If you are an investor or trader in the precious metals market, chances are you have come across the term “London fix price.” But what exactly does it mean? In this article, we will dive into the details of what the London fix price is and how it affects the precious metals market.
What is the London Fix Price?
The London fix price, also known as the London gold fix, is a benchmark price for gold that is set twice a day by a group of five banks in London. These banks are Barclays, HSBC, Societe Generale, Scotiabank, and Bank of Nova Scotia. The benchmark price is used by traders and investors around the world to determine the value of gold.
History of the London Fix Price
The London fix price has been in use since 1919 when it was introduced by NM Rothschild & Sons. The purpose of this benchmark was to provide a standardized reference point for gold prices to be used by market participants. Before this benchmark was introduced, gold prices were determined by individual dealers who would negotiate prices with each other.
How is the London Fix Price Set?
The London fix price is set twice a day – once at 10:30 am and once at 3:00 pm (London time) – through a conference call between the five banks. During these calls, each bank provides information on their buy and sell orders for gold. The information is then used to calculate a single price that represents the midpoint between all of these orders.
Once this single price has been determined, it is communicated to market participants around the world who use it as a benchmark for their own trades and investments.
Why Is It Important?
The London fix price is important because it provides an internationally recognized benchmark for gold prices. This helps create transparency in pricing and makes it easier for traders and investors to determine the value of their gold holdings.
Additionally, the London fix price is used as a reference point for other financial instruments such as gold futures and options contracts. This means that changes in the London fix price can have an impact on these instruments and the broader financial markets.
Controversies Surrounding the London Fix Price
In recent years, there have been concerns raised about the accuracy of the London fix price. In 2014, Barclays was fined £26 million by regulators for manipulating the benchmark. This led to calls for greater oversight and transparency in how the London fix price is set.
In response to these concerns, a new benchmark known as the LBMA Gold Price was introduced in 2015. This new benchmark uses an electronic auction system to determine prices and is overseen by an independent administrator.
Conclusion
The London fix price is a key benchmark for gold prices that has been used for over 100 years. While there have been controversies surrounding its accuracy, efforts are being made to increase transparency and oversight in how it is set. As an investor or trader in precious metals, understanding how the London fix price works can help you make more informed decisions about your trades and investments.