Apr 282015

The new London Gold Price, which replaced the London Fix, has seen fifty price “settings” (“fix” is understandably on the nose these days) since it launched on 20th March this year. As part of the change, the administrator of the setting publishes details of each round, which you can view here.

This detail was not previously available to the public and represents a move towards transparency. In the past, all that was revealed was the price achieved but the retail investor did not have access to the volume traded, number of participants, how many rounds it took (for information on how the process works, see here).

This data is a valuable insight into the buying and selling dynamics in the London professional market, particularly since many professionals claim the London Gold Price provides a point of deep liquidity for the gold market. While it is early days, I am sure that analysts will look to mine this data, as some do with futures markets data, for clues on whether bull or bears have the upper hand. For example:

  • How many rounds were required to set a price?
  • How big was the gap between buying and selling volume on the first round?
  • How did buying and selling volume change in response to each round?
  • Did buyers increase volume to match sellers, or vice versa, or did they both move?
  • Was the price change from the first round to the final price related to any of the above?
  • Do any of the above predict future prices or volatility?

It is too early to read too much into the data as 50 price settings is not enough statistically but so far:

  • 20% only take one round to set a price with the majority taking between 4 to 6 rounds, averaging 3 minutes in total.
  • The longest setting took 12 rounds and close to 10 minutes.
  • Average volume is 89,233oz, or around 3 tonnes ($100m).
  • So far all the fixes have been below 6 tonnes, except for one afternoon of the 27th of March, when 608,117oz or 19 tonnes were traded ($727m worth).

For me so far the most interesting observation is the number of days where the volume offered for sale does not change, or changes very little, through each round. On those days the buyers can only be induced to increase the volume they will bid by the Chair dropping the price.

Who could be these price insensitive sellers, these “price takers” turning up each day? My guess is that it is mining companies, as we know many sell their production on the London Gold Price benchmark. Maybe they need to get a bit smarter and stop putting in “sell at market” type orders? It doesn’t look like it is doing them, or us, any good.