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It is the practice of arbitrarily setting the price of a commodity. Fixing represents a refusal to allow the forces of a free market to determine the price of the product or commodity. It can either be legal or illegal depending on who mandates the fix, such as the government or a group of merchants. Although the term ‘fixing’ usually refers to 'price fixing,' it can be applied to input costs or fixing supply. For example, governments can mandate the quantity of goods produced in a region. Cartels are formed for the purpose of fixing the price of one or more of the goods that they produce, such as oil, gold or other commodities. Capitalist governments also fix the prices of certain goods to promote smaller companies enter the industry.
Fixing can take many forms. OPEC artificially quadrupled the price of oil in the 1970s and effectively cut off its supply to much of the western world.
Gold Fix is the twice-daily setting of the price of gold by specialists in London, Paris, and Zurich. It is done by the five members of The London Gold Market Fixing Ltd who gauge market demand and supply in order to set the prices. This rate is used as a benchmark for pricing the majority of global gold products and derivatives.
Consider the fix for the London Interbank Offered Rate (LIBOR), the benchmark rate used as a reference for trillions of dollars in loans and swaps. LIBOR reflects the short-term cost of funds for major banks active in London.
In the foreign-exchange market, the closing currency “fix” refers to benchmark forex rates for 21 major currencies that are set in London at 4 p.m. daily. Known as the WM/Reuters benchmark rates, these are determined based on the actual buy and sell transactions conducted by forex traders in the interbank market during a 60-second window (30 seconds either side of 4 p.m.).
These archaic benchmark 'fixing' practices were the significant contributors to recently-unearthed rate-fixing abuse. These are used to value trillions of dollars in contracts and trades, and collusion among a few players to set them at artificial levels distorts market efficiency, destroys investors’ confidence in fair markets, and enriches a handful at the expense of millions.
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