How is the gold spot price determined?
The price for gold bullion, measured by fine troy ounces, is fixed two times a day in London, to allow market users to trade gold at a single level.
Yesterday the spot price for gold bullion hit its highest level so far this year, at $1,790.
This was also its highest level since mid-November last year, fuelled by renewed concerns over Washington printing more money.
But how is the spot price for gold determined, or to use the industry terminology, ‘fixed’?
The fixing prices are the bases for metals contracts between dealers, refiners, and miners worldwide.
Each is made by the five members of the London Gold Market Fixing, who together find the single spot price, for physical delivery subject to a two-day settlement regime.
(Silver is fixed daily at noon by members of the London Silver Market Fixing. Platinum and palladium are fixed daily at 09:45 and 14:00 by the four fixing members of the London Platinum & Palladium Market.)
The fixes for gold are done via a conference telephone call, and made per fine troy ounce.
One troy ounce is 31.1034768 grams, and the word ‘troy’ is derived from the town of Troyes in northern France, which was an important medieval trading centre where the measure of gold bullion weight began.
The London Bullion Market Association has an online converter of weights (grams to troy ounces) here: www.lbma.org.uk/pages/index.cfm?page_id=17&title=market_basics .
The first gold bullion fix each day is made starting at 10:30. The second begins at 15:00. There are no gold fixings on days that are UK bank holidays.
At the start of each fixing process, the chairman announces an opening price (USD) to the other four members, who tell this price to their customers.
Based on orders they have received, they then instruct their representatives to say if there are buyers or sellers at that price.
If there are both buyers and sellers at the price, and the number of bars willing to be sold and bought at that price is within 50 of each other, then a fix is set there.