The London Bullion Market Association (LBMA) is a trade association that represents the global over-the-counter (OTC) market for gold and silver bullion. The LBMA is responsible for setting the standards for good delivery of gold and silver, and for maintaining the integrity of the OTC market. The LBMA Gold Price, also known as the London gold fixing, is a benchmark price for the global gold market, and is used as a reference price for gold transactions around the world. The price is determined twice a day through an auction process involving five member banks: Bank of China, HSBC, JPMorgan Chase, Société Générale and ScotiaMocatta. The LBMA Gold Price is widely used as a global benchmark for the gold industry, including central banks, mining companies, and bullion dealers.
The London Bullion Market Association (LBMA) serves as the regulatory body for the “over the counter” gold and silver market in London. Established in 1987 under the oversight of the Bank of England, it plays a pivotal role in setting refining standards, trading practices, and certifying bullion used for gold and silver bars and coins. The LBMA holds the intellectual property rights to the silver and gold fixes, which are set twice daily, denominated in pounds (GBP), dollars (USD), and euros (EUR), replacing the older “London Gold Fix” in 2015.
Membership in the LBMA includes over 120 companies globally connected to the London gold and silver markets, including traders, brokers, refiners, mining companies, and assaying companies. Market Makers, a subset of members, are responsible for quoting bid and offer prices for gold and silver to determine the market price.
The LBMA is renowned for its Good Delivery Rules, which are the international standards for gold and silver bullion. LBMA gold bars typically weigh around 400 troy ounces, with a minimum purity of 995.0 parts per thousand fine gold (99.5%). These bars are marked with essential information, including a serial number, refiner’s hallmark, fineness, and year of production. Silver bars are required to contain 999.0 parts per thousand silver (99.9%).
The Good Delivery List, curated by the LBMA, serves as a reference point for those seeking creditable gold refiners adhering to industry standards, from refiners like PAMP, Heraeus, and Metalor, all of which are Good Delivery Referees, ensuring strict adherence to LBMA standards.
The London bullion market operates as a wholesale over-the-counter market, primarily for trading gold, silver, platinum, and palladium. It is governed by the LBMA, and the majority of members are major international banks and bullion dealers, with the Bank of England providing oversight. The Good Delivery specification, set by the LBMA, describes the physical characteristics of gold and silver bars used for settlement.
Gold trading on an international scale primarily occurs through over-the-counter transactions, with exchange-based trading growing recently. London leads in OTC transactions, followed by New York, Zurich, and Tokyo, while Comex in New York and Tocom in Tokyo are major exchange-based trading centers. Gold is also traded as securities, including exchange-traded funds (ETFs) on various stock exchanges.
LBMA offers allocated and unallocated accounts for trading and storing precious metals. Allocated accounts hold specific bars, plates, or ingots uniquely identifiable to customers, ensuring full ownership of the metal. In contrast, unallocated accounts represent the most popular way to trade, settle, and hold precious metals, with balances reflecting the indebtedness between parties.
However, unallocated accounts pose certain risks due to the high turnover, potentially operating on a fractional reserve system where unallocated accounts may not be fully backed by physical gold, making them susceptible to loss if numerous participants request physical bullion delivery.
The LBMA accepts memberships from companies closely involved with gold or silver bullion in the London market, with varying annual fees. Members span across the globe and play a vital role in expanding operations internationally.
The LBMA forecast, an annual event, collects forecasts from experts in the precious metals market, aiming to predict the high, low, and average prices for gold, silver, platinum, and palladium. The most accurate forecasts are rewarded, promoting accuracy in price predictions. In 2009, Philip Klapwijk emerged as the most accurate forecaster for gold and silver prices.
London gold fixing.
The London gold fixing is a benchmark price for the global gold market. It is determined twice a day, at 10:30 a.m. and 3:00 p.m. London time, through an auction process involving five member banks: Bank of China, HSBC, JPMorgan Chase, Société Générale, and Standard Chartered. The process is conducted by telephone, and the banks submit their buy and sell orders for gold to a chairman who sets the price.
The London gold fixing is used as a reference price for gold transactions around the world, including central banks, mining companies, and bullion dealers. The price is widely used as a global benchmark for the gold industry and is also used as a basis for pricing many gold-related financial instruments, such as options and futures contracts.
The London gold fixing was replaced by the LBMA Gold Price (LBMA-Gold) in 2015, which uses an electronic auction platform and is based on a volume-weighted average of the highest and lowest orders of participating firms and is administrated by the ICE Benchmark Administration (IBA)
The financial district known here simply as The City is a hotbed of the loyal Order of the Masons, who have a penchant for strange rituals. But Masonry has nothing to do with an odd little ceremony performed twice every day in an office at N.M. Rothschild & Sons Ltd.
Five men talk on their phones for 10 minutes or so, and then lower tiny Union Jacks sitting on their desks. And that’s it. The London gold fixings is complete. It takes place at 10:30 a.m. and 3 p.m., like clockwork. The same ceremony has been performed the same way, in the same place, and with mostly the same firms participating since the first gold fixing was enacted at Rothschild in St. Swithin’s Lane on Friday, Sept. 12th, 1919.
Anachronistic or not, it works to give the gold market a snapshot of the spot price of gold at a particular moment in time.
When the five representatives met at Rothschild on that first Friday in 1919, gold was fixed at four pounds, 18 shillings and nine pence- about USD$ 7.50 in today’s terms. The quoted currency was changed to USD$’s in 1968, but very little else has changed in the intervening 77 years.
The participants at the first fixing were from Rothschild, which chaired the meeting and every subsequent one, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps Wilkins.
International gold trading is an around-the-clock business, with the London Market overlapping those of the Far East in the morning and New York in the afternoon. London bullion traders can make deals from about 7:15 a.m. to 7:15 p.m. But twice a day the representatives meet face to face at Rothschild to trade gold for physical settlement. The dealing unit is a Good Delivery Bar, which must weigh about 400 ounces and conform to specifications for gold bars set down by the London Bullion Market.
The chairman suggests an opening price, which is reported by the representatives by phone to their dealing rooms. The chairman then asks who wants to buy and who wants to sell and how many 400-ounce bars they wish to trade. If the quantities fail to balance at the opening price, the chairman suggests a higher, or lower one, until a balance is achieved. Then he announces the price to be fixed.
The dealing rooms can alter instructions to their representatives at any time during the proceedings and that’s where the tiny Union Jacks come in. The representative signals he is changing his declared interest by raising his flag. The chairman can’t declare the gold price fixed unless all the flags are down. All this sounds very quaint and out of touch with computer-driven markets, but up to 20 tones of gold a day are thought to be traded through the fixing.
- The London OTC market, historically dominant in the gold trade, now accounts for approximately 70% of global notional trading volume. It sets the LBMA Gold Price, trading ‘Good Delivery’ bars stored in secure vaults, making it a key global benchmark. Known as the ‘terminal market,’ London’s strategic time zone and financial hub status contribute to its importance, despite a recent decline in relative market share. The introduction of LMEprecious by the World Gold Council aims to address these challenges and modernize the market.
- In the US, the COMEX derivatives exchange, operated by CME Group, plays a vital role in gold price discovery. It focuses on the ‘active month’ contract, closely linked to the spot price. Though few contracts result in physical delivery, the COMEX remains connected to physical markets through an active Exchange for Physical (EFP) market. Notably, an increasing share of COMEX trading occurs during Asian market hours, reflecting its success in tapping into Asian market growth.
- The Chinese gold market, primarily represented by the Shanghai Gold Exchange (SGE) and the Shanghai Futures Market (SHFE), has rapidly grown in importance. SGE, established in 2002, introduced the Shanghai Gold Price benchmark to assert China’s role as a price-setter, promote RMB internationalization, and encourage global participation. Active futures trading on SHFE complements SGE’s spot and deferred contracts, even though the two exchanges are not directly linked.
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