The London Gold Fixing, also known as Gold Fix, is the process of determining the price of gold through a dedicated conference line. In the past, this activity occurred at the London premises of Nathan Mayer Rothschild & Sons and was facilitated by the members of The London Gold Market Fixing Ltd. The primary purpose of the Gold Fixing is to establish a price for settling contracts within the London bullion market. However, this price also serves as an unofficial benchmark for the pricing of gold products and derivatives worldwide. The LBMA gold price is determined twice each business day, at 10:30 AM and 3:00 PM, London time, in United States dollars (USD). Prices in other currencies, such as British pounds, Canadian dollars, Chinese renminbi, and euros, are indicative and primarily intended for settlement between LBMA members.
Key Takeaways:
- The London Gold Fixing, or Gold Fix, is a process for determining the price of gold, conducted through a dedicated conference line.
- It was historically held in the London offices of N M Rothschild & Sons but transitioned to a dedicated telephone conferencing system in 2004.
- The Gold Fix sets the price for settling contracts within the London bullion market and serves as an informal benchmark for gold pricing worldwide.
- The fixing process involves five market-making banks that propose prices and adjust them to achieve a balance between buy and sell orders.
- The Gold Fix’s historical significance includes its suspension during wartime, notable price records, and instances of manipulation and regulatory actions.
Summary: The London Gold Fixing, also known as Gold Fix, is a process that determines the price of gold through a dedicated conference line. It plays a crucial role in setting prices for contracts within the London bullion market and is widely recognized as a benchmark for gold pricing globally. The process involves five market-making banks proposing and adjusting prices to achieve equilibrium between buy and sell orders. Historically, the Gold Fixing has seen significant events, including wartime suspensions, price records, and instances of manipulation, leading to regulatory actions. The process’s transparency and influence extend to various sectors, making it a vital part of the gold industry and investment landscape.
Currently, 14 participants are involved in the Gold Fixing process. These participants include the Bank of China, the Bank of Communications, Coins ‘N Things, the Industrial and Commercial Bank of China, INTL FCStone, Jane Street Global Trading, HSBC Bank USA, JPMorgan Chase, Koch Supply and Trading, Marex Financial, Morgan Stanley, Standard Chartered, the Bank of Nova Scotia, and the Toronto-Dominion Bank.
the LBMA Price Fix
London Price Fix : Bullion dealers commonly use the LBMA prices, known as the ‘London fixed price,’ or the live ‘spot price‘ when trading precious metals. It’s essential to recognize that the fixed price may deviate from the live spot price. The advantage of using the fixed price as a reference lies in providing transaction certainty and streamlining exchange processes. This eliminates the need for negotiations over the ever-changing spot price, resulting in potential cost reductions for investors.
Why Choose the LBMA Price Fix?
Setting fixed precious metal prices is an established practice in the bullion industry, benefiting various stakeholders, including bullion banks, wholesalers, and businesses.
Using the fixed price as a reference simplifies the exchange process, as it eliminates the need for constant negotiations over the fluctuating spot price. Without this system, the ongoing haggling over price fluctuations and order placement uncertainties would likely lead to increased costs for precious metals and higher premiums.
The fixed price system allows for lower premiums, ultimately resulting in more affordable precious metal prices for consumers.
London Precious Metals Fix Timings All times are based on London time.
- Gold 10:30 am and 3:00 pm
- Silver 12:00 noon
- Platinum 9:45 am and 2:00 pm
- Palladium 9:45 am and 2:00 pm
Keep in mind that during daylight savings time in the United Kingdom, when it’s one hour ahead of Greenwich Mean Time (GMT/UTC), the fix timings do not change. For over half the year, gold fix timings are actually 9:30 am and 2:00 pm GMT/UTC. The LBMA explicitly states that the timings are in ‘London time,’ ensuring consistency when the UK time shifts in March and October.
Understanding the LBMA Gold Fix
In a single transaction, a ‘spot price’ or ‘over-the-counter’ (OTC) price is established as the trading price, which may include a premium. However, in more complex, multi-trade scenarios involving multiple buyers and sellers, determining a single price becomes challenging.
To address this, a benchmark price is introduced, known as the LBMA Price Fix. It’s determined through an auction process conducted by members of the London Gold Pool, resulting in an average of traded prices.
The Process
Members of the Gold Pool receive various gold orders from clients or on their own behalf. The chairperson initiates the process by proposing a price near the spot price. Other participants then assess their positions based on simulated trades at that price. If the quantity of gold sold matches the quantity bought, the price is fixed.
Imbalances can occur, such as when simulated trades reveal that the amount of gold proposed for purchase is less than what’s offered for sale. In such cases, the price must be adjusted.
The process continues until the correct price is determined.
After the Fix
Once the price is fixed and released (at 10:30 am and 3:00 pm London Time), traders use it as a benchmark for buying and selling clients’ orders. These prices may vary in relation to the spot price, but the fix serves as the reference point until the next cycle.
Spot Prices for Precious Metals
It’s essential to understand that the fix price represents the price at the precise moment an agreement is reached. It quickly fluctuates, and within seconds, trades occur at different prices. The LBMA members utilize this to establish a market price for that specific moment, allowing them to manage sales, purchase requirements, orders, and commissions effectively.
While we frequently use the London gold fixing as a basis for transactions with professionals, most private investors prefer a current ‘spot’ price for gold. Dealing with an unknown price might seem unconventional, but for most precious metal professionals, any variances usually even out over time, saving time that would otherwise be spent haggling over different market perspectives.
Three Currencies
While many believe the gold price is fixed only in US dollars, prices are available in sixteen other currencies, including the pound sterling and the euro. However, these are indicative prices for settlement purposes only. The challenge of quoting prices in various currencies persists, but it’s crucial to clarify the currency in which the price is quoted to avoid confusion.
History of the Gold Fixing.
The history of the Gold Fixing dates back to September 12, 1919, when five prominent gold bullion traders and refiners – N.M. Rothschild & Sons, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co., and Sharps Wilkins – conducted the first London gold fixing. The gold price was set at £4 18/9 (GBP 4.9375) per troy ounce, with the New York gold price at US$19.39. The early fixings were conducted by telephone until the members started meeting at the Rothschild offices in New Court, St Swithin’s Lane.
Notable events in the history of Gold Fixing include U.S. President Franklin D. Roosevelt’s Executive Order 6102 in 1933, which required U.S. citizens to turn in their gold for $20.67 per ounce, and the subsequent price setting at $35.00 per ounce. Wartime emergencies and government controls led to the suspension of the Gold Fixing between 1939 and 1954. On January 21, 1980, the Gold Fixing reached $850, a record not surpassed until January 3, 2008, when a new high of $865.35 per troy ounce was set during the morning fixing. Adjusted for inflation, the 1980 record still holds in real terms.
The Gold Fixing was traditionally held at the London offices of N M Rothschild & Sons but transitioned to a dedicated telephone conferencing system on May 5, 2004. This change was necessary as some banks relocated their London operations to areas like Canary Wharf. Before 1968, the price was fixed once a day, and a second fixing was introduced at 3 p.m. to align with the opening of the U.S. markets. This shift was due to the loss of control over the price of gold by the Bank of England, which resulted from the collapse of the London Gold Pool.
In April 2004, N.M. Rothschild & Sons announced its withdrawal from gold trading and the Gold Fixing. Barclays Capital subsequently took its place on June 7, 2004, and the chairmanship of the meeting, formerly held by Rothschilds, now rotates annually.
An incident on June 28, 2012, saw an employee of Barclays manipulate the gold fixing process to avoid a payout related to a derivative product sold to a client. The employee and Barclays self-reported the incident. In January 2014, Deutsche Bank withdrew from the panels setting the gold and silver fixings.
2014 Changes
In 2014, substantial changes were made to the London Gold Fixes in response to concerns about potential manipulation due to banking scandals. The fixing process is now managed by the London Gold Fixing Company, and ICE Benchmark Administration (IBA) became the official administrator of the new pricing mechanism in March 2015.
On May 23, 2014, the Financial Conduct Authority fined Barclays £26 million for systems and controls failures, conflicts of interest in relation to the gold fixing over the nine years to 2013, and manipulation of the gold price on June 28, 2012.
The Gold Fixing process involves five participating banks acting as market makers.
They handle gold orders for their own accounts, their clients, or a combination of both. Client orders are typically limit orders, which means they will only execute if the price is at or below a predetermined level for sell orders or at or above a preset level for buy orders. The lead participant initiates the fixing process by proposing a price near the current gold spot price. The participants then simulate the results of trading at that price, considering both physical gold and gold trading contracts, often referred to as “Paper Gold,” which can inflate market volumes and affect supply and demand dynamics differently from physical gold.
Each bank assesses its limit orders and the potential trading activity from its proprietary trading desk at the proposed price, expressing their intent as the net amount (in ounces) of gold they wish to buy or sell. If the overall net amount is zero, all transactions proceed, and the fix is complete. If not, the chair must adjust the proposed price. If there are more proposed buy orders than sell orders, the price is raised, leading to fewer successful buy orders and more successful sell orders. Conversely, if there are more proposed sell orders, the price is lowered, resulting in more successful buy orders and fewer successful sell orders. This process continues until an equilibrium is reached.
During this process, participants can pause the proceedings at their discretion. Originally, this was done by raising a small Union Jack on their desk, but under the telephone fixing system, participants can register a pause by saying the word “flag.”
The Gold Fixing concludes with buyers paying a 20 cent per troy ounce premium to fund the fix process, resulting in an implicit bid-ask spread. Like other forms of market making, participants attempt to predict market direction and time their transactions to maximize profits.
The Gold Fixing is utilized by various entities, including banks, central banks, refineries, mining companies, and retail stores dealing in gold products and jewelry. It also plays a significant role in valuing gold reserves and is used in derivatives markets for pricing various gold-related positions, such as gold futures, swaps, and options.
Individual investors can also participate in Gold Fixing through platforms like BullionVault, enabling them to buy gold and silver at the prices determined during the London Fixing. This process involves opening an account, depositing the desired investment amount, and placing an order. The final price is unknown until after the Fixing, and it is published in various sources, including newspapers, the LBMA website, and others.
The London Gold Fixing is a historical and essential process that sets the price of gold twice daily, serving as a benchmark for the global gold market and influencing various aspects of the gold industry. Participants, including major banks, engage in a meticulous process to establish a common transaction price for a significant volume of buy and sell orders, with the final price impacting a wide range of gold-related activities and investments.
Time line London Gold Market: 1660-2024
- The London OTC market, historically dominant in the gold trade, now accounts for approximately 70% of global notional trading volume. It sets the LBMA Gold Price, trading ‘Good Delivery’ bars stored in secure vaults, making it a key global benchmark. Known as the ‘terminal market,’ London’s strategic time zone and financial hub status contribute to its importance, despite a recent decline in relative market share. The introduction of LMEprecious by the World Gold Council aims to address these challenges and modernize the market.
- In the US, the COMEX derivatives exchange, operated by CME Group, plays a vital role in gold price discovery. It focuses on the ‘active month’ contract, closely linked to the spot price. Though few contracts result in physical delivery, the COMEX remains connected to physical markets through an active Exchange for Physical (EFP) market. Notably, an increasing share of COMEX trading occurs during Asian market hours, reflecting its success in tapping into Asian market growth.
- The Chinese gold market, primarily represented by the Shanghai Gold Exchange (SGE) and the Shanghai Futures Market (SHFE), has rapidly grown in importance. SGE, established in 2002, introduced the Shanghai Gold Price benchmark to assert China’s role as a price-setter, promote RMB internationalization, and encourage global participation. Active futures trading on SHFE complements SGE’s spot and deferred contracts, even though the two exchanges are not directly linked.