The London Gold Fix is considered the authority on gold and precious metals valuation. The London Gold fix is administered by the London Bullion Market Association (LBMA). It is the process of setting daily prices for gold, silver and other precious metals.
The London Gold Fix is established on the basis of consensus among the five member banks of the LBMA. This is also known as London Gold Pool. LBMA banks join a brief daily conference call to set the gold price for the day.
Most of the gold stored in London is in the form of gold bars.
The price of gold is determined by the buying and selling activities of customers in the gold market. But when individual investors look at the price of gold, you cannot refer to the London Gold Fix. You can simply look at the spot price of gold which can be found through a quick internet search. But for a novice gold investor, it can be useful to know how the price of gold is reached.
What is the London Gold Fix?
The London Gold Fix is the process of fixing gold prices in the London bullion market. The London Gold Fix involves gold traders from five of the largest bullion banks coming together to find consensus on a transaction price for large orders. These members fix spot gold prices twice daily in the morning at 10:30 a.m., known as the London AM fix, and again at 3 p.m. in the afternoon, known as the London PM fix. Prices are shown in three currencies: US Dollar, British Pound and Euro.
These bullion banks act on their own behalf as well as on behalf of their clients who trade limit orders to trade on the fixed price of gold in London. The Gold Fix price is unknown before it is fixed.
The Gold Fix is used as a benchmark for the price of gold commodities that is fixed for the day. Gold owners, gold mining companies and central banks around the world check out the London Gold Fix to find out what to expect from the price of gold bullion. Coin dealers can also use the London Gold Fix to see how to price their products.
History of the London Bullion Market Association (LBMA)
The Bank of England established the LBMA in 1987. Gold price quotes are often based in London as the UK has a historical association with gold. According to the London Bullion Market Association, the London bullion market grew out of a partnership between Moses Moscatta and the East India Company, who began shipping gold together towards the end of the 17th century.
After the first gold rush in 1697, gold was brought to London, leading the Bank of England to open a vault in London. This gold warehouse served, as it still does today, the European market.
Today, the LBMA sets the standard for how gold and other precious metals are refined and traded in global markets to ensure the integrity of the gold market. Companies that belong to the LBMA range from mining, refining and storage companies to large banks that trade gold bullion. This includes JPMorgan, Goldman Sachs and ETF providers, to name a few. In order to be a member and to remain a member of the LBMA, the organization must adhere to the standards of the LBMA.
How does the London Gold Fix work?
The London Gold Fix publishes a fixed gold price twice a day and a fixed silver price once a day. This is done to ensure that gold transactions are made at a common price. Fixed gold prices are not intended for the general public.
Rather, they are used for bulk orders. The Gold Fix changes depending on the supply and demand for gold among customers of member banks. It is important to distinguish the London Gold Fix from the spot price of physical gold – they are not the same.
The spot price of gold is the market value of one ounce of gold that can be bought and sold at this time. While the London Fix is the price of gold established by member traders of the London Bullion Market Association for large trades in gold. The five participating banks that determine the daily price of gold are Scotia-Mocatta, Barclays Capital, Deutsche Bank, HSBC Bank and Société Générale.
London Gold Fix Reviews
Whether the Gold Fix is well established has long been questioned. Participating Gold Fix members are also among the highest users of Gold Fix. The Gold Fix is influenced by market maker banks who act as both principle and agent, trading gold on behalf of their clients as well as their own.
Good Delivery gold bar, the standard used in the London gold market
A market maker can be a bank or brokerage whose purpose is to create liquidity in the gold market. They either try to buy at the best price or to sell at the best price. The job of market makers is to bring buyers into the market, so they have an incentive to delay selling until the price of gold rises. That is, a Gold Fix market maker can earn higher profits by trading gold that capitalizes on what it anticipates as the fixed price.
Due to concerns about bankers fixing prices to their advantage, the industry has raised concerns about the transparency of the Gold Fix and the regulations surrounding it. You can read more reviews of the fixing process on the Break the dollar Podcast.
Understanding the London Fix as an investor
The London Gold Fix is how the daily price of gold per ounce is set. Participating banks meet daily to set the price of gold twice a day. The Gold Fix is referenced by gold mining companies that value their stocks.
Knowing the process of how the London Gold Fix works can help investors understand how companies involved in the manufacturing, production and refining of precious metals like gold determine their prices. This impacts what individual investors end up paying for their gold assets.
Written by Paulina Likos
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