Markets
How the LBMA Gold Price is set, and why we price against it
The London auction sets the reference price for gold everywhere. How it works, how a field price is derived from it, and why that protects the producer.
MiningAccord · · 2 min read
Nearly every physical gold trade in the world refers, directly or at one remove, to a single number. Understanding how that number is made is the first step to knowing whether the price you are offered for your metal is fair.
An auction, twice a day
The LBMA Gold Price is set at 10.30 and 15.00 London time on every London business day. ICE Benchmark Administration runs an electronic auction in which banks and trading houses enter buy and sell orders at a proposed price. The price moves in rounds until buying and selling interest balance within a set tolerance, and that clearing price is published in dollars per troy ounce, with sterling and euro equivalents.
The auction replaced the old telephone fixing in 2015. The important change was transparency. The auction is regulated, its participants are listed and every round is recorded.
From the benchmark to a doré price
The benchmark refers to good-delivery gold of at least 995 fineness sitting in a London vault. Metal in the field is neither of those things. A doré bar from a cooperative in Ituri might assay at 850 fineness and be several thousand kilometres from a refinery, so its price is the benchmark less a discount covering three things.
- Purity. The fine gold content established by assay is what is actually being paid for.
- Refining. The refinery's charge to bring the metal to good delivery, plus any penalty for deleterious elements.
- The route. Secure transport, export paperwork, insurance and freight to the refinery.
A serious buyer discloses all three before weighing a gram. The seller can then take the published benchmark, apply the agreed formula and check the number for themselves.
Why this matters to producers
The alternative is a local price quoted by an intermediary, with no reference to any public number and usually well below what the metal is worth. Producers who can see the benchmark and understand the discount negotiate from a far stronger position. That is why we publish our formula to every counterparty and encourage them to check it.
Metal is metal. What sets one buyer apart from the next is whether the price can be checked against a number nobody in the room controls.