Precious metals investment terms A to Z

London Gold Fix

The London gold fix, officially called the LBMA Gold Price is set in the London gold market twice a day: at 10:30 GMT, and 15:00 GMT, in U.S. dollars, serving as a benchmark for pricing gold. It is widely used by producers, consumers, investors and central banks.

The gold fixing was introduced in 1919 with the London Gold Fixing system. Initially, the fix was established by five banks in an elegant private auction at the London offices of Nathan Mayer Rothschild & Sons. Until 1968 there was only one fixing in the morning and the price was set in British pounds. In that year, the second fixing at 3 P.M. was added to cover the opening of the American market, and the price of gold started to be fixed in U.S. dollars. Some analysts claim that the price of gold is manipulated during London hours, or that the London P.M. fixing is rigged. However, the chart below does not show any systemic deviations between those two prices.

Chart 1: London Gold A.M. Fixing (green line) and London Gold P.M. Fixing (red line) from February 2015 to February 2016.

London gold fixing

From May 5, 2004 to March 19, 2015 the fixing was conducted via a dedicated conference line. On March 20, 2015 the LBMA Gold Price replaced the London Gold Fixing price. The fix is now conducted via an electronic platform managed by the ICE Benchmark Administration, not through a private arrangement with conference calls twice a day. The aim of that change was to bring more transparency to the price discovery process and to increase the number of participants involved in setting the benchmark price of gold.

How is the LBMA Gold Price set? At the start of each fixing, the chairperson sets the starting price at the level thought to best match the demand with the supply. Then, participants enter their buy and sell orders by volume. If the market is out of balance, business cannot be done and a new round of entering volumes is required. For example, if more gold is offered than demanded, then the price will be adjusted downwards (and vice versa), until equilibrium is reached. The process iterates until the net volume of all participants falls within the pre-determined tolerance at the end of a round (i.e. the imbalance is set at 10,000 oz.). The auction is complete when all volume is traded at that fix price. What is important is that the participants buy/sell gold not only on their own behalf, but also for their clients.

The London fix should not be confused with the current market price of physical bullion quoted by retail dealers (bullion dealers usually quote prices higher than fix, since they bear higher costs than wholesale players and add some markup to make a profit), or the gold spot price quoted by Comex. The spot price is the net present value of the futures price for the nearest-month contract, while the LBMA Gold Price is a snapshot of gold prices quoted by traders in the London OTC spot market for wholesale transactions.

We encourage you to learn more about gold – not only how its price is fixed in London, but also how to successfully use gold as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.

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