Physically-backed precious products
What does it mean that a precious metal ETF is "physically-backed"?
Aberdeen Standard’s physically-backed precious metals Grantor Trusts are only backed by London Bullion Market Association ("LBMA") / London Platinum and Palladium Market ("LPPM") Good Delivery bars.
For precious metal ETFs, "physically-backed" means that the Grantor Trusts are backed by physical allocated bullion held by the custodian (HSBC Bank USA N.A. or J.P. Morgan) The bullion is held by the custodian in an allocated account for the issuer of the Grantor Trust and conforms to the rules of Good Delivery for either the LBMA for gold and silver or the LPPM for platinum and Palladium.
All Aberdeen Standard’s physically-backed precious metals Grantor Trusts hold the bullion in allocated accounts. An allocated account is an account held with a custodian in a customer's name; the account evidences that uniquely identifiable bars of bullion have been "allocated" to the customer and are segregated from other metal held in the custodian's vault. The customer has full title to the bullion held in the allocated account. As a result, the allocated account does not entail any credit risk to the custodian.
Bullion may be identified by the custodian based on one or a combination of any of the following criteria:
- the name of the refiner;
- the serial number;
- its weight; and
- its assay.
It is important to recognize that any combination of these criteria may be used to identify an individual bar of bullion. Two entirely different bars may be from the same refiner and have the same serial number but have a different weight and/or be from a different year.
What is LBMA, LPPM & Good Delivery?The LBMA and LPPM are two trade associations that coordinate wholesale trading for gold and silver (the LBMA) and platinum and palladium (the LPPM). They maintain and publish so-called Good Delivery lists that establish a set of criteria that a refiner and its bullion must satisfy before being accepted for trading. For example, for gold and silver, the refiner must:
- have an established track record of at least three years of producing refined metal;
- produce a minimum of 10 tonnes of gold and 30 tonnes of silver;
- have a tangible net worth of at least £10mm; and
- furnish evidence of ownership structure and directors.
The bullion must be:
- in bar form;
- of a minimum fineness of either 99.9% (silver) or 99.5% (gold);
- between 750oz to 1100oz (silver) or 350oz to 430oz (gold); and
- measured in troy oz (silver) or fine troy oz (gold).
For additional information, please see LBMA or LPPM.
Who audits the custodian?
The bullion is audited biannually by the independent metal assayer, Inspectorate International.
For example, for silver, Inspectorate International undertakes the following as part of the audit:
- Reconciles Aberdeen Standard's records relating to the bullion with the custodian's records.
- Reconciles bars held by the custodian as being held in the name of the relevant issuer.
Aberdeen Standard maintains a very good relationship with the custodian. In the event there are any questions regarding the bullion, Aberdeen Standard is able to engage the custodian directly to investigate and undertake the appropriate due diligence.