LONDON (Reuters) - When gold reached dizzying heights above $800 (390 pounds) a troy ounce in recent weeks, it cast a spotlight on a ritual that has taken place in London for the past 88 years.
Twice a day, representatives of five banks pick up the phone to trade physical gold and arrive at the London "fixing" price, which then becomes a benchmark for gold around the world.
As the clock in the vast Barclays Capital trading room in London ticks towards 3 p.m., attention turns to Marc Booker, the bank's head of spot gold trading.
Booker joins a conference call with the four other banks who take part in the fixing. The chairman, from Deutsche Bank, suggests an opening price and Booker relays it to his trading room and customers. Booker and the other participants say whether they are buyers or sellers at that price, and the chairman adjusts the price until the buyers and sellers are in balance.
It usually takes between five and 15 minutes to fix the price, longer when the market is volatile.
"The mechanism is efficient and it is a benchmark which has continued to function through all types of market stress," Martyn Whitehead, director of commodity sales at Barclays Capital, said as Booker traded.
The fixing price has gained greater significance as gold prices have jumped more than 30 percent in 3 months and doubled in 3 years, with a wider audience becoming interested in the price and the volume of spot gold trading has jumped..
It reflects the price of gold in the wider spot market and is used around the world by producers, investors and central banks as a benchmark for pricing a variety of transactions. Refiners use the fix to settle their contracts.
When fixing started on Sept 12, 1919, the first price was $20.67 a troy ounce. The highest fixing of the recent gold rally was on November 7, when it fixed at $841.75 an ounce in the morning session, less than $10 below its historic high of $850, fixed on January 21, 1980.
In addition to Barclays and Deutsche Bank, the other banks who take part in the fixing are HSBC Bank, Societe Generale and Bank of Nova Scotia's bullion division, Scotia Mocatta.
