The term bullion bank can be applied to banks which are involved in some or all of the following activities in the precious metals markets: trading, clearing, vaulting, physical metal distribution, risk management, intermediating between metal lenders and borrowers, mine finance and hedging, financing fabricators, providing consignment stocks, generating precious metals market research. This list is not exhaustive.

Most bullion bank activities are carried out from within the commodities or foreign exchange arm of an investment bank, as well as the corporate finance divisions of the same banks. Furthermore, nearly all bullion banks maintain membership of the London-based trade association, the London Bullion Market Association (LBMA)1 and also usually the London Platinum and Palladium Market (LPPM)2, which is a sister trade association of the LBMA.

While some of the above financial market activities sound innocuous and would be expected to be normal activities of any merchant bank / investment bank involved in the financial and commodities markets, the unique structure of the modern-day global wholesale bullion markets as well as the unique monetary characteristic of gold and silver mean that it’s important to appreciate how bullion banks carry out these activities.

Bullion Banking Mechanics