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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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Precious metals rally ends 2020 on a high


Precious metal markets capped a strong year with further price increases in December. Silver led the way with a 20% rally, whilst gold rose by 7% in USD terms, to finish the year trading just below USD 1,900 per troy ounce. Gold again outperformed the majority of mainstream asset classes in 2020, with the impact of COVID-19, and the monetary and fiscal policy response to the crises driving demand for precious metals over the year.

Summary of market movers:
The gold price rallied 7% in USD and 3% in AUD terms in December, with the precious metal rising by 25% (USD terms) and 14% (AUD terms) for 2020.

Silver had an even stronger move, increasing by 20% in USD terms in December. Across the entire year, it was up by almost 50% in USD terms.

Silver’s outperformance saw the Gold to Silver ratio (GSR) end the year 71, having fallen from 85 at the end of 2019. 

The Australian dollar (AUD) continued to rise during December, ending the year at USD 0.77. It was up 10% for the year, and almost 40% from the mid- March 2020 low, when it traded down toward USD 0.55.

Share markets also finished the year on a positive note, with the ASX up 1% whilst the S&P 500 was up by more than 3.5%.

Real yields continued to fall during December, with 10 year US Treasury 10 bonds falling from -0.93% to -1.06%. They had started the year at +0.08%  

The USD index also declined in December, falling by 2% to end the year down 7%, having fallen almost 13% since its mid-March high. 

Full report - December 2020 

Precious metal prices ended 2020 on a high, with the USD price of gold and silver rising by 7% and 20% respectively during December. The rally capped a strong year, with precious metals outperforming the vast majority of asset classes. 

From a return perspective, silver outperformed gold, though was substantially more volatile across the year, falling below USD 15 per troy ounce in March, with the GSR topping 110 at the time. 

The strong finish to the year will encourage precious metal bulls that the textbook correction that we saw in gold between mid-August and end November has run its course. 

The strong start to 2021 seen for gold and silver (both are up by more than 3% in the first few days of trading), will only reinforce this belief, with our view on the outlook shared in more detail below.  

A year for the record books 

Whilst most people will be happy to see the back of 2020, it is certainly a year we will never forget, given the emergence of COVID-19, and the impact it had on the economy and in our daily lives. 

In financial markets, COVID-19 and the response to the economic slowdown from fiscal and monetary policymakers was profound, seen through a number of events that transpired across the course of the year. These include:

  • The plunge in equity markets during Q1 2020, which saw the ASX fall by more than 30% in barely a month, one of its sharpest sell offs in history. 
  • The price of oil trading below zero in April 2020, with futures contracts at one-point trading at USD -37.63 per barrel as storage facilities reached capacity limitations, and COVID-19’s impact on demand wreaked havoc across the energy complex.

  • The price of gold hitting all-time highs in nominal terms in August 2020. At one point the precious metal traded above USD 2,050 per troy ounce, whilst in AUD terms, gold was trading at more than AUD 2,800 per troy ounce. The market has had a healthy correction since.

  • The rally in Bitcoin (BTC) and other cryptocurrencies also caught the markets attention. After selling off alongside equities and falling down toward USD 5,000 per coin in Q1, BTC staged a huge rally, and finished the year trading near USD 30,000 per coin. Other crypto's like Ethereum actually outperformed BTC across the year, with investor interest in this space picking up notably

  • A surge in equity markets post the March lows, which culminated in one of the best ever single month returns in November, when the MSCI world rallied by more than 12.50%. 

  • An explosion in central bank balance sheets, which collectively increased by more than USD 8 trillion over the course of 2020. In April 2020, asset purchases by the four largest central banks totalled USD 1.5 trillion, six times the amount purchased at the height of the Global Financial Crisis. 

  • The relentless trend lower in real bond yields, which fell by more than 1.10% (US 10-year Treasuries) to end the year below -1%. 

Amazingly, despite the chaos caused by COVID-19, the majority of asset markets delivered positive returns across calendar year 2020, further evidence that this has so far proved to be a recession unlike any other. 

Outlook for 2021

After a strong price run that has seen gold rise by 59% since September 2018, there are some potential headwinds for the precious metal. 

The first of these is the fate of the USD. Since March of last year, the US dollar has fallen by more than 12% (DXY index), with speculative positioning stretched by the end of 2020. 

If this USD losing streak comes to an end soon, the gold price may pullback in the short-term, though for Australian dollar investors it would likely be less of an issue as the AUD would also be under pressure in these circumstances. 

Continued strength in equity markets could also be a short-term headwind, as it may reduce investor desire to hold portfolio hedges like gold.

Despite these risks, there are numerous tailwinds that could push gold higher including:

Rising inflation expectations

The US five year forward inflation expectation rate ended 2020 at 2.03%. That is higher than the end of 2019, and an increase of more than 1.10% since inflation expectations plunged during March 2020.  

Record low yields

By the end of 2020 only 15% of all global bond markets had a yield above 2%, with most government bonds already yielding less than inflation. 

Outlook for monetary policy: 

Central Banks have been clear that more monetary stimulus will be forthcoming in 2021 and beyond, with cash rates unlikely to move higher for years to come. 

Gold stands to benefit from this backdrop of already low to negative real yields and potentially higher inflation, especially given it has historically increased by approximately 20% per annum in AUD terms in years where real cash rates were 2% or lower, like they are today. 

The fallout from COVID-19 remains an X factor for gold, and indeed for financial markets as a whole. Whilst everyone hopes that we have seen the worst, and that 2021 marks the beginning of a ‘post COVID’ world, there are no guarantees. 

Mutations are beginning to develop, whilst meaningful parts of the global economy remain locked down. Even the best-case scenario, which would see a successful rollout of vaccines around the world, represents an enormous logistical (not to mention political) challenge, with global economic output unlikely to catch up to its pre COVID-19 trajectory for years. 

Markets are pricing in a best-case scenario right now. If the situation deteriorates, expect risk assets to suffer, policy makers to deploy even more stimulus, and safe haven assets like gold to catch a bid. 

The above tailwinds indicate that demand for gold, and therefore gold prices are likely to remain well supported as we move through 2021. 

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

Past performance does not guarantee future results.
The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances. All data, including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article. 

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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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