The Gold Fix – An Example of Market Manipulation

Most of you who follow my blog know that I consider to price action as the best way to trade. I also bring to light how the markets are artificially manipulated in one way or another. In the Private Mentorship Program, I demonstrate a way to capitalize on this manipulation – the “RoadMap Trade.” It’s fascinating how the markets are purposely adjusted daily. For those of you trading Gold Futures (GC) using the Atlas Line and/or the Power Price Action method, you should know about Gold Fixing.

Firstly, let’s define what the Gold Fix is. Twice each trading day at 10:30 a.m. and 3:00 p.m. London time, five members of The London Gold Market Fixing Ltd meet via telephone conference to decide the price of gold. These decisions are meant to settle contracts in the London bullion market; however, the implications reach further. The result is a benchmark of gold value used by the world’s financial institutions, markets, mining companies and jewelry retailers. The second fixing of the day at 3:00 p.m. was instituted in 1968 to coincide with the open of U.S. markets. Formerly overseen and conducted by N M Rothschild & Sons, Barclays Capital is the current authority on gold prices. You may recall Barclays Capital as the company that acquired Lehman Brothers’ main U.S. division in 2008. The process to “fix” gold requires each of the five London Gold Market Fixing Ltd members (representing banks) to decide on a single value for the net amount of gold they wish to buy or sell. This value is based on the amount of buy stop and sell stop orders each bank has (proprietary trading) and those placed by clients (brokerages). Once each member has stated a value, the group determines whether a net value of 0 has been reached. If not, the process iterates, with each member adjusting orders. The goal is to reach zero summation. Buyers are charged 20 cents per troy ounce as a premium to fund the fix process; inducing bid-offer spread.

Here’s how the Gold Fix affects you as a trader:

• No one knows what the exact gold fix will be until it is declared by the chairperson. Before this occurs, each member bank representing its own interests and those of clients, plays a high-stakes game of “spoof.” Each bank wants to play its best hand at declaring itself as a buyer or seller depending on the adjusted price at each round (iteration).

• When the decided value is an upward adjustment and exceeds buy limit orders, the limits are hit and demand is reduced. Conversely, when sell orders are reached under an increased decided value, supply is increased. The exact opposite occurs with downward adjustments.

• Speculative traders trade this activity by buying under their limit or selling above it. Note that trading the actual fix is near impossible for private traders, as the settlement condition (London Good Delivery Bar) at 400 ounces is too expensive.

• Purchasers can miss market moves because they have to wait until the fix value is announced to determine how much bullion is worth.

• The five members never release official data regarding how fixes are reached.

Is it surprising that markets are manipulated with things out of your control? As a trader, you should be aware of it – not everything is fair and balanced. If you’re using indicators, you’ll likely be a victim of this type of “fixing” due to a strict, algorithmic approach. Instead, by using price action, you can achieve better results. Our Power Price Action and Atlas Line methods are perfect for identifying trade opportunities in the highly speculative Gold Futures (GC) market.