Trading 400-Ounce Gold Bars

How Much Do 400-Ounce Gold Bars Cost and How Are They Traded in London?

The London precious metals market trades in 400-ounce, or approximately 12,500-gram, gold bars. In this article we explore the London Good Delivery standard and some essential trading fundamentals.

The temporary closure of three major Swiss refineries due to the pandemic led to a retail gold bar shortage, yet the London precious metals market continued to offer large gold bars at standard spreads.

We have written about the centuries-long history of the London precious metals market here. As a legacy of its colonial past, combined with its high level of regulation and infrastructure, London continues to play a central role in the global physical gold trade.

London currently stores more than 8,300 tonnes of gold, approximately 65 percent of which is held in the vaults of the Bank of England.

What Is the Good Delivery Standard and Why Does Standardising Gold Bars Matter?

The London Bullion Market Association (LBMA) sets the standard governing which manufacturers and what quality of gold bar may be used to settle physical gold bar contracts.

The standard for gold bars defines fairly broad parameters. These "contractually deliverable," or Good Delivery, bars may weigh between 350 and 430 ounces, with a fineness ranging from 99.5 percent to 99.99 percent. As a result, the fine gold content of each individual bar must be calculated separately, and whenever a gold shipment is moved — whether into or out of a vault — it must be accompanied by a so-called weight list (a document specifying weight, fineness, and fine gold content).

Gold Account Types in London

In London there are essentially two types of gold account. An allocated gold account holds specific, individually identified bars on the account holder's behalf — the account balance is determined by calculating the gold content on the basis of those bars' weight list. An unallocated gold account, by contrast, functions much like a foreign currency account: transfers can be initiated from one account to another in a manner similar to a bank transfer. Unallocated accounts are used by the wholesale players in the precious metals market to settle their transactions. These unallocated balances can be converted into physical gold bars and withdrawn from one of the custodian vaults.

This is where standardisation becomes critical. The party obliged under a contract is entitled to settle using any bar that meets the Good Delivery standard; what matters is that the requisite fine gold weight is delivered in the form of bars accompanied by their weight lists. The unallocated account claim is extinguished and the client requesting delivery receives allocated bars in return, which can then either be stored in a London vault or shipped to virtually any location in the world. Since bilateral contracts are typically concluded in this market, the buyer may insist on bars from a specific manufacturer if they are available — though any premium for doing so must be borne by the buyer.

Unallocated accounts can also be used, for example, when a wholesale dealer storing precious metal bars in London wishes to have its 400-ounce bars converted into smaller denominations. In this case, a transfer is initiated on the unallocated account to a contracted refinery — provided the refinery holds sufficient gold on its premises — and only the fabrication cost needs to be reimbursed to the refinery.

It is precisely this enormous stored volume and the resulting network effect that make London indispensable to the global precious metals market. Recent events have illustrated this clearly: the delivery difficulties experienced by the New York exchange were proposed to be resolved through the London clearing centre, and even after the European gold bar market had completely dried up, wholesale dealers all turned to London to secure at least their physical precious metal inventory for onward processing once the Swiss refineries resumed operations.

When trading 400-ounce gold bars in an OTC transaction (a direct deal between two parties), the parties agree on the custodian vault as the delivery location, the type of bar by manufacturer, and the settlement date — and then negotiate the premium payable above the fine gold gram or troy ounce price. The buyer may also settle using an unallocated gold account balance, which is practical because gold can be purchased in tranches up to the contract settlement date. It is also possible to receive a commitment limit against an initial margin, allowing the buyer to lock in and hedge the physical gold price before the full consideration has been received.

At the time of writing, the price of a single Good Delivery gold bar — calculated on a theoretical fine gold content of 12,500 grams — was approximately HUF 222,930,000.