The First Gold Fixing

When it was closed at the outbreak of the First World War, London’s gold market was the world’s most important. After the war, retaining this distinction was a central concern of contemporary financiers and financial authorities who viewed the gold market as critical for the pre-eminence of Britain’s currency and London’s status as a financial centre. Toward this end, in early 1919 the Bank of England, whose responsibilities included Britain’s monetary policy and its gold reserves, began engineering the market’s reopening.

It first negotiated for the world’s largest producers, South African mining companies, to market their gold in London (as they had done prior to the war). This “July Agreement” guaranteed that over a third of the world’s newly mined gold would be sold in London. With this source of gold secured, the next issue was its marketing. The Bank requested that the refiner and merchant banker, N.M. Rothschild & Sons, which was the South African gold companies’ agent, be in charge of the proceedings for establishing the gold price.

While Rothschilds favoured selling the gold directly to end-users around the world, the Bank preferred the precious metal to be sold to the bullion brokers who were active in the market prior to the First World War (Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co., Sharps & Wilkins). End-users would be represented by these four firms in the market. In addition, the pre-war practice of establishing a single price should continue. Sir Brien Cokayne, the Bank’s Governor, desired, “an open market for gold in which not only every seller would know that he would receive the highest price the world could pay but also every buyer would know that he would get his gold as cheaply as the world could supply it” (Bank of England Archives, C40/360, August 6, 1919).

The result of the Bank’s efforts was manifest on 12^th September 1919. At around 11:00 a.m. on that day, Rothschilds settled on a reserve price of 98 shillings and 6 pence based on the dollar-sterling exchange rate of £1 = $4.17. As with most reserve prices used in auctions, no gold could be transacted below this level. Once the reserve price was established the brokers were notified by phone and asked to place their orders. Additional phone calls might have been made to adjust the price to accommodate the existing order flow. At the end of the process, all gold was transacted at the single price of 98 shillings and 8 pence (£4.933) per fine troy ounce. While the London Gold Fixing would undergo various changes over the next hundred years, the basic contours of the first “Fixing” remained its foundation until after the turn of the 21st century.

Text courtesy of Rachel Harvey, PhD, Adjunct Associate Research Scholar, Center on Global Economic Governance, Columbia University.