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London Gold Market

The London Gold Market is part of the London Bullion Market, which is a wholesale over-the-counter (OTC) market for the trading gold and silver, coordinated by the London Bullion Market Association. It is a wholesale market – the usual minimum size of transaction is 2,000 ounces of gold (while the standard size is 5,000 ounces) – individual investors are practically excluded from the market. It is a decentralized over-the-counter dealer market, which means that the dealers independently quote bid and ask prices and trades, making this market less transparent.

London has always been an important center for precious metals. The first records of bullion transactions date back to the 17th century. However, this particular market truly flourished in the 19th century, when London became the global financial center. London dominated global commerce and finance and the British pound was in a gold standard. Soon the large gold reserves of Australia and South Africa were discovered (they were British colonies at the time), hence London quickly became the hub for bullion trading. The gold confiscation implemented by Roosevelt in 1933 helped London to keep its position. The London Gold Market was the most important gold market until the 1970s, when the American Commodity Exchange Inc. (Comex) started to trade gold futures and soon gained prominence. Currently, the gold market is dominated by these two centers of gold trading. Comex dominates the market in gold futures, while the London Gold Market is by far the largest global center for over-the-counter (OTC) transactions. It is also the biggest marketplace for gold in the world by the volume of trade (the London OTC spot market is about ten times larger than the U.S. futures market), which is illustrated by the chart below, showing the share of the six major gold trading countries for all gold-related instruments, including spot and derivatives, in the global gold turnover in 2011.

Chart 1: The share of the six major gold trading countries in the global gold turnover in 2011.

London Gold Market

The London Gold Market is the crucial market for gold. It is the biggest marketplace for gold in the world by the volume of trade. As an over-the-counter market, the London market is less transparent than Comex. However, this does not mean that London gold prices are manipulated. The London market is simply structurally different from centralized exchanges. Still, it provides many useful services for the gold investing community. It clears most transactions in the global gold market, which are settled by transfers of bullion in London through its clearing system. Moreover, the London market maintains the global standard for the quality of gold bars and offers vaulting services. Finally, the London market sets the gold fix – the so-called LBMA Gold Price – twice a day: at 10:30 GMT, and 15:00 GMT in the U.S. dollar, serving as a benchmark for pricing gold widely used by producers, consumers, investors and central banks.

We encourage you to learn more about gold – not only how it is traded in London, but also how to successfully use gold as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.

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