Twice each business day via dedicated conference line, The London Gold Fix informally provides a recognized benchmark for pricing gold products throughout the world’s markets. This long established pricing mechanism is set to be replaced according to yesterday’s announcement.
Beginning in March 2015, The Intercontinental Exchange (ICE) and the London Bullion Market Association (LBMA) will replace the London Gold Fix as the governing organization over a revamped gold price discovery process: the LBMA Gold Price.
Using the U.S. dollar, the British pound and the euro, the ICE Benchmark Administration (IBA) will employ a physically settled, electronic and tradeable auction that will offer real-time gold price calculations.
The LBMA Gold Price will update every 30 seconds, and beginning April 1 the gold price benchmark will be subject to the high regulatory standards of the Financial Conduct Authority (FCA).
This new system will replace a process that had been used by the London Gold Market Fixing Ltd. since 1919. In that operation, member banks attempt to reach a fixed gold price that they believe offers optimal liquidity to the marketplace. Taking into account certain supply and demand dynamics, these “market makers” reach a fixed price for gold which also serves as a guide to the spot price.
That methodology had come under fire after years of controversy, allegations and lawsuits, which sparked the World Gold Council to hold a forum in mid-summer 2014 to discuss a possible alternative. Then in November 2014, the London Bullion Market Association announced that IBA would take over the process, which leads us to this update regarding the IBA’s new pricing methodology.
In a quote from Finbarr Hutcheson, ICE Benchmark Administration president, he said the interested parties in the electronic format have been encouraging, and the data collected for the market price will be more transparent and robust.
The FCA has yet to reveal the exact criteria it will use to regulate the new electronic auction.
What do you think this change means to the future of gold prices?
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