A central bank that wishes to buy gold can do so locally, by purchasing domestically-mined or recycled gold. Alternatively, gold bars can be bought directly from a bullion bank in the global over-the-counter, or OTC, market.

The majority of OTC gold is settled via gold bars stored in London, or ‘loco London’. Twice daily during London trading hours there is an ‘auction’, which provides reference gold prices for the day’s trading.

Either the morning (AM) or afternoon (PM) LBMA gold price auctions form the pricing basis for many long-term contracts. Market participants will usually refer to one or other of these prices when seeking a basis for valuation.

This short film explains the settlement process for a bank buying gold in the London OTC market.