History of the Currency and Gold Fix

History, Currency, Gold Fix, Currency Fix, Gold, London Bullion Markets Association, Forex Market, fx trader, forex

The first formal Currency Fix in the modern day began in conjunction with the advent of not only the London Bullion Markets Association but the Gold Fix in 1919. The concurrence of both fixes would form not only the foundation to modern day markets but the 96 year tradition continues each and everyday as markets trade because the Fixes offer market reference prices.

Gold is fixed today twice daily at 6:30 am and 11:00 am New York time in Euros, British Pounds and US dollars. The Gold Fix in each currency offers, past and present, a reference price, a tradable market rate, a basis to price other assets and market instruments and offers a means to finance world trade. More importantly, Fix prices in Gold, currency, or both, offer stability in markets but also offer the same tradable market rate to price other assets, to finance positions and world trade. But Gold is not the only Fix since the LBMA also fixes Silver, Platinum and Palladium.

Throughout history, the currency Fix is a price that shared either a dual relationship in relation to Gold and Silver or an adverse alliance as currency prices free floated. In Gold and Silver standard periods, as was the prevailing market practice in the UK empire and Europe from the 1700’s - 1850’s, currencies were priced, which remains the tradition today as GOLD/Currency (UK) or Silver/Currency (Europe). When massive piles of Gold was found in Brazil in the early 1700’s as well as in Australia, California and South Africa in the 1850’s and 1860’s, all nations shipped the Gold to the faults at the Bank of England and later processed by newly created Gold refineries. Not only was the Bank of England the conduit to Gold sales to banks but they ensured that only the best Gold bars would be accepted in the market. A total of five companies would dominate but also manage the Gold Fix from 1919 to 2004 when Barclays bought the seat due to a sale by one of the founding firms. Domination of the five companies in earlier years would come to be known as the Cartel, Cartels, London Cartel. As the Bank of England relieved themselves of the Gold responsibility, the London Bullion Markets Association was formed in 1987. The Gold Fix was born but this birth involved maintaining a fixed exchange rate organization due from Gold Standard Systems.

If a Gold Standard system is understood as a regulation of not only Fixed exchange rates, in relation to Gold for any domestic currency and subsequent currency exchanges, then Gold Standards is also the regulation of a fixed price level and money supply system for any nation. The system maintained economic stability from the 1880’s to WW1 in 1914. The United States fixed Gold in US Dollars at 20.67 in 1834, formally adopted Gold as a standard by the Gold Standard Act of 1900 and raised the Fix price to $35 per ounce in 1933. The UK Fixed Gold at 3.17 per ounce. WW1 saw a breakdown of the system particularly as it related to trade from the US and UK perspectives.

Both the US and the UK experienced trade deficits or an outflow of Gold as their Gold reserves were exchanged for currencies. This caused the UK to suspend the Gold Standard from 1914 - 1925 and a permanent suspension in 1931. Many nations were affected because of the Pegged exchange rate many shared with GBP. South Africa, Canada, New Zealand, Egypt, India, Australia are the few notables including Japan when the Bank of Japan Fixed JPY to GBP/JPY from the 1920’s - 1930’s. All currencies, except JPY, were formally known throughout history as South Africa Pound, Canadian Pound, Australian Pound, New Zealand Pound and Egyptian Pound. All were fixed to GBP. Egypt still retains its formal name as Egyptian Pound and was fixed to GBP at 0.975. The US maintained the largest stockpile of Gold so it wasn’t affected as badly as the UK.