This month in London marks the 100th anniversary of the first “London Gold Fixing”…
This month in London marks the 100th anniversary of the first “London Gold Fixing”, the infamous daily meeting of a secretive cartel of bullion banks which has met since 1919 to set benchmark gold prices used throughout the international gold market, a meeting which continues to this day through its thinly disguised successor, the LBMA Gold Price auction.
London gold price benchmarks are critically important to the global gold market because they are used as a valuation source for everything from ISDA gold interest rate swap contracts to gold-backed Exchange Traded Funds (ETFs), and everything from OTC gold contracts to transaction reference prices used by physical bullion dealers when purchasing gold bars and gold coins from refineries and suppliers.
Since 2015, the London Gold Fixing has been known as the LBMA Gold Price following a rush by the London Bullion Market Association (LBMA) bullion banks to patch over the then scandalized ‘Fixing’ in a smoke and mirrors and circle the wagons relaunch and renaming exercise. The collusive Gold Fixing first formally came into existence on 12 September 1919 when the Bank of England tapped its favorite bankers N.M. Rothschild & Sons to be the daily Fixing’s permanent chairman. Rothschild and the Bank of England had been joined at the hip since the early 1800s and would continue to be so in the Gold Fixing throughout the next century.
The 1919 launch of the Gold Fixing by the Bank of England and Rothschild succeeded a more informal version of a gold fixing that had existed up to the outbreak of the First World War in 1914, which consisted of a meeting of four London gold brokers Mocatta & Goldsmid, Samuel Montagu, Sharps & Wilkins, and Pixley & Abell who between them set a daily gold price at the offices of Sharps & Wilkins.
For the next 85 years from its inception in September 1919, the Gold Fixing occurred daily at Rothschild’s headquarters in New Court, St. Swithins Lane, across the road from the Bank of England, with five men from five bullion banks religiously meeting at 10:30 am each morning. After the collapse of the London Gold Pool in 1968, the Gold Fixing moved to a twice per day pricing with an extra 3:00 pm meeting added by the fixers to ‘watch over’ the US morning hours gold market.
Rothschild would remain as the Gold Fixing’s permanent chairman until May 2004 at which point the fabled investment bank mysteriously departed the gold fixing and stepped back into the shadows after 200 years in the London Gold Market. Until now that is, for in one of its rare re-appearances, the LBMA’s seminar and cocktail reception to celebrate the Gold Fixing’s centenary took place this week at, you guessed it, NM Rothschilds’ headquarters in St Swithins Lane. In the words of the LBMA, the ‘momentous occasion’ of the centenary celebrations is being:
“held on the centenary of the first gold price, and held in the current Rothschild building which was built on the site of (the second) New Court, St Swithin’s Lane, where the first gold price was set. We are grateful to Rothschild & Co for their support in co-hosting this event with LBMA.”
So is the centenary of the Gold Fixing the ‘momentous occasion’ that the LBMA pitches it as, or is a more realistic perspective needed to counterbalance the cheerleading hullabaloo from the LBMA camp?
Let’s take a look, drawing on some of the many articles on this website and elsewhere that have covered aspects of the infamous gold fixing over the course of its existence, including articles that have looked at more recent LBMA Gold Price. After all, the LBMA Gold Price is just another name for the Gold Fixing, and was conceded as such by the LBMA press office this month when they threw pretense out of the window, saying that: “12 September 2019 marks the centenary of the first London gold price, or what is now known as the LBMA Gold Price.”
The very definition of the centenary as covering 1919 – 2019 underscores the continuity of the “London Gold Fixing – LBMA Gold Price” as one and the same thing, with the LBMA Gold Price just a disguised and more palatable version of the Gold Fixing, a classic case of same old wine in a new bottle, and a pricing process still controlled by the Bank of England and the bullion banks.
Permanent Fixtures – Rothschild and Bank of England
So how did the old five gold fixers of Mocatta & Goldsmid, Samuel Montagu, Sharps & Wilkins, Pixley & Abell and of course NM Rothschild end up being the modern day five gold fixers of HSBC, Deustsche Bank, Barclays, Scotia, and SocGen, five banks which were exclusively running the Fixing until the 2014-2015 timeframe? To give a quick recap it was as follows.
In 1957, Sharps & Wilkins merged with Pixley & Abell to become Sharps Pixley. In 1966, at the ‘behest of the Bank of England’, the Kleinwort Benson investment bank bought Sharps Pixley. In 1993, Deutsche Bank took over Kleinwort Benson, and in doing so acquired one of the seats at the Gold Fixing.
In 1957, Mocatta & Goldsmid was acquired by Hambros Bank, who then sold Mocatta to Standard Chartered Bank in 1973. In 1997, Scotiabank bought Mocatta Bullion from Standard Chartered to form ScotiaMocatta. That explains gold fixing seat number two.
In 1967, Midland Bank took control of Samuel Montagu, and made it a fully owned subsidiary by 1974. In 1992, Hongkong and Shanghai Banking Corporation (HSBC) fully acquired Midland Bank, and thus acquired the third of the five seats at the Gold Fixing.
As a major gold refiner, Johnson Matthey (JM) had been involved in the gold fixing from the 1920s but in the early 1960s JM formed Johnson Matthey Bankers Ltd (JMB) which took on one of the seats in the fixing. In 1984, JMB collapsed in one of London’s most memorable financial and gold market scandals and the Bank of England bought JMB, selling it on to Mase Westpac, the gold trading division of Australian bank Westpac. In 1993, Republic National Bank of New York bought Mase Westpac’s fixing seat.
In 2000, HSBC also acquired Republic National Bank of New York. Since HSBC already had one of the five seats on the Gold Fixing, and Republic also had a seat (from its Mase Westpac purchase), HSBC then had two seats on the fixing, so sold one of these seats to Credit Suisse. In 2002, Credit Suisse sold on this seat to Societe Generale (SocGen). This explains Gold Fixing seat number four.
And of N.M. Rothschild? Well, in all of this you can see that the only thing permanent about the Gold Fixing throughout most of its history was the most powerful of all investment banks, NM Rothschild, as well as its old friend, the Bank of England operating behind the curtain. However in 2004, Rothschild mysteriously withdrew from the Gold Fixing. Was it a reprimand from the Bank of England for forcing the Bank to “stare into the abyss’ and sell British gold reserves to bail out a market short of physical gold, or was it the characteristic Rothschild habit of retreating into the shadows? Whatever the reason, in 2004 the Bank of England organised for the more pliable Barclays Bank to buy Rothschild’s gold fixing seat.
Notably, the Rothschild influence lived on with Barclay’s in the Gold Fixing because from 2006 to 2012, if you can believe this and its true, the chairman of Barclays was one Marcus Agius, who is son-in-law of former NM Rothschild chairman, Edmund de Rothschild.
For Rothschild, acquainted with the number five in the form of the five houses of Rothschild and its five arrows symbolism, the fact that there were only ever five seats on the Gold Fixing, is, to say the least coincidental, and maybe even symbolic. But as to which was the real puppet master in the London Gold Market, Rothschild or the Bank of England, that has always been the question.
The Bank of England’s not so hidden hand
The one constant in the Gold Fixing from its inception, apart from NM Rothschild, is of course the Bank of England, the central bank which controls and has always controlled the London Gold Market.
For example, the 1954 – 1968 period saw countless brazen attempts by the Bank of England and fellow central banks to cap the market price of gold at $35 per ounce, culminating in the infamous London Gold Pool, an experiment in gold price intervention from 1961 to 1968 which famously collapsed in March 1968 when the US Treasury ran out of Good Delivery gold bars despite the Bank of England as the Pool’s agent selling thousands of tonnes of gold into the Gold Fixings in late 1967 and early 1968.
But the the Bank of England had been regularly intervening into the Gold Fixing even before the London Gold Pool, to exercise what it aloofly called a ‘moderating influence’ on the gold price. This is starkly illustrated in the following passage from a Bank of England’s Quarterly Bulletin in 1964 in which it wrote (page 16):
“The Bank of England are not physically represented at the fixing. But they are able, like any other operator, effectively to participate in the fixing by passing orders by telephone through their bullion broker and at the fixing they use exclusively the services of the chairman of the market, namely, Rothschilds.
…, the Bank aim, as in the case of the foreign exchange and gilt-edged markets, to exercise, so far as they are able, a moderating influence on the market, in order to avoid violent and unnecessary movements in the price and thus to assist the market in the carrying on of its business.”
After the London Gold Pool collapsed in March 1968, the gold market reopened after two weeks using a two tier approach of an official gold price pegged at $35 per ounce for central banks, and a supposedly ‘free market’ gold price for everyone else. Notably, upon reopening, the daily Gold Fixing of Rothschild and friends switched to being priced in US dollars, and an afternoon fixing meeting was added 3:00 pm so as to allow the Bank of England and the five fixers to exert more control over morning trading hours in New York.