Price is a formula, not a number
Gold is priced against a public benchmark — commonly the LBMA Gold Price, published twice each London business day — rather than negotiated in the abstract. A commercial quotation therefore has four components.
- The reference: which published price, and which fixing.
- The pricing date: the day, or the averaging period, on which the reference is taken.
- The differential: a discount or premium reflecting form, fineness, refining cost, freight, insurance, financing and risk.
- The quantity basis: fine metal content, not gross weight.
Delivery terms
Incoterms allocate cost and risk between seller and buyer at each stage. For air-freighted precious metal the terms most often used are CIF or CIP to the destination airport, DAP to a nominated vault or refinery, or ex-works or FCA where the buyer's freight forwarder takes control at origin.
- Establish precisely where risk passes, and confirm insurance covers the whole journey with no gap at the handover point.
- Confirm the consignee: for most refinery-bound metal the consignee is the refinery or the buyer's vault operator, not the buyer personally.
- Confirm the security arrangements at both airports, and whether a specialist valuables carrier is used.
- Confirm who is importer of record at destination and who handles the customs formalities there.
Settlement mechanisms
| Structure | How it works | Principal risk |
|---|---|---|
| Settlement against refinery outturn | Metal ships to the destination refinery; final value follows the refinery's determination of recoverable fine metal. | Seller carries the risk until outturn. Standard for unrefined and doré material. |
| Documentary letter of credit | The buyer's bank pays against compliant documents presented by the seller. | Bank-mediated, but pays against documents rather than metal — the document set must be specified tightly. |
| Escrow against independent verification | Funds held by a regulated third party and released on a verification event both sides defined in advance. | Only as good as the escrow agent. Verify the agent independently; fake escrow is a known fraud pattern. |
| Payment on delivery at a vault | Funds release when metal is received and verified into a named vault under the buyer's control. | Clean where the vault is independently operated; meaningless where the vault is the seller's. |
| Advance payment | Buyer pays before verification or shipment. | The buyer carries everything. This is the structure that virtually all gold fraud requires. |
The compliance layer that sits over all of it
Gold moves through the regulated financial system, and the transaction structure has to survive contact with it. Banks at both ends will apply anti-money-laundering obligations; destination markets increasingly regulate precious metals dealers directly; and refineries apply their own responsible sourcing standards derived from the OECD framework.
- Complete mutual KYC before commercial terms are finalised, not afterwards.
- Expect source-of-funds and source-of-wealth questions from the seller's bank as well as your own.
- Establish that the destination refinery will accept material of this origin under its own responsible sourcing policy before shipment, not after.
- Keep the documentary record complete: a transaction that cannot be explained to a compliance officer eighteen months later is an unfinished transaction.
Verify: Structures should be settled with your bank, your counsel and your destination refinery. Nothing here is legal, tax or financial advice.