Although the gold price has been determined on the London Bullion Market since the 17th century, the market structure as it is still used today was only introduced on 12.09.1919 at the request of the Bank of England. The aim was to create a much more transparent gold market which would allow tighter trading margins for buyers and sellers. However, “transparent” was to be seen in relative terms, as in the beginning only three banks participated in the pricing process. Today the London Gold Fix has 15 members.
Central indicator for over-the-counter gold transactions
The London gold fixing was carried out at Bankhaus Rothschild every trading day at 11:30 a.m. CET by bankers proposing a gold price to their clients – institutional investors, mining companies and large gold traders. If the majority of respondents subsequently wanted to sell gold, the proposed price was too high; if most customers wanted to buy gold, it was too low. The gold price was then adjusted until a balance of buying and selling requests was reached. This pricing principle has not changed to this day.
Constant updates and optimizations characterize the process
In the course of 100 years not only the markets but also the London gold price fixing have developed further. The original reference currency, the British pound, was replaced by the US dollar in 1968. A second price fixing round was also introduced at 6 p.m. CET in order to provide a current reference rate in time for the opening of the US market.
The monitoring of the London Gold Fix, which was renamed LBMA Gold Price in 2015, and the protection against price manipulation were also improved again and again. Initially the Bank of England itself was responsible for regulation, but today it is an independent body under the auspices of the UK Financial Services Authority. Although the London Gold Fix has faced allegations of manipulation since its inception and has often been the subject of investigations, there is only one proven case to date. In 2012, a trader at Barclays Bank manipulated the price of gold and the bank was fined $44 million.