"LBMA Responsible Gold Guidance: Does it Help or Hinder the Gold Industry?"
The Responsible Gold Guidance (RGG), also known as RGG version 9, was released by the London Bullion Market Association (LBMA), the LBMA conducted extensive consultations with various stakeholders before introducing this new version in 2021.
The LBMA’s objective is to encourage responsible sourcing and supply chain management practices in the gold industry, and to provide a framework for its members to demonstrate their commitment to responsible sourcing and supply chain management of gold. In order to provide a comprehensive view of the potential outcomes of the RGG version 9, it is necessary to list both the pros and cons of this new version:
Pros & Cons of the LBMA Responsible Gold Guidance
Pros:
- The RGG version 9 emphasizes transparency and traceability in the gold supply chain, promoting responsible and sustainable sourcing and supply chain management practices in the gold industry.
- The LBMA has introduced a risk-based due diligence system for the supply of gold that helps refiners identify and assess the risk of sourcing gold from conflict-affected and high-risk areas, and take appropriate measures to mitigate those risks.
- The RGG version 9 places a greater focus on human rights concerns in the gold supply chain. LBMA-accredited refiners are required to implement a human rights due diligence process to identify, assess, and manage the risk of human rights abuses in their operations and supply chain, including preventing forced and child labor and protecting the rights of indigenous peoples and other vulnerable groups.
Cons:
- Implementing the risk-based due diligence system and the human rights due diligence process may pose challenges for some LBMA-accredited refiners and may require additional resources and investment.
- There are limited enforcement mechanisms to ensure compliance with the RGG version 9’s expectations for LBMA-accredited refiners.
- The increased focus on responsible sourcing and supply chain management practices may result in higher production costs for gold, which could potentially impact gold prices.
Overall, the RGG version 9 is a significant step forward in promoting responsible and sustainable sourcing and supply chain management practices in the gold industry. However, it is important to weigh both the pros and cons of this new version to gain a comprehensive understanding of its potential outcomes. By implementing the RGG version 9, LBMA members can demonstrate their commitment to responsible sourcing and supply chain management of gold and encourage the adoption of responsible sourcing and supply chain management practices in the gold industry.
Recycled Gold Versus Gold Doré
Recycled Gold
Recycled Gold is a term used to refer to gold that has already been refined and is no longer in its original form. It encompasses any gold-bearing material that has not come directly from a mine in its first life cycle. Recyclable material includes end-user, post-consumer products, scrap and waste metals, and materials arising during refining and product manufacturing, as well as investment gold and gold-bearing products which are returned to a gold refiner to begin a new life cycle.
This category may also include fully refined gold that has been fabricated into grain, Good Delivery bars, medallions, and coins that have previously been sold by a refinery to a manufacturer, bank, or consumer market, and that may thereafter need to be returned to a refinery to reclaim their financial value or for transformation into other products.
In practical terms, recycled gold is gold sourced by an LBMA refiner or downstream intermediate processor. The Responsible Gold Guidance requires LBMA-accredited refiners to execute a risk-based due diligence system for the supply of gold, including recycled gold.
This system will assist refiners in identifying and evaluating the risks of gold being sourced from conflict-affected and high-risk areas and taking appropriate measures to mitigate those risks. By promoting the use of recycled gold, the RGG aims to reduce the environmental and social impact of gold mining and promote responsible sourcing and supply chain management practices in the gold industry.
Overall, recycled gold is an important aspect of responsible sourcing and supply chain management of gold, and its use is encouraged by LBMA-accredited refiners.
Gold Doré
Gold doré is an essential intermediary product in the gold supply chain as it bridges the gap between gold mining and refining. Refineries purchase gold doré from mines and transform it into commercial gold products such as bullion, jewellery, and investment products. However, it is important to note that gold doré is not of commercial quality and cannot be sold directly in the market. Its quality needs to be improved through refining, and impurities must be removed before it can be sold as a commercial product.
Gold doré refers to a bar of newly mined gold metal alloy that has undergone extensive processing of ores and smelting at mines to achieve high concentration, typically between 85% to 90% purity.
However, gold in this form is not of commercial quality and must be transported to a refinery for direct refining without any intermediate processing. The process of refining gold doré involves removing impurities to obtain pure gold that meets the required standards for commercial use. Refineries use different methods, such as electrolysis, aqua regia, and the Miller process, to refine gold doré to its purest form.
Gold Exports – Turning Dore into Jewellery to get around Export laws
This is an area that needs to be questioned as a number of gold exporters use gold jewellery exports as a way to get around the requirements of refining locally before export or the requirement of a gold export licence which is often not allowed or approved easily.
The export of Gold doré is often restricted in order to promote local refining and to prevent illegal mining and trading of precious metals. However, some gold traders attempt to get around these export restrictions by turning Gold doré into gold jewellery for export purposes. This practice has negative impacts on both the environment and local communities.
Firstly, the process of refining Gold doré into jewellery often requires the use of toxic chemicals, such as cyanide, which can have detrimental effects on the environment and the health of workers. In addition, the high demand for gold jewellery can lead to increased mining activity, causing deforestation, soil erosion, and water pollution. This can have significant negative impacts on local communities, particularly those who rely on these resources for their livelihoods.
Furthermore, the legality of turning Gold doré into jewellery for the purpose of exporting in order to get around export bans is questionable. This practice may violate international trade laws and regulations, particularly those related to illegal mining and trading of precious metals. The use of loopholes in export restrictions also undermines the efforts of governments to promote local refining and reduce illegal mining and trading.
Turning Gold doré into gold jewellery for the purpose of exporting to get around export bans may have negative impacts on the environment and local communities, as well as being of questionable legality. It is important for governments and industry players to work together to promote responsible and sustainable mining and trading practices in the gold industry, while also protecting the rights and wellbeing of local communities and the environment.
For Indonesia Gold is exported from Jakarta and Surabaya mainly, with Surabaya being the main exporter of jewellery mainly to Singapore. In 2020 Indonesia shipped Gold to Singapore valued at $3.31B. In terms of gold production, Indonesia produced 70 metric tons in 2022, ranking it ninth globally. At its height, the country produced 139 metric tons of gold in 2019. Now that’s all the legally mined gold and excludes the Gold doré from small scale mining that gets turned into jewellery.
The Jewellery is rudimentary at best, normally made into bangles, some are considered unfinished others are just milled gold with bangles weighing 1kg with a purity of 97%.
The largest Gold exporters are PT Indah Golden (IGS Gold) & PT Loco Montrado Siman Bahar, both have their own refineries in Indonesia and export Jewellery, however the gold exported is not pure gold but more inline with the purity levels of the gold that it receives from consolidators who get gold from all over the country.
Is due diligence being done on sourcing from the mountains of Kalimantan? That’s a rhetorical question!
Brinks are the main security company used for all gold jewellery exports. Brinks is a listed company on the New York Stock Exchange, NYSE: BCO and are members of the industry associations like the Singapore Bullion Market Association, they also have to do their own due diligence on clients before onboarding them. They should be the ones offering transparency to the industry on sourcing.
There was one instance where one major exporter sent jewellery and gold bars via Brinks to Singapore but this got picked up at the airport by customs because it was supposed to only be jewellery, the gold had been smuggled into the boxes.
Philippine Gold Exports
Unlike Indonesia the Philippines gold exports are smuggled out to Hong Kong to jewellery companies where it’s smelted into recycled bars and washed in with their local scrap gold jewellery and this has been going on for year. There are 5 major groups that are responsible fo the smuggling and thousands of illegal mines all over the Philippines.
The South China Morning Post has reported on the black market trade in gold between the Philippines and China, in an article titled “Philippines black market is China’s golden connection“. According to the report, unregulated mines in the Philippines produce an estimated 70% of the gold that enters China illegally, where it is used to manufacture jewellery, electronics, and other goods. The article highlights the negative social and environmental impacts of the unregulated mining industry, including labour abuses, deforestation, and mercury pollution.
The article sheds light on the illicit trade in gold and the negative consequences associated with it. The exploitation of natural resources, especially in developing countries, often leads to serious environmental and social consequences. The unregulated mining of gold in the Philippines and its illegal export to China underscores the importance of responsible sourcing of precious metals. It is important that all stakeholders in the supply chain, from miners to manufacturers to retailers, prioritize ethical and sustainable practices and ensure that their products are responsibly sourced.
What is the LBMA doing about this I hear you ask? Well I am sure they have a conference planned to discuss it at some point!
Where does the Gold Jewellery end up?
Quite simply it ultimately ends up in LBMA Good Delivery Refineries! The issue we face is that these refineries accept jewellery but no longer accept jewellery that’s been smelted into Gold Bars to get around this new ruling. Welcome to the Layer Cake!
So, if an exporter turns Gold doré into jewellery and then sells it to an LBMA Good Delivery Refiner what due diligence are these gold refineries doing to ensure they meet the new requirements of the Responsible Gold Guidelines that came into force in 2022?
The gold industry which includes the LBMA, SBMA, the Gold Refineries and Brinks are clearly a bunch of hypocrites as they are all aware this happens but choose to look the other way.
Does it Help or Hinder the Gold Industry?"
In conclusion, the LBMA Responsible Gold Guidance version 9 is an important step towards promoting responsible and sustainable sourcing and supply chain management practices in the gold industry. The emphasis on transparency, traceability, and human rights concerns, as well as the introduction of a risk-based due diligence system, are positive developments. However, implementation may pose challenges for LBMA-accredited refiners and there are limited enforcement mechanisms to ensure compliance. It remains to be seen how the increased focus on responsible sourcing and supply chain management practices will impact gold prices.
The gold industry which includes the LBMA, SBMA, the Gold Refineries and Brinks are clearly a bunch of hypocrites as they are all aware this happens but choose to look the other way and really needs to step up to eradicate this and not just put in new rules that they are getting around them anyway! So I feel it’s more of a hinderance than a help!
Spencer Campbell
Director SE Asia Consulting - Precious Metals Consultant
