Who and what sets the price of gold

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Who and what sets the price of gold

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If you are going to ask an economist about who exactly sets the price of gold, they will most probably answer you with the generic answer: supply and demand. Which is correct, mind you. Like many other marketable goods, gold, as a rare metal, is priced depending on the abundance of it in the market, and how the consumers demand for it.

But for the sake of price standard, there really is a body that sets the price of gold. Actually, there are three, the gold futures market, the OTC (over-the-counter) gold market and the London fix, the latter being the most important one.

The London fix is considered as the primary benchmark for gold pricing. Gold price fixing is done so as not to exaggerate the price of gold, either by trading it too low or too high. They provide a tradable benchmark gold price.

The London fix announces two daily fixings - one in the morning, 10:30am, and another in the afternoon, at exactly 3:00pm.

The fixing is headed primarily by a company called the London Gold Fixing Limited and its 5 members namely HSBC, Deutsche Bank, Barclay's, Societe Generale and ScotiaMocatta.

The fixing chairman will then nominate a price for gold trading, and the fixing members, who has their own connection to other dealers and traders, will debate, vote and pass the information to their clients.

Before a fixing a done, the five fixing members must declare their interest for gold trading at that time: buyer, seller or no interest. They also are to declare the number of gold bars they are to buy or sell, based on their own or their clients' interest. When this is settled, the chairman will then declare the gold price as "fixed."

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Tags: • deutsche bank • hsbc • trading • pricing • london • futures • abundance • gold bars • gold trading • price fixing • gold price • gold market • gold futures • price for gold • supply and demand • price of gold •

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