Fixing a leaking Fixing: Short term market reactions to the London PM Gold Fixing. 2013.
This 2013 paper provides an interesting and timely analysis of the efficiency of the London PM Fixing as a method of setting the gold price. The importance of this measure to the gold market can’t be understated as it the gold traded on this OTC market represents the bulk (by some estimates 90%) of gold trading. The Fixing happens twice daily as a telephone call between the Market Making banks and is a complex form of a Walrasian Auction. This post will first explain the auction, and then discuss the results and conclusions of the study.
Data: 1 Minute interval data for the GLD and COMEX, giving price (High, low, open, close) and volume. Daily PM fixings price and publication times. Full period from 1/12007 – 31/12 /12 with a shorter sample for the publication of the PM from 18/8/11 -31/1/12
Methodology: Relative Volatility and Adjusted and Unadjusted returns. Event study.
Citation: Caminschi, Andrew, and Richard Heaney. “Fixing a leaky fixing: Short‐term market reactions to the London PM gold price fixing.” Journal of Futures Markets (2013).
Abstract: This article investigates the impact of the London PM gold price fixing on two exchange‐traded gold instruments: the GC gold futures contract and the GLD exchange ‐traded fund. We find significantly elevated levels of trade volume and price volatility immediately following the fixing’s start, well before the conclusion of the fixing and the publication of its results. Similarly, we find statistically significant return advantages in the 4 minutes following the start of the fixing for informed traders. We find no significant impacts or returns following the publication of the fixing results. Trades in the opening minutes of the fixing are significantly predictive of the price direction of the fixings, in some cases exceeding 90%. Combined, these findings support the following conclusions: that the London PM gold price fixing does have material impact on the exchange traded gold instruments, information from the fixing is leaking into markets prior the fixing results being published, and there exist economic returns for trading on these information leaks.