Monday, July 26, 2010

Fascinating stuff about the gold price

This is a fun little article talking about how the price of gold is set. It's really rather archaic and dates all the way back to 1919. OK, they've moved a little bit with the times now and they use a telephone rather than actually all meeting in the same room but the old ways still do seem to persist.

Perhaps we shouldn't say gold price, but one of the gold prices is fixed in this funny old manner. The five main dealer banks all meet up (telephonically now of course) and essentially barter about the price at which they're willing to buy or sell gold. Under the old system if they wanted to take a little break in the bartering (to talk to someone else, just to think for a moment) they would raise a little union jack flag they had on their desk.

When they lower it then it all starts again. When the bartering was finished then all the flags would stay down. Now, of course, over the phone, no one can see the flags: so, instead, they say "flag" when they want that break. Funny how these things go really, old traditions hanging on.

But do understand, this is how the gold spot price is fixed: futures and options prices change all the time. And it's only the London spot gold price that is fixed this way: everyone else just does it on the internet.

No comments: