Improving the Gold Benchmark

Concerned that the benchmark price of gold set in London may not be as accurate as it should be, a group of global banks and trading firms has drafted new guidelines for the daily auctions that determine the benchmark, also known as the London Bullion Metal Association (LBMA) Gold Price or the London Gold Fix. 

Electronic auctions are conducted twice daily, at 10:30 a.m. and 3:00 p.m., London time to set the “London AM Fix” and the “London PM Fix.” The new guidelines are designed, “to increase the volume of bids and offers submitted to LBMA Auctions and improve the quality of price discovery resulting from them, thereby improving the effectiveness of the market.” Specifically, the new auction standards encourage market participants to submit more aggressively so-called “house orders,” in which they are trading for their own account, in addition to submitting client orders. 

The standards group, known as the Fixed Income, Currencies and Commodities Markets Standards Board (FMSB) states that it “understands certain Participants may not be submitting House Orders due to concerns about the management of regulatory and conduct risks.” The new auction guidelines encourage house orders, as long as they are not submitted to unfairly move the market to a participant’s benefit. 

The LBMA Gold Price sometimes does diverge from actual market prices. On October 29, 2021, for example, the London PM Fix was set at $1,769.15, which was nearly $2 under the spot—or cash—market low for gold that day.

Eighteen companies participate in the London gold auctions, including Bank of China, Citibank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, and TD Bank.

The guidelines will also apply to the LBMA Silver Price benchmark, which is set once daily at a 12:00 p.m. auction in London.