London Spot Gold Price
With the volatility of the gold markets recently I thought
it might be fun to explain the workings of the London Spot
Gold Price which establishes the benchmark of the world gold
prices daily.
Prior to 12 September 1919 the world gold market prices
fluctuated widely due to lack of any kind of standardized
market operation. So five of the leading gold bullion
dealers in London met on 12 September 1919 to establish a
centralized gold price by which they all would abide. The
price was based on 400oz bullion bars being sold among the
members in a twice daily meeting known as a "fix".
The meetings were held at the offices of N. M. Rothschild
and Son, who chaired the meetings at their office from that
day forward. Representatives of these five dealers would sit
in the conference room at a long table with each having a
small Union Jack flag on a stand in front of them. Some of
the dealers were looking to buy, some were looking to sell.
The chairman would recommend a gold price at which the
buyers and sellers would transact their business. If a
seller was willing to sell his gold at the recommended
price, they would lower their flag. If a buyer was willing
to buy gold at the recommended price, they would lower their
flag. If one or both was not willing to deal at the
recommended price, some or all of the flags would stay up
and the chairman would suggest another gold price up or
down.
This process of a gold price being recommended by the
chairman and the buyers and sellers raising or lowering
their flags continued until all flags were down and a gold
price had been reached that all buyers and all sellers were
willing to agree upon. The London gold price was considered
fixed for that morning or afternoon, and the rest of the
world would deal in gold trading based on this twice daily
meeting of these 5 gold dealers in London.
Although the formality of the meeting in the physical room
at 10:30am and 3:30pm each day has been replaced by a
conference phone call, the twice daily meetings still occur
and the London Fix for the world gold standard price is
still done in this manner.
Representatives of these five companies meet twice a day on
the phone with the chairman suggesting a gold price and
phone participants, both buyers and sellers, saying "flag"
when they are satisfied with the recommended gold price.
I had always thought of the London Daily Fix as being some
massively complicated marketing report based on the world
gold supplies, market conditions, mining conditions, and
demand from the various gold consuming industries.
But in reality, its five guys getting together twice a day
and saying: You want to buy at this price? No? How about
this price? Yes? Ok. Done deal. Let's go have a pint.
Robert James
School of Gemology
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