from TD summit-and-resource-expo-2016 10-11 Bank effective October 31, 2016. He joined 121 Mining Investment London TD in 2009 and successfully launched the DEC ETC Venues, 8 Fenchurch Place, London, UK Global Metals Sales and Trading franchise. 01 www.weare121.com/121-mining/ David Swinburne, has assumed the role as LBMA Biennial Dinner the Global Head of the Business and Steve Goldsmiths’ Hall SEP Scacalossi has taken on an expanded role Foster Lane, London, EC2V 6BN 29-30 as the Global Head of Sales. In Singapore, www.lbma.org.uk Coinex 2017 David Quarmby has joined TD from Standard The Ballroom, Millennium Hotel, London, UK Chartered Bank, where he was the Head 07-08 of Structured Inventory Finance. He will be 11th China Gold & Precious Metals Summit responsible for Asia Pacific Sales for TD. In The Regency Shanghai, London, Bob Davis, Head of the Metals desk, Yan An Road, Shanghai, China retired from TD at the end of August. Bob www.chinagoldsummit.com/index.html was a key figure in growing the franchise in the EMEA region and likewise had 25 years’ experience in the market. Vikas Chamaria has joined TD from Barclays Bank, where he was Head of EMEA & India Commodities. He brings 17 years of experience and will lead the sales initiative for EMEA and India.

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Editorial Comment

By Edel Tully, Global Head of Precious Metals Distribution, UBS Investment Bank and Chairwoman of the LBMA’s Public Affairs Committee.

Gold is important in Singapore. It’s so revered conversation isn’t just about gold; it’s about Most importantly, this is a conference for the that the nation’s first-ever Olympic gold the entire precious metals complex. industry, by the industry. It is an opportunity medallist at the 2016 Rio Olympics games, for all of us to catch up with old friends and Joseph Schooling, was given a S$1.0mn Many of the gold buyers this year aren’t make some new ones, to experience the bonus from the national Olympic Committee. concerned about the fundamentals of the wonderful city of Singapore and engage in As one of the principal trading hubs of market or indeed positioning. For many some great discussions. I wish you all a Asia, Singapore is no less important to the institutional investors, gold has been great conference. international bullion market. This isn’t the first bought as a hedge to S&P length. But gold’s occasion for the LBMA to travel to Singapore. impressive rally this year has forced out the Back in June 2014, we held a Bullion Market physical buyer. From East to West, physical Edel Tully is UBS forum, but this is the first time for the LBMA demand remains very lacklustre. So far, this Investment Bank’s global to host its annual Conference here. The hasn’t been an impediment to a higher gold head of precious metals organisation always strives to pick host price. But is the market too complacent in distribution. Prior to that, nations based on their market linkages, and this view? This year, we have two sessions Edel was the bank’s chief Singapore has that in spades. dedicated to the Chinese and Indian markets, precious metals strategist, as well as a producer session. with responsibility for forecasting and Once again, the Conference will be held publishing research on the precious metals in partnership with the LPPM, and with The standalone PGM session will delve into a complex. Edel holds a PhD from Trinity College Singapore as our base, I am delighted number of key fundamental areas relating to Dublin (2006), awarded for her thesis ‘A that the Conference will also be held in the PGM market, with speakers from Johnson Tripartite Investigation of the Gold Market: association with the Singapore Bullion Matthey, PGI, Tanaka and SFA talking on Pricing Influences, Intraday Patterns and Daily Market Association. Embedded within the topics such as the outlook for the Chinese Seasonality’. She is chairwoman of the Public infrastructure of the Asian physical market yet autocatalyst market, Asian jewellery demand, Affairs Committee of the LBMA. Prior to joining also home to an increasingly active investor Japanese retail investment and Asia’s impact UBS in 2010, Edel was head of precious community, Singapore is an ideal place to on the PGM market and prices, now and in metals research at Mitsui and Co. Precious debate what lies ahead for the precious the future. Metals Inc., a role she held from 2006. metals market. At our last conference in Vienna, delegates forecasted a gold price In swift fashion, the LBMA Executive will of $1,160 by the time of the Singapore deliver an update on some of the key Conference. We all got that one a little wrong. industry developments as well as the Following a circa 25% year-to-date rally, latest news on the LBMA’s strategy review. forecasts from the Singapore Conference will Sakhila Mirza, LBMA’s general counsel, capture much attention. will probably have the toughest challenge of the whole conference – trying to deliver To ensure our delegates feel sufficiently a comprehensive regulatory update in a welcome, the LBMA/LPPM opening session 10-minute window. Sticking with this theme, will have no fewer than five introductory there will be a session on Responsible Gold welcome remarks, including from Dr Paul Guidance, with speakers from the OECD, Fisher, the new LBMA co-chairman, Tim Intel and the Artisanal Gold Council. Pearce, LPPM Chairman, and Lim Hng Kiang, Minister for Trade and Industry & This year, in an attempt to bring a new Deputy Chairman of the Monetary Authority dimension to how we look at future trends of Singapore. Our two keynote speakers, in key precious metals markets, we will step William White and Eric Robertsen, will lay the into the world of futurology. Andrew Staples foundation for a dynamic conference. from The Economist Intelligence Unit will tell us what his crystal ball foresees for the forces Against the uncertainty of the US presidential shaping Asia’s key economies and, in turn, the elections, negative interest rates, low real accompanying panel session will extrapolate rates, a slew of negatively yielding sovereign what that implies for the precious metals The Alchemist is published quarterly by the LBMA. bonds, and central banks lacking credibility world. The sharp intellects of Tim Gardiner, If you would like to contribute an article to the and exploring various unconventional forms of John Levin and Bob Takai, who together bring Alchemist or if you require further information monetary policy, monetary financing and fiscal a wealth of industry experience, together with please contact Aelred Connelly, London Bullion policy, economic uncertainty sits at an all-time the external objective view of Chris Watling Market Association, 1-2 Royal Exchange Buildings, high. In theory, this is all good for gold. But from Longview Economics should provide the Royal Exchange, London EC3V 3LF CME net length sits near record highs, and ingredients for a lively discussion. Telephone: 020 7796 3067 Fax: 020 7283 0030 more than 20moz have already been added to Email: [email protected] global ETFs this year. Where will the marginal The grand finale, the wrap session, is always www.lbma.org.uk buyer come from going forward? one of the more popular slots over the two days. John Reade and David Jollie did such a Hopefully, the investor session will have some good job as the dynamic duo in Vienna that answers. William White, our keynote speaker, we asked them back again this year. I’ve no Given the freedom of expression offered will extend his expertise into the investment doubt that Batman and Robin will perform very to contributors and whilst great care has been taken to session, with experts from Blackrock, ably once again. ensure that the information contained in the Alchemist is accurate, the LBMA can accept no responsibility for any Millennium Capital and Blenheim sharing mistakes, errors or omissions or for any action taken their thoughts on market opportunities. The in reliance thereon.

25 ALCHEMIST ISSUE EIGHTY THREE

The Seventh LBMA Assaying and Refining Conference T R G H L M

Registration now open – please go to www.lbma.org.uk for more information or email [email protected]

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to 10%) since its twelve-month communicated to the market commitments appear to be peak just over a month ago as to the demands laid out for increasingly focused on optimising would also suggest the market 2016 onwards. Although just existing facilities (for example, in is neither struggling for metal opinion, I would strongly disagree Lonmin’s case, upgrades to its nor especially nervous about the that the mining companies will minor PGM refining capability). potential supply of metal. My readily bend to union demands “Capital containment”, “cash question surrounds the extent and, on the other side, although preservation” and “disciplined to which this trend can or will I agree that few mineworkers capital allocation” have been continue in the coming weeks have the appetite for a drawn-out prominent phrases in the past facing and months, and the level of strike, would question the extent few rounds of annual and interim preparedness going into what to which this will be a relevant reporting; although outright may well present as a phase of sentiment when led by a union production cuts have not been renewed turmoil. with a history of intimidation and made, it seems likely that the facts clear political ambition. sharp reduction that producers Since the five-month strike have made in capital investment By William Tankard, Research (now more than two years ago), Another important point to make will present as a growing headwind Director, Precious Metals Mining, producers have sought to get has been the apparent lack of to the industry maintaining current Thomson Reuters GFMS operations back on track and stock building by either producing levels of production. oft-volatile labour relations have or consuming industry this time shown a period of remarkable around. Although there have been The platinum mining industry, calm. A strong rebound in a handful of process bottlenecks especially in South Africa, is Although titled ‘Facing Facts’, production over the latter part that would, all factors being in a decidedly unhealthy state it should be pointed out that of 2014 and into last year equal, reflect an accumulation and GFMS is of the view that central to the arguments that could be attributed to some of metal that could be available unlike the events and price follow is conjecture by the operations offering extensive for a ‘rainy day’, stock above and action in 2014, there is less author. This does not necessarily overtime opportunities, which beyond refined outturn has been preparedness and therefore reflect the view of Thomson many workers were keen to sold so far this year. For example, scope for a renewed destabilising Reuters or the LBMA. take; a reflection of both parties’ Anglo Platinum’s platinum sales event to South African labour to financial vulnerability following the of 1.22 Moz in the first half of the drive a more obvious move in the The platinum market, South lengthy period of foregone output year exceeded mined platinum market. Whether this will present African producer community and pay. Over the course of by 6% and refined platinum by itself before the LBMA conference and investors therein have 2016, this theme has remained 21%. We do not believe that the in Singapore, or perhaps more experienced an extraordinary pertinent and frequently cited same level of flexibility exists in likely in early-2017, remains to and woeful past five years, by the producer community as the system now as was the case be seen, but there are a handful faced with iron-fisted union a key reason why mineworkers in 2014. of factors that suggest to me intimidation, unprecedented do not have any appetite for a that the market may well respond labour unrest, civil discontent in strike, as they continue to seek In my opinion, although at this differently this time around. mining communities, heightened to work to reduce indebtedness stage it is impossible to suggest government intervention and or rebuild the domestic coffers. that we will necessarily see a depressed (dollar) PGM prices. In a similar but opposing vein, repeat of the lost five months of The profound rand-dollar volatility, although little reported, GFMS work and 1.4 Moz of platinum William mostly to the downside, has hears that key spokesmen for from 2014, meaningful labour Tankard, given producers some breathing the leading workers’ unions unrest and production losses Research room over the past four years have been highlighting that the seem inevitable. In a recent GFMS Director, and especially in the past twelve precarious state of the mining forecast, we have conservatively Precious months, but spiralling inflationary industry’s financials means that suggested an approximate doubling Metals Mining, Thomson Reuters factors have meant that, in spite the companies can ill afford a of the typical South African GFMS of this, margins have remained strike and will hence capitulate disruption allowance to almost 0.4 Having joined GFMS Ltd as a thin and, in several cases, to ‘reasonable’ pay demands Moz of platinum for 2017. Coupled Metals Analyst in 2005 to cover negative for an extended period this year. This reflects the huge with a market that has shown the mining sector, William was of time. gulf between the two parties, in reasonable firmness in 2016, brought across to Thomson the middle of which sits the now- these dynamics point to a renewed Reuters in GFMS’ 2011 Writing in mid-September (just dominant union, AMCU, and a deep market deficit next year. acquisition and holds the role as New York Platinum Week weakened NUM seeking to of Research Director – Precious draws to a close) and having regain memberships. Further out, projects in the Metals Mining, within Thomson conversed with a broad range of pipeline have been deferred on Reuters’ Commodity Research participants, it would appear that Although the latest wage grounds of a lack of both financial & Forecasts division. He has the level of recognition by many settlement expired on 1 July and regulatory predictability. accountability for the mining in the market as to the potential 2016, very little has been Where deployed, capital team’s research output of global for disruption to platinum supply production, mining costs and is modest. Furthermore, it R producer hedging research across does not appear to be showing 18,000 2,500 the precious metals. through in the price action. 16,000 Though commodities’ strong 14,000 2,000 12,000 performance over the past nine 1,500 months ameliorates a recent 10,000 8,000 sell-off, after a gain of 40% in 1,000 6,000 dollar terms, it is reasonable to 4,000 suggest that the markets were XP T (rand/oz, LHS) 500 2,000 XP T ($/oz, RHS) due a period of consolidation. - That platinum has given up Jan-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 Mau-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-15 Sep-16 some 14% (and palladium close Source: Thomson Reuters Eikon

27 ALCHEMIST ISSUE EIGHTY THREE

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