The second principal center for spot or physical gold trading, for example, is Zurich. Each of these banks has long maintained its own refinery, often taking physical delivery of gold and processing it for other regional markets. In addition to other gold delivery locations, there are other weight and quality standards which create differential prices. Gold content is another difference. The London good delivery bar is only required to have a minimum of 995 parts gold to 1000 parts total.
Gold purity is important to industry.
Pricing Nonstandard Contracts Nonstandard contracts can be priced by reference to the standard loco London good delivery bar, by taking into account the simple arbitrage relationships that would turn one into another. The primary variables to keep track of are the costs of shipping gold from one location to another, the cost of refining gold to different purity levels, and the interest or financing cost for the time required to accomplish these activities. Suppose a dealer is offered non-good delivery bars of .995 purity loco Panama City. Here is one chain of calculations the dealer might go through to come up with a price quotation. He knows that if he buys the bars in Panama, he could sell them in Tokyo, but first he would have to ship them to an appropriate location to upgrade their purity.