The price of physical gold and gold futures is determined by the London Gold Fix which is known as the LBMA Gold Price.
The LBMA Gold Price is set twice a day and is used by refiners, large jewelry manufacturers, asset managers, central banks and investors. Since 1968, there have been two fixes a day, one in the morning, and one in the afternoon, with the AM Fix taking place at 10:30am, and the PM Fix taking place at 3:00pm.
The LBMA Gold Price benchmark is published twice a day using the price from the final round of each gold auction.
The gold auctions start at 10:30am and 3:00pm (London time) and are run on the WebICE electronic trading platform.
Up until 2015 the fix was conducted via a phone teleconference amongst a handful of banks. This long standing process was changed in March 2015, with the appointment of the ICE Benchmark Administration (IBA) to administer the new LBMA Gold Price, which replaced the Gold Fix.
IBA, an independent administrator, effectively runs an auction process with participants entering buy and sell orders by volume, based on their own preferences.
The auction is complete when the market matches, i.e. there is an equal volume of physical gold that is being offered as well as bid, although there is an allowable tolerance of total buys and sells being within 10,000 ounces of each other.
The price at which this occurs is then published as the LBMA Gold Price.
Image Source How the LBMA Gold Price is Set
Whilst the price discovery process occurs in USD, participants can settle in different currencies. IBA publishes daily records for both the AM and PM gold price fix.
These records highlight the number of rounds required to set the LBMA Gold Price, the bid and ask volumes offered, the number of participants involved, and the price at which the fix is set.
How is the price of Gold determined?
The thirteen direct participants in the LBMA Price auction include a number of the world largest banking corporations, including Barclays Bank, Bank of China, China Construction Bank, Goldman Sachs, HSBC Bank USA NA, ICBC, JP Morgan, Morgan Stanley, Societe Generale, Standard Chartered, ScotiaMocatta, the Toronto-Dominion Bank and UBS, all of whom are now involved in the daily gold price auction.