Who determines the price of gold?

For centuries, people have held gold in high regard. It has been highly valued for its beauty but also for the fact that it is a currency  accepted throughout the world. The gold price depends on a number of factors like demand and supply. The  gold market price is officially fixed every day by using a very simple system. This price is known as the spot price and it is an important tool for everyone in the gold industry. Anyone who knows how to buy bullion or sell this precious metals know the significance of the spot price.

History of Gold Fixing

During the 20th century, a lot of countries tied the value of their currency to the value of this precious metal. This effectively collapsed after the first World War I. To restore the economy, the Bank of England came to an agreement with some mining companies. The agreement was for certain mining companies to send their mined gold to London where it would be sold for a fair price on the open market. This was the start of The London Gold Market Fixing Limited. This organisation consisted of five major banks based in London. They determined what a fair market gold price would be. The group held its first meeting on the 12th September 1919. The London fix has been determining the price of gold ever since. The role of the LBMA became all the more important when countries decided to abolish the gold standard in the early 1970s. Gold became even more scarce then as more people began hiding their gold thinking that it was about to be confiscated by the government. The market has definitely changed since then with more people trusting the current system even more.

The Fixing Process

The London Gold Market Fixing Limited’s members meet every day at 10:30 a.m and 3 p.m Greenwhich Mean Time (GMT). A starting price is announced by the chairman of the organisation. The member banks then say how much gold they would buy for that price. If there are more buyers than sellers, the price goes up; if there are fewer buyers willing to buy bullion at the set price then it is lowered. When buyers and sellers have about 50 bars of some another amount, the price is set. This process takes at least 15 minutes. It used to take as long as 2 hours in the past.

Benefits of the London fix

The price that the London fix sets every day is used by everyone in the gold industry from businesses and individuals around the world. This levels the playing field as this is universally accepted. Mines, refineries, gold dealers, banks and individual investors use this common price to trade. Anyone selling gold also has to know what the current price as determined by the London fix is so they can know the value of the gold they may be trying to sell.

Gold Prices throughout history

When the first gold price was initially fixed in 1919, the gold price was set at $20.67 an ounce. Fast forward to September 2012, the gold price had risen to $1,759 ounce.

This increase can be attributed  to a variety of factors like an increase in the demand for this precious metal when the supply of gold isn’t stable. The gold price during the 21st century may have been due to a volatile stock market and other factors.

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