How Is The Price Of Gold Set?


Have you ever wondered what happens to all that gold bullion that is created daily? Most of it goes to wholesale jewelry markets, some goes to industrial manufacturers and the rest ends up in vaults that belong to investors and banks. The gold that is traded on the market is held in what is known as bullion banks. Bullion Banks are generally wholesale suppliers and deal only with large quantities of gold.

They are different from conventional banks because they handle large transactions and store physical gold bullion in extremely secure bullion depositories. Gold bullion banks like the Federal Reserve Bank of New York store gold for several foreign central banks.

Six “bullion clearing banks” handle large gold bullion transactions. These are Barclays Bank PLC, Deutsche Bank AG, JP Morgan, HSBC, Scotia Mocatta, UBS AG and Chase Bank. What these clearing banks do is facilitate the transactions that transfer ownership between customers. When central banks sell or loan gold, it does not physically have to move the gold nor is it necessary for the gold to change its location.

The bullion market has always been shrouded in secrecy. Not everyone understands how the entire system works and your local bullion dealer is only a small part of a larger industry. However, every time one asks the question of who sets the gold price, gold bullion banks and the London Bullion Market are mentioned together. Unlike most consumer products, setting the price of gold is not that simple. It’s not just up to the manufacturer and the retailer to set the price, various bodies are involved and various factors that drive the price of gold.

Gold is incredibly expensive to store and insure so bullion banks are indispensable. If you have gold bullion you know the importance of proper storage and the need for security. You can’t exactly store your gold bullion in any old safe and most of the highly secure and sophisticated safes are expensive. A gold bullion dealer can make things more simple for you. You can let your gold sit there or you can realize a good return for your bullion by selling it when the price of gold is high. Because gold is such a heavily traded commodity the banks that everyone relies on to account for the bullion help set the prices.

The gold price is set by The London Gold Fix twice every day, members of the London Gold Market comprising of the major bullion banks determine the trading prices for gold twice a day. The benchmark prices set by the London Fix help set the gold price internationally.

The price of gold is also expressed as the spot price. This is a theoretical price that is set for a specific weight of gold before it is refined. The price changes depending on supply and demand, the strength of the dollar and the general performance of the commodities market. The spot price is often applied to small orders of gold, however, for large orders, there is a fixed price set by the LBMA or Comex to counter the fluctuations of the price minute-by-minute.

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