Gold Fix-Can Benchmark Prices Be Manipulated?

Are gold prices fixed on daily basis? Can gold benchmark prices be manipulated. This is an important question that comes to mind. Do you know about London Price Fix? London has been a global financial center for more than 2 centuries now. Even today London is ahead of New York when it comes to the volume of currency transactions. Daily a few big banks meet in London twice to fix the benchmark price of gold. Not only gold, but silver, platinum and palladium prices are also fixed by a few big banks in London. You can download and read this 2 page article published in Alchemist that says that the structure of the benchmark is certainly conducive to collusion and manipulation. This article discusses a recently study done by a professor at NYU Stern School of Business and a managing director at the Moody’s Rating Agency. Things are not transparent according to this study. Watch this video that explains the Gold Fix.

After watching the above video, you should get a fair idea that gold prices are determined based on market supply/demand. It is the big banks who fix gold prices. The place where it happens is London. This is the reason that this is known as London Gold Fix. London Gold Fix is done by a few big banks headquartered in London. London gold and silver price benchmarks are fixed. This process of fixing gold and silver benchmark prices twice daily in London has come under increased scrutiny.

The fixing of the gold price in London dates back to 1919, originally involving NM Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins. Silver price-setting started in 1897.

Gold fixing happens twice a day in a teleconference between Barclays, Bank of Nova Scotia-ScotiaMocatta, HSBC Bank USA and Societe Generale. The fixings are used to help determine prices globally.

Now the days of British Empire are now long over. In the days of British Empire, gold standard was being used all over the world. Almost all currencies were pegged to gold. This helped in determining the prices of the currencies relative to one another. The lynch pin was of course the British Pound. This was the situation before the Second World War.

Then Second World War came and the power balance in the global power system shifted from UK to USA. US Dollar replaced British Pound as the international reserve currency. But the London Gold Fix continued. Now enter China. China has started its own Shanghai Gold Fix. This video tries to answer the question how much China can change the gold fix.

Gold is still considered to be an important hedge against political and financial uncertainty. A few years back, gold rally astonished the world by reaching $2,000 per ounce. At that time analyst predicted gold prices breaching above $5,000 per ounce. But this did not happen. Gold price retreated and is now hovering around $1100 per ounce. But it never breached below $1,000 per ounce. Today China and India are the biggest consumers of gold. When there is demand for gold in China and India, global gold prices rally. When there is low demand in China and India for gold, gold price falls. Gold will continue to work as a hedge against inflation and financial and political uncertainty. Maybe in the future world reverts back to the gold standard like the one in nineteen century in the time of the British Empire. Did you read the post when bad news is good for Gold?

Inclusion of China in the gold price fixing seems to be an attempt to take a new market realities into account as China is the biggest consumer of gold. This Reuters article claims that London gold price fixing is the most open market pricing mechanism in existence.