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Gold fixed now by telephone { May 5 2004 } Original Source Link: (May no longer be active)
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1083180280172http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1083180280172
Banks flag up business with a quick phone call
By Kevin Morrison and Deborah Hargreaves
Published: May 5 2004 5:00 | Last Updated: May 5 2004 5:00
The flags went up for the last time on Tuesday in the oak-panelled setting where London's gold price was set for world markets.
One of the City's oldest traditions will now be replaced with the telephone and internet.
Twice-daily, representatives of the five investment banks that have been setting the gold price since 1919 would wave small Union flags if they were in the process of concluding a deal. While a flag was aloft, the price could not be fixed.
Now the dealers will signal new business on the telephone by calling "flag" followed by the name of their bank.
The change was prompted when NM Rothschild recently ended its near 200- year involvement in the gold market. The venerable bank hosted its last gold fix in a room on the third floor of its St Swithins Lane office yesterday.
Each fix has been conducted to the chimes of a Queen Anne grandfather clock dating back to 1692 and presided over by a collection of 19th-century portraits of Europe's crown heads and former clients.
Rothschild will keep the clock and paintings, but not its commodities business, after announcing its withdrawal three weeks ago.
"It is a shame to lose someone of such standing in the market, but we're not here to pat each other on the back, but to provide a consistent service to customers," said Simon Weeks, the director of precious metals and foreign exchange at Scotia Capital, who now heads the gold fixing committee.
Mr Weeks said the London gold price-fixing meetings were scheduled to end in the summer even before Rothschild's decision.
The remaining four members of the fix - Scotia, Deutsche Bank, Société Générale and HSBC - will settle the price over the telephone, and the fix, which can take a matter of minutes or much longer to settle, will be accompanied by a live commentary on the internet to give greater transparency for gold traders.
The modernisation of one of the City's rituals is partly a reflection of wider changes in the market for precious metals.
Mr Weeks said the gold market had shifted from being 80 per cent a producers' forum for hedging output with 20 per cent of business from the investment community, to a much more heavy reliance on investors.
"Gold hasn't been a friend to long-term investors for some time but people are coming back to gold," he said.
The gold price has increased by 20 per cent over the past year, partly in response to its safe haven status amid global security concerns.
At the same time, there has been growing interest from China and India, where investors are keen to buy physical gold and jewellery as a store of value.
Mr Weeks said London bullion dealers were working with exchanges and investors in new markets to help develop trading platforms for gold.
He added: "London is a very mature marketplace and there is not a huge amount of growth for the market in our time-zone; where you could see a big pick-up in volumes is in India and China."
The gold houses are also trying to develop products that attract retail investors in Europe where it has been more difficult to gain exposure to physical gold without buying mining shares.
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