How is the price at which gold is to be sold and purchased determined? What influences its value? Who is entitled to provide an internationally recognised benchmark? These are some of the questions that help us understand how the gold market works and what parameters it responds to. To explore this topic in greater depth, it is useful to start with a fundamental element: gold fixing.
Gold fixing is the internationally recognised procedure used to set the price of gold on the financial markets.
This process takes place twice a day in London and involves five banks (Barclays, HSBC, Société Générale, Bank of Nova Scotia and JP Morgan), which agree on the purchase and sale price of gold for their daily transactions.
Gold fixing began in London in 1919, when a group of bankers met to establish a reference price for gold. The price was determined on the basis of bids and offers from the participants at the meeting, who represented the main players in the gold market at the time.
As the gold market evolved, the fixing process changed over time. In 1987, London Gold Market Fixing Limited was established to regulate the gold fixing procedure.
In 2014, following some controversy regarding the transparency of the process, a new method of determining the price of gold was introduced, called the LBMA Gold Price.
Today, gold fixing is determined every day in London at 10.30 a.m. and 3 p.m. (local time). During the session, representatives of the five participating banks provide their bids and offers for gold, which are taken into account to determine the reference price for gold.
The reference price established by the gold fixing is used as the basis for trading gold on international markets, thus influencing the price of gold worldwide.
As can be inferred from the above, the term “London fixing” refers to the English capital, where the process originated and where it still takes place today.
London is considered the centre of the international gold market and is home to important organisations such as the London Bullion Market Association (LBMA), which regulates gold trading worldwide.
Gold fixing and real-time spot price are two different concepts used to assess the value of gold on the market.
As we have said, gold fixing is a process of determining the price of gold that takes place twice a day in London, managed by the LBMA.
The real-time spot price of gold, on the other hand, is the current market price of gold, which is determined by real-time transactions between buyers and sellers. This price can vary at any time during the day, based on fluctuations in supply and demand in the market. In fact, when we talk about buying and selling gold, we are referring to this type of transaction and its regulation.
In other words, while the gold fixing price is determined only twice a day by the five major investment banks, the real-time spot price is constantly updated based on market transactions. In this sense, in technical jargon, when consulting the “gold price”, it is implicit that reference is made to this second price and not to the one determined by one of the two daily fixings.
There are various factors that can influence the value of gold. For example, the fixing process can be influenced by external factors, such as currency fluctuations or changes in countries’ monetary policies. In addition, the fixing process may be subject to manipulation by the investment banks involved.
On the other hand, the real-time spot price is mainly influenced by market supply and demand, which can depend on various factors, including changes in the prices of other commodities, geopolitical tensions or currency fluctuations.
Italpreziosi also contributes to gold price formation with the ITLP Code: our company is one of the members from which the London Bullion Market Association (LBMA) collects anonymous and aggregated commercial information to provide gold market participants with a transparent and simplified report on the price of gold: this is the LBMA Trade Data, published by Nasdaq and available through Bloomberg and Refinitiv Eikon. This service provides a daily snapshot of the OTC Loco London and Loco Zurich market share for precious metals: not only gold, but also silver, platinum and palladium.
