New LBMA gold price starts 10:30 a.m. Friday with same four banks plus two more.
[This article originally appeared on BullionVault and is republished here with permission.]
London's final PM Gold Fix was set today at $1166 per ounce, ending a process running formally twice each day since 1919 with a 15-year break during and after WWII.
The market's new benchmark, the LBMA Gold Price, will begin Friday morning, repeating the core process – and providing continuation for commercial contracts and valuations around the world – but using an online platform with fully auditable order entries and strict regulatory oversight by independent administrator, ICE Benchmarks Administration (IBA).
Owned by the London Bullion Market Association (LBMA), the new price point will be freely distributed until the third quarter of 2015, when IBA expects to publish its fee schedule.
The last PM Gold Fix saw 2 sellers and 2 buyers amongst the four member banks, with their client and house orders netting out to supply of 145 bars against demand for 110 bars at that price of $1166 per ounce.
The imbalance came within the Gold Fix's tolerance of 50 large bars (20,000 ounces), with the difference met between the 4 members, who undertook to deal any size at that single price.
Friday's new process – again run at 10.30 and 3 pm London time – will also seek the one, single price which clears the most business across the wholesale gold bullion market at that moment. Like the 100-year old Fix, it will effectively pool the market's buy and sell orders, trying prices higher or lower – and accepting new orders in response in rounds lasting 45 seconds each – until supply and demand are balanced.
As before, the price is set (formerly "fixed") when any imbalance is smaller than 20,000 ounces. Again, the new LBMA Gold Price also requires the major bullion dealers involved (formerly the Fixing members, now "participants") to meet any residual demand or supply which results. Instead of a minimum order size of one 400-ounce Good Delivery bar however, the new minimum size for orders – entered directly to the WebICE app by participant bank sales desks separately from their traders, with the traders now unable to see client flows – will be just 1 ounce.
The Web application replaces the old Gold Fix's twice-daily telephone call (a face-to-face meeting at the chairing bank's offices from 1919 to 2004). The opening price suggested by the WebICE platform to participants and their clients will be based on prevailing spot market and global exchange prices, and decided by a specialist team at IBA.
An independent human chair – rather than an algorithm – will then suggest higher or lower prices to find the balancing price as needed. Rotated from amongst a pool of external experts, the chair will attend IBA's offices in person.