How Is the Market Price of Gold Determined?

London bankers have fixed the price of gold for nearly a century.

Gold image by Strikker from

People have valued gold for its natural beauty and luster, as well as for its monetary value, for thousands of years. Pricing for this precious commodity is determined by supply and demand, and the market price for gold is officially fixed each day using a surprisingly simple system. Gold's official market price is an important tool for everyone involved in the gold industry, from miners to bankers to pawn shops.

History of Gold Fixing

Through the early 20th century, many nations tied their currency value to the value of gold. After World War I, this gold standard largely collapsed, as countries were reluctant to trade gold with other nations. In an effort to restore the financial strength of London after the war, the Bank of England formed an agreement with a group of major South African gold mines. Per the terms of the agreement, the mines would send all newly-mined gold to London, where it would be sold on the open market for a fair market price. The London Gold Market Fixing Limited, which consisted of five major London banks, was established to determine that fair market price. The group held its first meeting on Sept. 12, 1919, and has continued to fix gold prices since that time.

Gold Fixing Process

The members of the London Gold Market Fixing Limited meet twice each day via conference call at 10:30 a.m. and 3 p.m. GMT. The chairman of the group announces a starting price and each member bank specifies how many bars of gold they will buy or sell at that price. If there are too many buyers and too few sellers, the price is raised; if not enough buyers want to buy gold at a certain price, it is lowered. When the number of buyers and sellers are within 50 bars of one another, the price is set at that point. This process typically takes less than 15 minutes, but has taken more than two hours to complete in the past.

Benefits of Gold Fixing

Gold fixing prices are widely used by people and businesses all over the world. This process helps these parties work with a universally-accepted price standard, making it easier to conduct business. Refineries and mines use current market prices to value their inventories, while banks use these prices to conduct trading on the gold futures market and to value their daily bullion inventory. Sellers rely on these prices to set their own prices for gold and objects that use gold as part of their manufacturing process.

Gold Prices

During the first official gold price fixing in 1919, the price of gold was set at $20.67 USD per ounce, or 4.94 British pounds. By September 2012, the price of gold had increased dramatically to $1,759 USD per ounce, or 1,087 British pounds. This price increase, which far exceeded the rate of inflation, may be attributed to a variety of factors, including an increase in demand coupled with a relatively stable supply. According to CNN, some of the record gold prices throughout the early 21st century may be due to the volatility of the stock market and other financial instruments, as investors look for ways to reduce their vulnerability.