The price of gold like all other commodities are determined by supply and demand. Although
unlike other commodities, gold cannot be consumed, and all the gold that was mined previously
still exists. In effect, this means more fluctuation, and that it can come on the market again to be
sold when the price is right.
Central banks and the IMF play an important role in the price of gold. It was said that at the End of
2004, the central banks and official organisations held 19% of the total amount of gold that was
mined. European central banks, such as the Bank of England, and the Swiss National Bank have
been significant in the list of sellers of gold since 1999.
The London gold price has a marketplace with a clearing mechanism. These are five banks that are
interconnected. These are The Bank of Nova Scotia, Deutsche Bank AG, HSBC Bank, JP Morgan
Chase Bank, and UBS. It is the job of the clearer, to take care of the gold that is shipped from all
over the world. This gold will then go to jewellery manufacturers. Clearers also have customers
who wish to buy the gold themselves.
In addition to the five clearers, the Bank of England clears total gold positions everyday by making
transfers into unallocated accounts, in respect of the trading practices of each clearer. The Bank of
England is not one of the five clearers, but is still the chief clearer for the LBMA. If they want to,
they can generate supply by creating unallocated liabilities on their balance sheets, or they can
create scarcity by buying gold back from the clearers, and reducing the bullion rate, in theory or
reality, in market circulation.
A major concern about Over the Counter Trading is the gold fix. The gold fix is dictated by four
major market makers. These are The Bank of Nova Scotia, Deutsche Bank AG, HSBC Bank USA
London Branch, and Societe Generale.
This sets the price of gold at a fixed rate, which makes it possible for gold traders to trade at fair
market prices. Twice a day, morning and afternoon, members of the gold fix in London conduct an
auction. This auction aims at finding the price where the number of buying orders match with the
number of selling orders. For more information about buying and selling of gold and price fixing, CHECK HERE