Among the first things people look for when buying gold, silver or platinum is of course, its price. But how and why values are set is not always known by those starting their journey into buying gold. Determining how precious metals are priced is a crucial element, so knowing how the process behind it works is your first step towards successful gold investing.
Put simply, the gold fix is a pricing mechanism which is in action throughout the day. It arrives at a value based on the buying and selling movement within the marketplace on a particular day. The London Bullion Market is the international home of gold pricing. Twice a day - at 10:30 and 15:00 GMT - prices are officially fixed.
Why is gold fixing used?
To all intents and purposes, gold remains the original and most widespread global currency, carrying monetary value throughout the world.
Whether you’re buying in physical form (such as bullion coins or bars), digital, or so-called ‘paper’ gold which can be traded on the stock market – the gold fix acts as a transparent benchmark which dealers use to set their price against.
As a result, this fixed rate serves as an internationally-regarded market indicator for the value of precious metals.
How are decisions reached?
The London Bullion Market Association launched its LBMA Gold Price auction in March 2015, as a more technologically-savvy update on the historic model. It is conducted by ICE Benchmark Administration (IBA), and prices are always given in US dollars per fine troy ounce – but are available in sterling and euros, as indicative prices for settlement only.
The IBA provides the price platform and methodology, while also assumes governance and administrative powers over the gold price. Its process is electronic, auction-based, tradeable and auditable. Currently, twelve outside participants have accreditation to contribute to the LBMA gold price, including Barclays Bank, Goldman Sachs, HSBC and JP Morgan.
Why does the price of gold fluctuate?
When deciding on the most accurate gold price on any given day, the LBMA auction is looking out for various triggers. Like in all markets, the gold price is dependent on supply and demand. With a finite amount of global gold, increases, decreases or sharp fluctuations will impact upon its price.
Issues around international economic or even political uncertainty have also been particularly prevalent in recent years. In challenging economic climates, confidence in gold increases (sometimes rapidly), as gold’s intrinsic value means it is regularly in demand.
The World Gold Council claims 60% of the world’s gold reserves are held among just five national governments. Central banks are significant buyers in the gold market, so their buying and selling patterns are carefully watched.
Other key factors taken into account are interest rates and inflation. When rates are low, gold value generally rises, as fears of currency losing value leaves gold’s stock looking more promising.
Do the LBMA only set the gold price?
The LBMA isn’t just known for its setting of the gold price, and is responsible for other significant metals:
Silver - The LBMA silver price is set daily at 12:00 noon. It is given in US dollars per ounce, and the auction is operated by CME and administered by Thompson Reuters.
Platinum and Palladium – These prices are set twice each day at 09:45 and 14:00. They are given in US dollars per .9995 fine ounces, and are independently administered by LME.
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