London Gold Prices
History behind the twice daily London "FIXED PRICE"
of Gold Prices and other precious metals.
Courtesy of William Hanley (U.K. Market Eye)

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LONDON - The financial district known here simply as The City is a hotbed of the Loyal Order of the Masons, who have a penchant for strange rituals. But Masonry has nothing to do with an odd little ceremony performed twice every day in an office at N.M. Rothschild & Sons Ltd.

Five men talk on their phones for 10 minutes or so, and then lower tiny Union Jacks sitting on their desks.  And that's it. The London gold fixing is complete. It takes place at 10:30 a.m. and 3 p.m., like clockwork. The same ceremony has been performed the same way, in the same place, and with mostly the same firms participating since the first gold fixing was enacted at Rothschild in St. Swithin's Lane on Friday, Sept. 12th, 1919.  

Anachronistic or not, it works to give the market a snapshot of the spot price of gold at a particular moment in time. When the five representatives met at Rothschild on that first Friday in 1919, gold was fixed at four pounds, 18 shillings and nine pence- about USD$ 7.50 in today's terms. The quoted currency was changed to USD$'s in 1968, but very little else has changed in the intervening 77 years.

The participants at the first fixing were from Rothschild, which chaired the meeting and every subsequent one, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps Wilkins.

International gold trading is an around-the-clock business, with the London Market overlapping those of the Far East in the morning and New York in the afternoon. London bullion traders can make deals from about 7:15 a.m. to 7:15 p.m.  But twice a day the representatives meet face to face at Rothschild to trade gold for physical settlement. The dealing unit is a Good Delivery Bar, which must weigh about 400 ounces and conform to specifications set down by the London Bullion Market.

The chairman suggests an opening price, which is reported by the representatives by phone to their dealing rooms. The chairman then asks who wants to buy and who wants to sell and how many 400-ounce bars they wish to trade.

If the quantities fail to balance at the opening price, the chairman suggests a higher, or lower one, until a balance is achieved. Then he announces the price to be fixed. The dealing rooms can alter instructions to their representatives at any time during the proceedings and that's where the tiny Union Jacks come in.

The representative signals he is changing his declared interest by raising his flag. The chairman can't declare the price fixed unless all the flags are down. All this sounds very quaint and out of touch with computer-driven markets, but up to 20 tons of gold a day are thought to be traded through the fixing.
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