“How does the physical market work ?

Deals to buy, sell and lend gold in London are struck privately, rather than on exchange. To reduce the amount of metal that has to be shunted from vault to vault, five banks act as clearing house, balancing out each other’s sales and purchases. Some of them provide vaults, offering clients a safe place to stash gold. The Bank of England guards more than 400,000 bars beneath the narrow streets of the City of London, largely on behalf of the U.K. government and other central banks, a hoard second only to Feds in NY. Princes are quoted by troy ounce (14.6 troy ounces to pound instead of the standard 16) of pure gold, and bullion trades in batches of 400-ounce bars. London prices are fixed in twice-daily auctions and act as a benchmark throughout the physical market. When a watchmaker buys gold from a refiner, it usually does so at a premium to the London price…”

WSJ