London Fix
Although trading takes place in metals round the clock and in many center of the world, the London fixing occupies a key place in the pricing of gold.
The fixing price is an important benchmark in the gold market because much of the daily trading volume goes through the fixing price. It is fully transparent and is therefore used to deal in large amounts, or to achieve the accepted average price of the metal. It is that process at which market participants can transact business on the basis of a single quoted price. As a benchmark, many other financial instruments are priced off the fixing, including cash-settled swaps and options.
The silver fixing started in 1897 whereas the gold fixing in 1919. Fixing is the main feature of the London Gold Market trading. There are 2 fixings on each transaction day. London gold price fixing takes place twice at 10:30 A.M. and 3:00 P.M. each business day, in the “fixing room” of the merchant-banking firm of N. M. Rothschild. The A.M. and P.M. fixing prices are published daily in major newspapers.
There are five Gold Fixing members – all are Market Making members of the LBMA. (London Bullion Market Association.) LBMA is the trade association that acts as the co-ordinator for activities conducted on behalf of its members and other participants in the London Bullion Market. It acts as the principal point of contact between the market and its regulators.
Five individuals, one each from five major gold-trading firms, are involved in the fixing. The firms represented are Mocatta & Goldsmid, a trading arm of Standard Chartered Bank; Sharps Pixley, a dealer owned by Deutsche Bank; N. M. Rothschild & Sons, whose representative acts as the auctioneer; Republic-Mase, a bullion subsidiary of Republic Bank; and Samuel Montagu, a merchant banking subsidiary of Midland Bank (owned by HSBC).
The purpose of fixing is to find a market acceptable price. If the price is fixed too high, the five major gold trading firms will decide if they have to lower the price.
On the contrary, should the price fixed to a lower level, and supply far exceed demand, the five major gold trading firms will decide to raise the price. This process will last until a single price representing temporary equilibrium between supply and demand is found. Normally, commission will be charged to investor who buy in at the fixing price.
At the start of each fixing, the Chairman announces an opening price to the other 4 members who relay this price to their customers, and based on orders received from them, instruct their representatives to declare themselves as buyers or sellers at that price. Provided there are both buyers and sellers at that price, members are then asked to state the number of bars they wish to trade.
Customers may leave orders in advance of the Fixings. Alternatively, they may choose to be kept advised of price changes throughout the Fixing and may alter their orders accordingly at any time until the price is fixed. To ensure that the price is not fixed before the member has had an opportunity to communicate any changes each member has a verbal flag. As long as any flag is raised, the Chairman may not declare the price fixed.
If at the opening price there are only buyers or only sellers, or if the numbers of bars to be bought or sold does not balance, the price is moved and the same procedure is followed until a balance is achieved. The Chairman then announces that the price is fixed. It should be noted that the Fix is said to be balance if the buy amount and the sell amount are within 50 bars of each other. The Fixing will last as long as it is necessary to establish a price that satisfies both buyers and sellers.
Benefits of London Fixing
- International benchmark
- Published price
- Narrow dealing spread
- Any quantity may be dealt
- Anonymity
