Gold is traded in physical form as well as in the form of futures contracts globally, with centers of trade in New York, Shanghai, and London. Though historically gold has been an anchor for currencies to give them a fixed value relative to a commodity with intrinsic value, today gold is unofficially a monetary metal that still boosts the prestige of national currencies, as is shown by the feverish buying of the yellow metal by the world’s central banks, as well as by the accumulation of the metal among investors in global markets. Below the main global gold markets are covered to make them easy to understand for investors.
The COMEX, established in 1933, is officially the largest market in the world for futures contracts involving gold, silver, and copper. It started out as the Commodity Exchange, Inc. and merged with the New York Mercantile Exchange in 1994. The COMEX is owned by the CME Group based in Chicago. The exchange is located in New York and is regulated by the Commodity Futures Trading Commission (CFTC), a government agency. This exchange sets the prices for a number of commodities throughout the globe.
Concerns have been raised by some precious metals analysts in recent years about the amount of leverage used by traders of futures contracts relative to the amount of actual metal possessed by the COMEX. It is believed that the amount of leverage, sometimes hundreds of times the amount of the physical metal in a single day, could in theory cause a mass failure to deliver the physical metal should the number of buyers demanding delivery rather than cash spike. However, while these concerns have been raised for a while, the COMEX has yet to experience problems with failure to deliver physical metal.
London Bullion Market Association (LBMA)
The London Bullion Market Association (LBMA) is the largest gold and silver bullion exchange in the world. Its history goes back many centuries, involving different entities over time that collaborated and merged. In 1871, Antony de Rothschild set the standard for gold bullion bars at 400 troy ounces and 99.5 percent purity for trade. In 1919, the Bank of England made arrangements with NM Rothschild & Sons to set a gold price — a “fix” — each day. In 1987, the Bank of England created the LBMA as an organization that oversees and sets standards on gold refining and trade.
Today, the LBMA has over 100 members all throughout the world, including bullion banks, refiners, mints, bullion dealers, and other businesses. The average daily volume of gold and silver cleared at the LBMA is conservatively estimated to be between $20 and $30 billion.
Shanghai Gold Exchange (SGE)
The Shanghai Gold Exchange (SGE), established in 2016, is China’s entry into the world stage as an economic powerhouse that shapes the price of the yellow metal. This is fitting given that China is currently the world’s largest producer of gold. The SGE sets the price — or “fix” — twice per day, the first at 10:15 am and the second at 2:15 pm, based on supply and demand. The standard weight of gold bars at the SGE is one kilo, with a fineness requirement of 99.99 percent. With this fineness requirement, the SGE currently has the highest standard of purity among the world’s gold exchanges.