If you want to invest in gold, it’s important to know how the market works and how the price is fixed.
Gold has two prices – a spot price and the London Bullion Market Association price (LBMA) plus several regional prices.
The LBMA price is considered an important benchmark by banks, miners and the general gold business.
Other important prices are set in China and India, the main retail markets for the precious metal.
The LBMA Gold Price replaced the London Gold Fixing in 2015.
The LBMA Gold Price
The price is set in US dollars for a troy ounce of gold, although indicative prices are also set in Pounds and the euro.
The LBMA is set twice a day – at 10.30am and 15.00pm.
The process is an auction. The LBMA chairman sets an opening price, followed by dealers indicating their buy and sell figures for the gold they are trading at that price. The imbalance – net volume is then calculated.
If the imbalance is less than 10,000 ounces, the auction is complete and the price is set.
If the imbalance is more than 10,000 ounces, the price is adjusted and the dealers resubmit their buy and sell orders at that price and the auction continues until the imbalance settles at 10,000 ounces.
Only 13 institutions take part in the auction representing international banks and dealers.
The auction is tightly regulated to make sure the final price is fair to all the participants.
Gold price fixing in China and India
The Shanghai Gold Benchmark Price is set at 10.15 am and 14.15pm (Shanghai time).
The price is in Chinese renminbi and follows a similar procedure to the LBMA auction.
In India, the gold price is set by jewellery associations in each state and dictated by the local markets. This means the price can vary between states.
The price can fluctuate according to the US dollar exchange rate, taxes and import restrictions as well as other factors, such as monsoons, the wedding season and religious festivals. These factors can impact the price as demand rises and falls.