Jul 2024


Jul 2024

Gold fixing 2.0: From traditional ritual to the digital era

By StoneX Bullion

  • Traditional gold fixing: Originally, the gold fixing took place in a magnificent room at the Rothschild banking house in London, where representatives of leading banks fixed the price of gold by raising and lowering flags.
  • Historical significance: The gold fixing began in 1919 and served as the central method for determining the price of gold, which was used worldwide as a reference.
  • Transition to digitalisation: As technology advanced, traditional meetings were replaced by conference calls and eventually an electronic platform to make the process more efficient and transparent.
  • Modern platform: Today, gold fixing is conducted by the London Bullion Market Association (LBMA) via a digital platform that enables faster and more accurate price discovery and involves more market participants.
  • Ongoing importance: Despite the digital transformation, gold fixing remains a central element in the global financial system, as it continues to serve as a benchmark for transactions and investments and ensures the confidence of market participants.

Traditional gold fixing

In a magnificent, panelled room in the venerable Rothschild banking house on St Swithin Lane in London, surrounded by ornate paintings and heavy leather furniture, the representatives of the city's leading banks gathered daily. The sun shone through the high windows and illuminated the gold-embellished flags hanging on the wall. It was a scene of impressive grandeur and traditional power as these bankers performed the daily gold fixing. For decades, the official price of gold was set with a ceremonial raising and lowering of the flags - a ritual that had far-reaching consequences in the financial world.

Historical significance

This daily meeting, which began in 1919, was more than just a formal act. It was the central point for determining the price of gold, which served as a global reference. Five banks - N M Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins - sent their representatives, who sat at massive tables - an elongated table for the chairman of the Rothschild Bank and four desks spread around it - and negotiated with each other in step with market conditions. The signal for the price to be set was the raising and lowering of the small British flag in front of each representative, a simple but symbolic gesture.

Transition to digitalisation

However, like everything else in the world of finance, gold fixing has undergone a profound transformation. Technological progress and digitalisation have changed the methods - while the goal of determining the gold price as fairly and transparently as possible has remained unchanged. The traditional meetings in the wood-panelled rooms were replaced by conference calls, and later by modern digital platforms. The last physical meeting took place in 2004, when the banks decided to fully digitise the process.

Modern platform

Today, gold fixing takes place via an electronic platform managed by the London Bullion Market Association (LBMA). The digital transformation has made it possible to make the process more efficient and transparent. Now even more market participants are taking part in price discovery, which forms the basis for a broader consensus and more representative pricing. The platform allows for real-time response to market conditions and offers much faster and more accurate price discovery than traditional methods.

Ongoing importance of gold fixing

The importance of gold fixing remains immense, even in the modern era. The gold price, which is fixed twice a day - once in the morning and once in the afternoon - continues to serve as a benchmark for business and investment worldwide. It influences not only the physical gold market, but also derivative products and financial instruments based on gold. Investors, mining companies and central banks rely on this price to make decisions that affect billions of dollars.

The transparency and integrity of gold fixing are crucial to maintaining the confidence of market participants. The transition to the digital platform has brought many benefits in this regard, including clear traceability and better monitoring. Nevertheless, it is crucial that regulation and supervision are constantly improved to prevent manipulation and abuse.

The role of gold fixing in the global financial system is also a reflection of gold's enduring value as a safe haven asset and currency unit. In times of economic uncertainty or political instability, gold remains a haven for investors, which only emphasises its relevance and that of fixing.

To summarise, although gold fixing has moved away from its traditional roots, it is still a central element in the global financial market. The evolution from a manual procedure to a state-of-the-art digital process shows how tradition and innovation can complement each other to meet the demands of the modern economy. Today's technology offers unrivalled accuracy and efficiency, making the price of gold more accurate and fairer than ever before.

But while technology advances, the history of gold fixing remains a testament to the enduring importance of this precious metal in our world. The bankers in Rothschild's room might not have foreseen how much their ceremony would change, but the essence of what they did - the search for a fair and transparent price - remains unchanged to this day.