Gold price fixing was formalised back in 1919 with the establishment of the London Gold Fix. Since then and right through until 2004, NM Rothschild & Sons, together with four other major London gold traders came together twice a day to set the price for gold.
In 2004, NM Rothschild & Sons announced that they were planning to withdraw from gold trading and the Gold Fix, and their seat on the panel was taken over by Barclays Capital.
Much has changed over the years, not least the fact that what was once a a forum that established the price for trades in physical gold, has morphed into a panel that sets the price for trades that are predominantly of “paper” gold.
These derivatives and other financial instruments currently outnumber physical gold by a factor of 300:1 and undoubtedly mask the the true value of physical gold, by virtue of their number and relative abundance.
Over the years there have been many scandals associated with gold price fixing and in May 2014, the FCA fined Barclays £26m for system failures, conflicts of interest and the manipulation of the gold price on 28 June 2012.
The traditional London Gold Fix came to an end in 2015 when the London Bullion Market Association (LBMA) took over gold price fixing in London, and gold prices are currently calculated electronically, twice a day by the ICE Benchmark Administration (IBA).
Gold Price Fixing In China
What we are seeing in 2016 is that as the economies of countries in the East continue to re-emerge, their appetite for gold appears to be far greater than the appetite for gold in the West.
In 1971 Richard Nixon finally severed all ties between the US Dollar and gold. Switzerland did the same in 1999, and today there is no major currency that is in any way linked to gold.
By taking away any connection to gold, countries are free to manipulate their currencies to suit themselves. So long as their people continue to believe in, and to accept payment for their labour in, “paper” based FIAT currencies, and other Nations follow suit, then the Bankers running those economies can pretty much print as much “Money” as they wish.
The problem is, that at some time that “House of Cards” is going to collapse.
The writing is on the wall, although one needs to analyse carefully what is happening in global markets and be careful not to jump to conclusions.
As of today, China has launched the alternative Yuan denominated Shanghai Gold Exchange (SGE) gold fix, solely for physical gold.
There has been much speculation about their motives and their supposed intention to launch a new Gold backed Yuan, to one day replace the US Dollar as the global currency of choice for International trade.
I’d suggest that is a leap too far at this stage.
For sure, China has been amassing huge amounts of gold bullion for many years, and some have said their appetite for bullion has been “staggering”. As one of the largest producers, and consumers, of gold in the World, it’s only logical that they will want to develop the infrastructure to trade, price and provide liquidity for gold in their own currency, the Yuan.
However, right now, today, they hold a huge amount of their reserves in US and Euro bonds, so to take any action at all, that might somehow cause their value to be eroded, just wouldn’t make any sense at all.
The Chinese play the long game. There’s no doubt that they would prefer the Yuan to be the dominant World currency, and they are potentially building the infrastructure to achieve that. However, at this stage, they are likely positioning themselves to confirm what we already know, that they’re the biggest gold player around!
The markets have responded today with some major hikes in the price of both gold and silver.
For certain there will be many more twists and turns in this story, so keep your eyes open and ensure that you avoid finding yourself looking back with regret.