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Going loco on gold – what are loco swaps?

a camera with the city lights upside down in the lens

One of the most liquid assets on the planet, gold is bought and sold in staggering amounts each day in trading hubs around the world.

In 2020 during the height of the COVID-19 pandemic the daily gold exchange topped previous records to reach 251 million ounces of gold, worth USD 490 billion.

With so much physical metal changing hands each day, the location of where it is being traded is important as there are costs involved with moving it from one place to another.

Below we explore the concept of location swaps and how gold’s location is tied to the spot price.

What is loco?

Loco is short for location. For gold and silver bullion investors who prefer to trade in physical metal, it is important to consider location, as a physical commodity costs money to move it between locations.

Those used to trade shares, bonds and other ‘virtual’ or digital only products can sometimes overlook the implications and risks of dealing in something that is physical.

In the industry, ‘spot price’ is really shorthand for ‘the price of gold located in London’. Why London? Because that is where, historically, gold was traded. It is where the major bullion banks have head offices and where some pretty big vaults – and a fair amount of physical gold – is located. 

Thus, the price quoted on information services like Reuters and Bloomberg is for gold located in London, or in industry jargon, ‘loco London’. 
If you are buying or selling with a dealer which has trading accounts with bullion banks, the spot price they are quoting is effectively a loco London price. This is essentially gold’s ‘base’ price.

If you deal in gold in other locations, for example loco Perth, the price is different to gold’s loco London price because it costs money to freight gold between locations. The question is, who pays this difference? Simply put, supply and demand.

For example, Australian mines produce a lot more gold than domestic buyers want, so loco Perth supply is higher than demand. Therefore, miners can’t sell it all to Perth buyers and will therefore have to freight it to London if they want to sell the excess at the loco London spot price. 

Loco swaps and discount prices

In fact, miners don't often ship the gold they sell to London. Instead they do a ‘loco swap’ with the loco Perth gold price at a discount to the loco London gold price, the discount being equal to the cost of getting the gold to London.

Simply put, loco swaps are a way to move gold or silver to another location without physically shipping it. It is a transaction where two parties agree to exchange (swap) gold they have in different locations (locos) with each other.

This means that the loco discount or premium needs to be transferred between the swap parties in addition to the metal itself. 

It also means that each location can trade at a premium or discount to London depending upon local supply and demand at that time. 

As a result, loco discounts/premiums are not fixed and change over time as local supply/demand changes. 

Loco premiums

Normally the supply/demand situation is stable, which is another way of saying that the physical flows around the globe are stable. 
In extenuating circumstances, such as during a global pandemic when demand can outpace supply, there may be disparities in a location which can impact loco premiums.

Generally loco discounts/premiums are small and are often included into fabrication premiums. This can therefore give investors the impression that there is one global spot price for gold. 

This is misleading because when markets change and there is sustained buying or selling imbalances in a location, the discount/premium can start to become quite large. 

The result may be that the spot price in that location starts to diverge from the loco London price.

Common loco swaps

The Perth Mint records loco swap trades as linked buy and sell trades. For example, a mining company swapping its Perth gold for London gold would be entered as (assuming a gold price of USD 1,900 and a loco Perth discount of USD 1.00):
Table depicting loco swaps
While there are two separate trades, on settlement the USD trade values are netted against each other and the mining company pays The Perth Mint USD 100.00. 

The metal values however are settled independently as they are for different locos - The Perth Mint would deposit 100oz into the mining company's London metal account and withdraw 100oz from its metal account with The Perth Mint.

The most common type of loco swap The Perth Mint performs is with mining companies. This is because many mining companies trade their gold or silver in the over the counter (OTC) market in London with bullion banks or have other contractual obligations to deliver metal. 

Miners could ask for The Perth Mint to refine their gold and ship it to London, but from the point of view of the industry as whole, however, this is not always efficient. 

For example, with a demand in China for 99.99% kilo bars it would not make much sense for:

1. an Australian miner to ship 99.5% pure 400oz bars to London;
2. a bullion bank to then ship those bars to a refinery;
3. a refinery to reprocess those bars into 99.99% kilo bars; and finally
4. a refinery to ship the kilo bars to China for sale.

It is therefore more efficient (and cheaper) for all parties if The Perth Mint keeps the miner's gold, refines it directly to 99.99% purity and then ships the kilo bars to China.

Taking Australian gold to the world

As the only London Bullion Market Association (LBMA) accredited refiner for gold and silver in Australia, The Perth Mint produces a range of bullion investment products for distribution to markets around the world. 
Trusted globally for more than 120 years, we are committed to our mission of transforming and taking Australian precious metals to the world and thereby supporting and promoting international markets.

Learn more about our pure gold, silver and platinum bullion coins and bars on our bullion website.


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Strong demand for precious metals reflected across The Perth Mint products

Topics [ Perth Mint Gold Monthly sales figures Perth Mint Depository ]


Despite falling during December, average monthly sales of minted products rose by 100% (gold) and 42% (silver) in 2020 relative to 2019.

Perth Mint Depository holdings rose marginally in December, increasing by 20% (gold) and 15% (silver) across 2020.

Perth Mint ETF holdings increased by 3% during December and 76% for 2020.

Minted Products

The Perth Mint shipped 76,806 troy ounces of gold coins and minted bars in December 2020, a 9% decline relative to sales in November. Silver sales also declined, with  coins down 16% to 941,767 troy ounces compared to November.

Despite the slowdown in December, sales in 2020 were strong, with average monthly gold and silver sales 48% and 56% higher than long-term averages.

Troy ounces of gold and silver sold as coins and minted bars
December 2018 to December 2020

The Perth Mint manufactures and markets the Australian Precious Metal Coin and Minted Bar program. Trusted worldwide for their purity and weight, the coins include annual releases of the renowned Australian Kangaroo, Kookaburra, Koala and Lunar series. For more product information visit perthmintbullion.com.


Holdings of gold in The Perth Mint Depository rose by 1% in December, whilst investments into silver remained static. The value of these holdings rose by 11% in USD terms, driven by a 7% increase in the price of gold, and a 20% increase in the price of silver during December.

Over the course of 2020, total gold holdings in The Perth Mint Depository increased by 20%, whilst silver holdings increased by 15%, with the value of these holdings increasing by 52% in USD terms.

Total troy ounces of gold and silver held by clients in The Perth Mint Depository
December 2018 to December 2020

The Perth Mint Depository enables clients to invest in gold, silver and platinum without the need to take physical delivery of their metal. Operated via a secure online portal, a Depository Online Account allows investors to buy, store and sell their metal 24/7. For further information visit perthmint.com/storage.

Perth Mint Gold (ASX: PMGOLD)

Holdings of Perth Mint Gold (ASX: PMGOLD) rose during December 2020, increasing by almost 6,000 troy ounces for the month. The inflows saw total holdings in PMGOLD hit 235,925 troy ounces (7,34 tonnes) by the end of 2020.

Monthly flows for PMGOLD and the yearly change in total troy ounces can be seen in the chart below, with holdings rising by more than 75% in 2020.

Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD)
December 2018 to December 2020

Source: The Perth Mint, ASX, Reuters

The growth in the PMGOLD seen in 2020 makes it one of the fastest growing ETFs on the Australian Securities Exchange (ASX) and continues a strong period of demand that dates back over two years to September 2018. Total holdings have increased by more than 170% over this this time period.

The value of PMGOLD holdings rose by approximately AUD 30 million during December, owing both to the inflows into the product, and the almost 3% increase in the AUD gold price during the month. The product ended 2020 with a market value just below AUD 580 million, having almost doubled during the year.

To learn more about investing in PMGOLD, download our PMGOLD Factsheet.

Commentary - Jordan Eliseo, Manager Listed Products and Investment Research

“The Perth Mint saw strong investor demand across its entire suite of precious metal products in 2020, with sales of minted products and inflows into The Perth Mint Depository rising notably.

The standout was the growth of our ASX listed gold ETF (ASX:PMGOLD), which saw total holdings grow by more than 75%, making it one of the fastest growing gold ETFs globally.”

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Gold performance over the last 20 years

gold bar graph with a sillouhette of a man on the phone

2020 was a positive year for precious metal bulls, with the price of gold hitting all-time highs in USD terms, when it traded above USD 2,050 per troy ounce in August last year.

Strong gains were seen in almost every major currency with the price trading above AUD 2,800 per troy ounce, before a correction in the gold price, and a rally in the value of the AUD saw the precious metal pull back.

Gold finished 2020 trading at 1891.10 and 2455.30 per troy ounce in USD and AUD respectively, with these prices representing gains of 24.8% (USD terms) and 13.9% (AUD terms) across the full calendar year.

Whilst that is a very solid return, it is not unexpected given the historical average returns gold has delivered during the type of interest rate environment investors find themselves in today.  

The chart below highlights end of calendar year prices for gold in both currencies from 1999 through to the end of 2020.

chart highlighting end of calendar year prices for gold in both AUD and USA currencies from 1999 through to the end of 2020

Source: The Perth Mint, World Gold Council, LBMA, RBA

Despite these substantial returns, it’s important to remember that gold, like most asset classes, has years of very strong performance, years where performance is modest, and indeed years where performance is negative.

The table below illustrates this, highlighting end of year gold prices in both USD and AUD, and calendar year returns across the last 20 years.

table highlighting end of year gold prices in both USD and AUD, and calendar year returns across the last 20 years.

Source: The Perth Mint, World Gold Council, LBMA, RBA

In any given year, you might find that your investment goes backward (like in 2013), years where it more or less trades sideways (2004 in AUD terms and 2014 in USD terms), and years where gold streaks higher (2005).

Long-term investors have been well rewarded, with the price of gold rising by 551% (USD terms) and 454% (AUD terms) over the entirety of the last 20 years to the end of 2020. These returns mean that gold has been one of the best performing asset classes of the new millennium.

Looking ahead, there remain multiple tailwinds which should support gold in 2021 and beyond. These include:

  • Record low interest rates around the world
  • Central banks continuing to engage in Quantitative Easing
  • Large parts of the fixed income world offering negative real yields
  • Equity markets trading at historically elevated multiples of sales and earnings
  • The continued uncertainty caused by COVID-19

Whilst there is no guarantee, these factors should see continued demand for gold and have a positive impact on gold prices in the years to come.  

Jordan Eliseo
Manager – Listed Products and Investment Research
The Perth Mint
4th January 2021

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Gold's role in diagnosing disease

Precious metals have and will continue to play a vital role in helping to protect humans from serious disease.

In fact, gold has several known medical applications. While many of us are aware of its long history of use in dentistry, less well-known is its role, in injectable form, as a treatment for rheumatoid arthritis. Doctors are also experimenting with gold nanoparticles to target the delivery of drugs in the fight against certain cancers.

Similarly minute particles of gold are at the heart of lateral flow assays (LFAs) - simple to use, disposable diagnostic devices that can test for biomarkers in samples such as saliva, blood and urine.

Capable of delivering instantaneous diagnosis directly to patients without recourse to time-consuming and costly laboratory analysis, millions have been used worldwide in recent decades to screen for diseases such as malaria, HIV and many others.

According to an article by consultant Trevor Keel for the World Gold Council, the speed and low cost of these devices could be critical in the global response to COVID-19 (Coronavirus), a pandemic unprecedented since the Spanish flu of 1918-20.

Given the nature of the current pandemic, quick and accurate diagnosis is absolutely critical to help understand, track and tackle the outbreak,” he said.

Among the many diagnostics which are either commercially available or in development, “increasing numbers of first-generation biomarker LFAs are being registered and evaluated, many of which are gold-based.”

Encouragingly, authorities worldwide appear to be accelerating the route to market for these new COVID-19 diagnostics, Mr Keel said.

Silver also has its role to play in combating serious diseases like Coronavirus, with its germ-killing qualities having been recognised for thousands of years. 

Known to have helped prevent the spread of disease-causing pathogens across history, silver kills microorganisms by releasing ions (charged atoms or molecules) that interfere with the bad cells’ DNA in a lethal manner – an attribute that could be useful in the fight against Coronavirus and other modern day bacterial infections. 

Indeed, you may already be using silver to safeguard your health during these uncertain times. With soap and sanitiser declared the best possible defence against the deadly Coronavirus, you might find yourself using a hand sanitiser that includes ‘colloidal’ silver – tiny particles of silver suspended in liquid. 

Trusted to help protect livelihoods – and lives – for generations, these precious metals are continuing to prove their value in more ways than one. 

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Troy ounce vs ounce: What’s the difference?

Topics [ buy gold online gold trading ]

The precious metals industry uses the troy ounce as its basic unit of measure, even in countries which have adopted the metric or imperial systems. 

While there is a difference between a troy ounce and the more common avoirdupois (imperial) ounce, the precious metals industry often uses ‘ounce’ and the abbreviation ‘oz’ rather than ‘troy ounce’ and ‘ozt’. So when you see ‘ounce’ and ‘oz’ used in the context of precious metals, assume the reference is to troy ounces.

We explore the origins of this ancient system - and why it’s still in use as the standard gold measurement today. 

Did you say champagne?

The troy ounce has its origins in the city of Troyes, located in the Champagne region of France, an ancient city with a fascinating history. For example, the Knights Templar emerged there in the 12th century. 

Standing at a hub on an extensive network of Roman roads, the city became a “formidable place for commercial exchanges”.

In the Middle Ages it hosted the largest and most important of the famous Champagne Fairs. Merchants from across Europe gathered in the city to trade their wools, silks, leathers, furs, spices, and, of course, precious gold and silver wares.

The Counts of Champagne, who prospered from this activity, introduced rules governing the efficient operation of the Fairs. It is said that the system of measuring gold, silver and gemstones first used in their region took its name from the city of Troyes.

 Troyes, ancient city in the Champagne region of France. Source: CC

The troy system was in widespread use as the basis of several European monetary systems by the end of the 12th century. It reached Britain under King Henry II, who reigned from 1154-1189 – the so-called Angevin monarch who also ruled large territories in France.

English pennies, worth 1/240th of a pound sterling, also weighed 1/240th of a troy pound of sterling silver. With 20 ‘pennyweights’ the equivalent of one troy ounce, there were 12 troy ounces in one troy pound.

Despite the rise of avoirdupois weights (16 ounces = one pound) for everyday goods, it has remained customary to weigh and price precious metals in troy weights. 

Troy pounds and pennyweights fell from favour in the 19th century, but even when British legislation abolished other old weights and measures in 1963, the troy ounce survived for trade in precious metals.

As common as grain

The troy ounce and the avoirdupois ounce have in common the grain, the smallest unit of mass in everyday use. But they’re not the same. 

At 480 grains, the troy ounce is heavier than the avoirdupois ounce, which weighs 437.5 grains.

In metric terms, the troy ounce weighs 31.1034768 grams. The avoirdupois ounce is slightly less, at 28.349523125 grams.

When referring to large quantities (such as annual mine production), the industry often uses metric tonnes as the unit of measure as it produces smaller and more manageable numbers. 

For example, 80,376,867 troy ounces equals 2,500 tonnes. Some prefer to use ‘millions of ounces’ (abbreviated to ‘moz’) to avoid confusion as to whether the ‘ton’ referred to is a metric ton, Imperial (long) ton or US (short) ton. 

For silver, traders can use the Indian unit of measure Lakh (or Lac) which refers to 100,000. For example, a trade for 1,000,000oz would be referred to as 10 Lakh.

Precious metal weights are usually only recorded to three decimal places of accuracy, or to one thousandths of an ounce. An exception to this is a gold London Good Delivery Bar, which is rounded down to the nearest 0.025 of a troy ounce (silver London Good Delivery Bars are rounded down to the nearest 0.100 of a troy ounce).

The table below lists conversion rates between a troy ounce and other common units of mass.

Buy gold and silver bullion 

The weight of gold and silver bullion bars and coins made by The Perth Mint are all specified in troy ounces. 

If you’re considering buying precious metals for the first time and are not entirely sure what this means, here’s what you really need to know:

• The weight and purity of every ounce of Perth Mint gold and silver is guaranteed by the Government of Western Australia.

• We offer a range of sizes from 1oz (troy ounce) to 1 kilo gold and silver coins and bars.

• Buy in-store from our bullion trading desk or online 24/7 for delivery.

• Alternatively, store your precious metals in our network of central bank-grade vaults.

Learn more about gold and silver weights and measurements here.

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Gold bullion sales bounce on launch of new Kangaroo coins in November

The Perth Mint shipped 84,158 ounces of gold coins and minted bars in November 2020, an increase of 119% on the previous month and 55% ahead of November 2019.

The strong performance was the result of a significant increase in demand from The Perth Mint’s international wholesale customers, particularly in Germany. According to Neil Vance, General Manager – Minted Products, demand also benefitted from the release of the 2021 Australian Kangaroo Gold Bullion Coin Series mid-way through the month.

“The launch of the Kangaroo coincided perfectly with the onset of lower gold prices in the back half of November, presenting our wholesale and retail clients with a great opportunity to secure the new coins,” he said.

Demand for Perth Mint silver bullion remained robust. Like last month, however, manufacturing capacity was affected by unavoidable repair and maintenance to machinery in the factory. In a month further impacted by a two-day stock take, silver shipments were a marginal 8.9% lower at 1,119,269 ounces compared to October, but ahead 8.9% compared to a year ago.

Ounces of gold and silver sold in November 2020 as coins and minted bars
Gold (Au): 84,158 oz   |   Silver (Ag): 1,119,296 oz

NB The above chart shows total monthly ounces of gold and silver shipped as minted products by The Perth Mint to wholesale and retail customers worldwide. It excludes sales of cast bars and other Group activities including sales of allocated/unallocated precious metal for storage by the Depository

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