The London Gold Fix is a nearly 100-year-old price-setting system for the international price of gold. Beginning in March, one or more Chinese banks may be included in the pool of fix participants for the first time ever.
Last year it was announced that the ICE Benchmark Administration (IBA) would take over the operation of the fix, previously run by the London Bullion Market Association (LBMA). The transition will take place in March and will purportedly make the daily gold fixing process more transparent by involving more banks. A host of banks are negotiating to participate in the fix.
The fix is currently run by just four Western banks – Society Generale SA, Bank of Nova Scotia, HSBC Holdings Plc, and Barclays Plc. Three Chinese banks are now members of the LBMA – China Construction Bank, Bank of China, and Industrial and Commercial Bank of China. Which of these are wrangling to join the fix in March is unknown.
We do know that China has aggressively liberalized its gold market in the past decade. In the past few years, it has also opened up its gold trading doors to more and more foreign banks. Now it has a chance to become a bigger player in Western markets. Here’s a few highlights of the Chinese gold trade to keep in mind:
- China’s gold demand has doubled since 2009.
- China became the world’s largest gold buyer in 2013, though India took the title back last year.
- In 2014, the Shanghai Gold Exchange saw record trading volume.
- Chinese gold demand is anticipated to increase 20% in the next few years.
- Multiple foreign banks now have physical gold contracts in Shanghai and Hong Kong.
The key takeaway from this latest news is that now China will have a more direct influence on the international price of gold.
The Financial Times has a brief video from last year that explains the London Gold Fix and the rational behind dissolving it:
