Fix (Gold Fix)
The Gold Fix (formally known as the LBMA Gold Price since 2015) is an internationally recognized benchmark price for gold, published twice daily (AM and PM) by ICE Benchmark Administration on behalf of the London Bullion Market Association, derived through an electronic auction mechanism that aggregates buy and sell orders from participating banks and institutions. It serves as the global reference price for gold contracts, derivatives, central bank transactions, and gold-linked financial products.
Key takeaways
- The LBMA Gold Price replaced the historic London Gold Fixing in 2015 after the original five-bank panel fixing process—in use since 1919—was found vulnerable to manipulation following investigations that resulted in regulatory penalties for several major banks.
- The benchmark is published in U.S. dollars per troy ounce twice daily: the AM Fix at approximately 10:30 London time and the PM Fix at approximately 15:00 London time, providing two reference points that align with the opening of U.S. trading.
- The fix process involves an iterative electronic auction where a designated price is set and participants submit buy or sell volumes; the price is adjusted upward if buying exceeds selling and downward in the opposite case, converging on the equilibrium price where supply equals demand.
- Major users of the gold fix include central banks managing gold reserves, mining companies hedging production, jewelry manufacturers, exchange-traded gold funds (such as GLD), and financial institutions pricing gold-linked structured products.
- The manipulation scandals that led to the 2015 reform revealed the risks inherent in benchmark prices determined by small panels of financial institutions without adequate oversight, contributing to broader global benchmark reform efforts under IOSCO principles.
Explanation
The history of the Gold Fix dates to September 12, 1919, when five London gold dealers—Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co., Sharps Wilkins, and N.M. Rothschild & Sons—convened for the first time at Rothschild's offices in New Court, St. Swithin's Lane, London, to establish a daily reference price for gold. The procedure involved a chairman announcing an opening price, with participants indicating interest as buyers or sellers by raising small Union Jack flags; prices were adjusted until the market cleared, at which point the flag was planted to signal the fix. This quaint and gentlemanly process continued with minimal structural modification for nearly a century, surviving both World Wars and the collapse of the Bretton Woods gold standard in 1971.
The two-times-daily cadence of the Gold Fix—morning and afternoon—was designed to capture the transition between Asian market hours (partially captured by the AM Fix) and the overlap between London and New York trading hours (captured by the PM Fix). The PM Fix in particular became the dominant reference price globally, used for settlement purposes in a wide range of financial contracts. Central banks publishing quarterly valuations of gold reserves, exchange-traded funds computing net asset values, and structured product issuers specifying payoff terms all reference the LBMA Gold Price, making its accuracy a matter of broad systemic importance.
The manipulation controversy that engulfed the benchmark process between 2011 and 2014 fundamentally altered its structure. Investigations by the UK Financial Conduct Authority (FCA) and later by the U.S. Department of Justice found evidence that participating banks had used the fixing mechanism to benefit their own proprietary positions and those of favored clients. Barclays was fined £26 million by the FCA in 2014 after a trader was found to have manipulated the gold fix to avoid a payout on an options contract. These revelations prompted a comprehensive reform: in March 2015, the London Gold Fixing was replaced by the LBMA Gold Price, administered by ICE Benchmark Administration, with an expanded panel of participants, electronic auction mechanics, independent administration, and third-party oversight.
The LBMA Gold Price's role extends beyond simple price discovery. It serves as the reference in the vast London OTC gold market, where unallocated gold accounts—representing the overwhelming majority of gold trading volume—are settled by reference to the fix. Physical gold trading, lease rates, and gold forward agreements (GOFOs) all draw on the LBMA benchmark. For hedge funds with commodity exposure, particularly those running macro strategies with gold as a safe-haven or inflation-hedge component, the LBMA Gold Price is the primary reference for evaluating performance, computing NAV, and pricing related derivatives.
The gold fixing mechanism interacts with the broader commodities derivatives market through its influence on gold futures prices on COMEX (CME Group). The COMEX gold futures contract is the most liquid vehicle for speculative and hedging activity in gold, and its price tracks the LBMA spot price closely, with the difference reflecting the cost of carry (storage costs plus financing costs minus lease rate). The fix therefore anchors not only the spot market but also propagates its influence through the futures curve and the entire ecosystem of gold-linked financial instruments.
Example
A sovereign wealth fund holds 50 tonnes of physical gold in allocated accounts at the Bank of England. The fund's quarterly NAV calculation requires converting the gold holding into U.S. dollar terms for financial reporting. Using the LBMA PM Gold Price fix on the last business day of the quarter—suppose it is $2,050.00 per troy ounce—and noting that one tonne equals 32,150.75 troy ounces, the gold holding is valued at 50 × 32,150.75 × $2,050.00 = $3,295,451,875, or approximately $3.295 billion. Additionally, a gold mining company that has entered a gold forward sale contract with an investment bank specifying settlement at the LBMA PM Fix on a specific date receives that exact benchmark price for its production, eliminating settlement price basis risk.
Related terms
Basis Basis Risk Central Bank Certified Stocks Cost Of Carry Crack Spread Crush Spread Exchange Futures Contract Futures Curve Gold Hedging