First, each bank looks

First, each bank looks at its limit orders and determines how many are eligible to trade at that price. They can also consider how much gold their proprietary trading desk would trade at the same price. The bank then states a single value, the net amount (in ounces) of gold they wish to buy or sell. After each bank provides this value, they determine if the overall net amount is 0. If so, all transactions succeed and the fix is complete. The chair then states, "There are no flags, and we're fixed."

Otherwise, the chair must change the proposed price. If the amount of gold the banks proposed to buy is higher than the amount proposed for sale, he must raise the price. That will decrease the number of proposed purchases, both because more buy limit orders will fail and because of proprietary traders. At the same time, it increases the number of proposed sales, both because more sell limit orders succeed and because of proprietary trading.

The five participating

The five participating banks are market makers. They may have gold orders on their own behalf (proprietary trading), their clients' behalf (brokerage), or frequently some of each. Client orders will generally be limit orders. A buy limit order is executed unless the price is above a preset value. A sell limit order is executed unless the price is below a preset value.

The lead participant will begin the fixing process by proposing a price near the current gold spot price. The participants then simulate the result of trading at that price. The simulations do not merely factor physical gold, but include gold trading contracts ("Paper Gold") which are marginally backed and which therefore inflate market volumes and alter the supply/demand valuation formulas that would otherwise apply to the physical gold commodity.