Friday, July 3, 2009

Getting Your Gold Fix by


So you’re interested in trading gold. That may
be a good decision: Gold-trading platforms
(particularly online gold-trading platforms)
have proliferated in recent years, making it
easier than ever to trade gold. But before
you get started, you will need to understand
gold pricing, which starts with the gold fix.
One way to trade gold is to make a deal directly with another gold trader. This, essentially, is what gold traders do when they trade over the counter (OTC), which is a computerized off-floor securities exchange. Essentially, you go the store and see the price one seller is offering, but don’t know what prices other stores are offering at that very moment.
To help make gold trade pricing transparent—essentially, to provide the entire world with the current price of gold—an entity called the London Bullion Market Association (LBMA) sets the standard benchmark for the price of gold.
The LBMA is comprised of major international banks and bullion dealers—that is, entities that own gold—and loosely overseen by the Bank of England.
Twice a day, at 10 a.m. and 3 p.m. London time, five of the LBMA’s members meet to conduct what amounts to a private auction. At that meeting—called the London gold fixing—the chair of the meeting quotes a price of gold. The other members scramble to determine if they (and the customers they are representing) are buyers or sellers at that price. If there are more buyers than sellers, or more sellers and buyers, the chair quotes another price. When the buyers and sellers reach equilibrium, the benchmark price of gold, called the “gold fix,” is established and published widely, both in newspapers and on the Internet.
The gold fix can be very helpful: It gives gold traders an idea of the fair price of gold, at least at twice-a-day intervals. But there are problems with the gold fix, including timing, barriers to entry and conflicts of interest. If you are a gold trader or simply think you might like to trade gold, please see “Problems for Gold Traders with the Gold Fix” for more information

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