The History of the Gold Fix

The history of the gold fix reveals a prized and bizarre tradition.

Leave aside any pre-conceived ideas about complicated marketing reports, gold mining methods or demands from gold mining companies before reading further.

When it comes to the gold market price and investing in gold, it doesn't take long before you realize that gold mining methods, market reports and demands from gold companies are only surplus to requirements.

Save the above complicated mechanisms for standardizing the French gold jewelry fix instead; you won't be needing them for the London Gold fix!

Basically the history of the gold fix and the gold market prices started off like this.

In 1919, in an effort to kick-start London's gold market after the end of the First World War, five leading bullion dealers from London's five biggest bullionbanks met on that day to establish a centralized price of gold that all five dealers agreed upon.

They were charged by the London Gold market to agree on a price for the bullion on offer.

Robert James suggests on the ISG Forums Board, that the conversation between the five representatives could have even gone something like this:

"You want to buy at this price? No? How about this price? Yes? OK Done deal. Let's go have a pint."

Before 12 th September, 1919 the gold prices fluctuated widely due to the lack of any standardized marketing mechanism.

For 85 years until 2004, the five member banks of the London gold Fix would meet face-to-face at the offices of N.M. Rothschild, erstwhile chairperson of the Gold Fix, on St. Swithins Lane in London.

Rothschild has been the centre of the world's financial markets for over 200 years.

Representatives, of the five dealers, would sit at a long table with each having a small Union jack flag on a stand in front of them. Some of the five were looking to buy while others were looking sell. The chairperson, (Rothschild until 2004) would recommend a gold price at which the buyers and sellers would transact business.

If a seller was willing to sell his gold at the recommended price, they would lower their flag.

If a buyer was willing to buy gold at the recommended price, he would lower his flag. If one or both were not willing to deal at the recommended price, some or all of the flags would stay up and the chairman would suggest another gold price up or down. Representative of these five companies meet twice a day on the phone with the chairman suggesting a gold price and phone participants, both buyers and sellers, saying "flag" when they are satisfied with the recommended gold price.

Although the telephone has replaced the twice a day meetings in the past couple of years, the bizarre tradition of the history of the gold fix still lives on, and has changed little since 1919.

References:

International School of Gemology

BBC News

Rothschild

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