What determines the price of gold?

What determines the price of gold (fixed price, spot price, London fix)?

London is home to one of the most globally accepted bullion markets within the industry, due to the London Bullion Market Association which is also to an extent overseen by The Bank of England. The LBMA’s administrators IBA (ICE Benchmark Administration) have the means to set the gold price with the use of an electronic auction system. Therefore, as of now the gold price is now fixed and published twice a day. Many traders who are also members of the LBMA also hold the means to fix this price.

The gold price is usually determined when these members of the LBMA (London Bullion Market Association) along with their chairman come to a mutual agreement on what price they want to be ‘fixed’ in order to sell or buy their gold. These auctions bring way to the buying and selling of physical gold and are carried out within 45 second rounds. After each of these rounds, the difference between the volume sold and volume bought is calculated. If this difference is calculated to be larger than 20,000, the IBA announce a new auction round with a new price.

The gold fix is given at set times in the day. There is an AM price fixing and a PM price fixing. The fix is given in dollars, pounds and Euros. As supply and demand constantly changes, the gold price then fluctuates throughout the day, reflecting on the trading through bids and offers, and is displayed in real-time by bullion sites such as www.gold-bank.co.uk

Why does the fixing price hold such a massive importance?

Regardless of the gold price fluctuating on a continuous basis, the fix is vital as it frames the trends for that day and we see investment decisions made around the fix price points, which also helps with the predictions for supply and demand.

Although most gold purchases are made at the fluctuating gold spot price for that specific time, the larger members of the gold industry such as banks, miners and refiners use the fix price as a reference. The fixed price is useful to help those interested in the bullion market, this can be investors or everyday customers who can use the price as a guideline on when they feel it is right to buy or sell their gold. The fixing price can be used to see the historic fluctuations of the gold price.