How gold is priced: what the LBMA auction does
Gold has no exchange in the sense that a share has one. The overwhelming majority of wholesale gold trades over the counter, between dealers, without any central venue printing every transaction. That creates a practical problem: a market this size needs one number per day that everybody can point at, so that a fund can value its holdings, a refiner can price a forward sale and a central bank can mark its reserves. The London auction exists to produce that number, and the LBMA gold price it prints is the answer to how gold is priced for settlement purposes.
The process is an equilibrium search. A chair proposes a price; participating members enter the quantity they are willing to buy or sell at it; if the two sides do not match within a tolerance, the price is adjusted and the round repeats. When the imbalance falls inside the tolerance, the price is published. It happens twice each London business day, and the afternoon print is the one written into most contracts because it falls within both European and American hours.
Two properties follow from this design and matter for reading the archive. First, the benchmark is a real transactable price, not a survey, because members are committing volume, not offering opinions. Second, it is a snapshot: it describes the moment the auction cleared and nothing before or after. A dispatch quoting “the fix” is quoting an instant, and any subsequent intraday move is invisible in that figure.
Spot, and why it differs
The LBMA gold price is not the only answer, though. Alongside the auction runs the continuous dealer market, and the price quoted there is what most people mean by the spot price. It is a two-way quote, a bid and an offer with a spread between them, updated constantly, for metal delivered in London two business days forward by convention. Because the auction and the spot market involve the same participants trading the same metal, they track each other closely. Because the auction is a discrete event, they are never identical.
Futures prices are a third thing again, and they differ from spot by the cost of carrying metal to the delivery month: financing, storage and insurance, less any lease income. That difference is the basis, and it widens with time to delivery. A dispatch that reports gold “settling” at a figure is almost always reporting a futures settlement for a named contract and month, which is why contract specifications is a separate page.
The premium on top
Everything above concerns wholesale metal in London. A buyer anywhere else pays a premium, and the premium is where local conditions enter the price. It contains, in rough order of size: fabrication into the form the buyer wants, transport and insurance, the dealer's margin, any local tax, and, critically for this archive, import duty where it applies.
During the period covered here the premium became the most informative number in several markets. In Shanghai it functioned as a live indicator of Chinese physical demand, because import was channelled and the premium responded within days. In India it became a policy artefact: as duty rose from 2 % to 10 % between 2012 and 2013, the gap between the legal landed price and the street price widened enough to sustain a parallel supply chain, which is the subject of India's gold import regime.
| Stage | What is added | Varies with |
|---|---|---|
| Benchmark | None | The auction; published twice daily |
| Currency conversion | The exchange rate | Continuously; a large term in rupee prices |
| Import duty | A statutory percentage | Policy · 2 % to 10 % in India over two years |
| Landed premium | Transport, insurance, local scarcity | Physical demand and supply channels |
| Fabrication | Refining and forming into bars, coins or jewellery | The product; smallest items cost most per gram |
| Making charge | The retailer's workmanship and margin | The piece, the retailer, and negotiation |
What a “fix” does not fix
The word “fix” is a historical term for the auction print, and it misleads consistently. It does not mean the price is fixed in the sense of being held at a level: the metal trades freely before and after, and the next auction will produce a different number. It does not fix the price you pay, because the premium sits on top of it. And it does not fix a rate for any period: it records a clearing price at one moment.
What it does do is give the market a single reference for settlement, and that function is the reason the mechanism attracted such scrutiny. A number embedded in thousands of contracts is worth influencing, which is precisely the argument that produced the reform to an electronic and auditable process.
Reading a quote correctly
Four questions resolve almost every ambiguity in a bullion figure. Which venue or mechanism produced it: an auction print, a dealer spot quote, a futures settlement, or a retail board? In what unit and currency, whether dollars per troy ounce, rupees per ten grams or yuan per gram? At what purity, 999.9, 995 or 22-carat? And at what moment on what date?
Every restored dispatch in this archive answers all four where the original copy allowed it, and says so explicitly where the original did not. That is the practical difference between an archive and a clipping: the figures are still readable because the frame around them survived with them. The Charts & Data hub carries the unit conversions, and the restored dispatch on calculating the Indian price of gold works one full example through from the London print to a jeweller's counter.
Where to check this
This page is current writing, so its mechanisms can be checked against the bodies that publish them. Figures inside the restored dispatches stay as filed.
- LBMA The reference price, and the auction that establishes it twice each London business day.
- World Gold Council Gold Demand Trends, the quarterly series that splits demand into jewellery, investment, central banks and technology, which are the four categories the hubs use.
Common questions
Who decides the gold price?
Nobody decides it. The London benchmark is the output of an auction: participating members submit the volume they will buy or sell at a proposed price, and the price moves until buy and sell interest match within a set tolerance. The number that clears is published. No participant sets it and no authority approves it, which is why the correct verb is “established” rather than “announced”.
Why does the price I can buy gold at differ from the price in the news?
Because the published benchmark is a wholesale price for large bars of at least 995 fineness, delivered in London, and you are buying a small fabricated object somewhere else. Between the two sit fabrication cost, transport, insurance, the dealer's margin, local taxes and, in several of the markets this archive covers, import duty. On a one-ounce coin those additions are routinely 4 % to 8 %; on Indian retail jewellery during 2013 they were far more.
Was the gold fix manipulated?
The older telephone-based process attracted regulatory scrutiny and litigation, and it was replaced during the period this archive covers by an electronic, auditable auction with a wider participant base. The archive reports on that transition as it happened rather than in retrospect. What is uncontroversial is the structural criticism that drove the reform: a small number of participants, no published audit trail, and a mechanism whose integrity depended on the conduct of the people inside it.
Is a benchmark price the same as a spot price?
No. Spot is a continuous over-the-counter dealer price for immediate delivery, moving all day. The benchmark is a single figure printed at a scheduled moment so that contracts, funds and central banks have something unambiguous to mark against. They are usually very close and are not the same thing, and a settlement obligation that names one is not satisfied by the other.