top of page
Search

How Global Banks Generate Revenue in Bullion Business: Key Insights from IFSCA Research

  • Writer: GIFT CFO
    GIFT CFO
  • 2 days ago
  • 3 min read

The global bullion banking industry is the powerhouse of the precious metals market. Banks such as JP Morgan, HSBC, UBS, Standard Chartered, Citi, and ICBC Standard are not merely traders—they are the essential liquidity providers, custodians, financiers, and infrastructure operators that ensure the seamless operation of the gold and silver markets.

A recent paper, Revenue Drivers of Global Banks in Bullion Business, published under the International Financial Services Centres Authority (IFSCA), offers a comprehensive analysis of how bullion banks generate revenue across various business lines.


Flowchart showing how global banks generate revenue in bullion business, with eight blue arrows pointing to a central yellow circle.
Revenue Streams in Global Bullion Business: An Overview of How Banks Profit from Market Making, Proprietary Trading, Storage Fees, Leasing, Derivatives, Settlements, and Refining Logistics.

🔑 Key Revenue Streams of Banks

1. Proprietary & Client Trading

  • The primary source of revenue (up to 90% of profits) is derived from trading gold, silver, platinum, and palladium.

  • This includes spot, futures, forwards, and options trading, as well as arbitrage across global hubs like London, New York, Zurich, and Shanghai.

  • Example: In Q1 2025, bullion banks collectively earned $500 million from trading, fueled by price volatility and U.S. tariff concerns.

2. Market Making & Liquidity Provision

  • Bullion banks serve as market makers in OTC and exchange-traded markets, ensuring constant liquidity.

  • They earn bid-ask spreads and arbitrage profits, playing a crucial role in price discovery through LBMA auctions.

  • Example: Banks like JP Morgan and HSBC are key participants in the LBMA Gold and Silver Price auctions.

3. Physical Bullion Custody & Storage

  • Banks manage high-security vaults in London, New York, Zurich, and Singapore.

  • Custody clients include ETFs (e.g., GLD), central banks, sovereign funds, and HNIs.

  • Revenue is generated from storage fees (basis points of assets stored).

  • Example: JP Morgan and HSBC collectively hold bullion worth tens of billions of dollars for ETFs and institutions.

4. Bullion Leasing & Financing

  • Banks lease gold to jewelers, refiners, and miners, or provide loans secured by bullion.

  • They borrow metal from central banks at low rates and lend at higher rates, capitalizing on the spread.

  • Example: Gold lease rates surged in early 2025, enabling banks to achieve higher margins.

5. Derivatives & Hedging Services

  • Banks structure forwards, options, swaps, and structured notes for miners, refiners, and investors.

  • They earn from embedded spreads, option premiums, and structuring fees.

  • Example: UBS and JP Morgan actively market gold-linked structured products for wealth clients.

6. Clearing & Settlement Services

  • Bullion banks operate London Precious Metals Clearing Ltd. (LPMCL), which settles trades of ~20 million ounces of gold daily.

  • Revenue is derived from clearing fees, settlement services, and collateralized lending.

  • Clearing provides banks with a strategic advantage by offering insights into global flows.

7. Structured Products & Wealth Management

  • Banks create gold-linked notes, deposits, and accumulation plans for HNIs and retail clients.

  • Wealth managers like UBS and Credit Suisse incorporate bullion into private banking portfolios.

  • Example: Gold-backed loans enable clients to borrow against stored bullion, generating both loan interest and storage fees.

8. Refining & Logistics

  • Some banks partner with refiners and manage bullion transportation globally.

  • Revenue comes from shipping, location swaps, and premiums in high-demand markets like India and China.

  • Example: In Feb 2025, JP Morgan and HSBC transported billions of dollars’ worth of gold from London to New York to capitalize on a $20/oz arbitrage.

🌍 Importance of This Study

  1. Transparency in Precious Metals Markets – The paper reveals how bullion banks profit across various market layers, from vaulting to derivatives.

  2. Policy Insights for Regulators – Aids IFSCA and policymakers in formulating rules for bullion trading, custody, and financing in GIFT IFSC.

  3. Opportunities for India – As India expands its bullion market via India International Bullion Exchange (IIBX) in GIFT City, understanding global revenue models is vital.

  4. Investor Awareness – Demonstrates how bullion banking supports ETFs, hedging products, and liquidity for investors worldwide.

📌 Conclusion

Bullion banks are not mere traders—they are the foundation and backbone of global precious metals markets. Their revenues encompass trading, custody, leasing, derivatives, clearing, wealth management, and logistics.

For India and GIFT IFSC, this research highlights the imperative to develop world-class bullion banking infrastructure—from vaulting and clearing to derivatives—so that India can establish itself as a global bullion hub.


This article is prepared for informational and educational purposes only and is based on the IFSCA paper “Revenue Drivers of Global Banks in Bullion Business” (August 2025). The content summarizes publicly available research and does not constitute investment, legal, or financial advice. The analysis is intended to provide general insights into the bullion banking industry and related regulatory perspectives. Readers are advised to seek professional guidance before making any investment, compliance, or business decisions. The author and publisher disclaim any liability for decisions made based on this article.


bottom of page