Image courtesy of www.goldalert.com
For gold buyers, there are two times of the day that are more important than any other time, including lunch and dinner. Those times are 10:30 am and 3:00 pm, London time.
So what happens at these times? This is when the London Bullion Market Association (LBMA), comprised of five members, fixes what is referred to as the London gold fixing or the gold fixing price.
Although there are several prices out there that are used to describe the worth of gold, the London gold fixing is the benchmark for all gold and gold related transactions conducted throughout the world’s markets.
Other prices used in the gold industry include:
- Bid Price
- Ask Price
- Gold Spot Price
Gold is a good so it has to be monitored like a good/commodity, but it’s also a currency without a country. No wonder so many are buying and selling gold!
What Does The Procedure Look Sound Like?
Prior to 2004, the members of the LBMA would meet in a city office in London twice daily to fix the price of gold. Since 2004, members conduct their meeting via telephone. The telephone fixing system presented some nuances to the procedure, but there remains a great deal of order. Traditionally, members of the association would raise a small union flag on their desk to pause proceedings so that more discussion could take place before coming to a settlement. Today, participants can pause the proceedings over the telephone by saying the word “flag”. If there are no flags, then the chairman ends the meeting by saying the phrase, “There are no flags, and we’re fixed.”
Who Are The Five Participants Of The Fixing?
- Scotia-Mocatta. Part of the Bank of Nova Scotia and a global leader in precious metals innovation.
- Barclays Capital. Large banking and financial services firm.
- Deutsche Bank. Recently recognized as the world’s No 1 fixed income bank.
- HSBC. Headquartered in London, they are one of the world’s largest banking and financial services organizations.
- Société Générale. Global banking and financial services organization.
What Determines The Price Of Gold?
Although the principle of supply and demand play a large role in determining and driving gold prices, there are other variables at work when it comes to fixing the price of gold.
One of these variables is the fact that gold is a non-perishable good and that the good majority of gold that has ever been mined is still out there. That’s an incredible fact that makes this precious metal a truly unique commodity. Gold maintains its value over time, making it an attractive good for investors especially when the value of the dollar is in decline.
Another factor is the role that central banks play in regards to gold prices. Since large central banks hold the majority of gold wealth in the world, what they do with their gold can have dramatic effects on gold prices. For example, if a central bank decided to sell a sizable portion of their gold reserves, then this can lower the price of gold with just the snap of a finger.
Another variable is worldwide crisis. Whenever there is political unrest or socio-political uncertainty, this can cause the price of gold to go up. This will cause people to lose interest in money markets and look for investments that have intrinsic value (gold), causing the demand to go up. When demand goes up, the price goes up.
All in all, a hybrid analysis has to be done in order to determine the price of gold. One has to look at currency fluctuation across the whole currency spectrum, the trading volume of gold, the NY Mercantile Exchange & Commodity Exchange, the London Metals Exchange and keep up on industry related news.