For gold as for oil and other commodities, there are many different prices, which should all cross-convert with one another in some consistent fashion, as shaped in part by transportation or shipment costs. From among the panoply of gold price quotations, this one has been singled out as a standard price for tracking fluctuations in the price of gold over time. (We probably shouldn’t call it the gold-standard price.)

The London p.m. fix is the price quoted at the end of the day in the London market, where much of the world's newly mined gold is processed and incorporated in bars of bullion.  

But what are troy ounces? As the following riddle makes clear, a troy ounce is not the same as the ounces we ordinarily use, 16 of which add up to one of our pounds.

Here’s the riddle: Which weighs more, a pound of feathers or a pound of gold? (Yes, this is a trick question, which you may have encountered in high school.) For historical reasons, the troy ounce (derived from the medieval French trading town of Troyes, east of Paris) that is used to price gold is about 10 percent heavier than the “avoirdupois” ounce used to measure feathers—that is, the ounce we use today.

On the other hand, a “troy pound” has only 12 troy ounces, not 16. So a troy pound is lighter! And since gold is meted out in troy pounds, a pound of feathers is about 20 percent heavier than a pound of gold. The answer, then, is that because of the different meanings of ounces and pounds in the two systems, a pound of feathers weighs more than a pound of gold.

This outcome is doubly paradoxical, of course, because gold as a metal is heavier than lead.

Newly produced gold is put into trapezoid-shaped London Good Delivery (LGD) bars. These are the standard bars for the storage, shipment, and processing of gold. They weigh about 400 troy ounces. At the current market price, each bar is worth about $300,000. The largest cache of such bullion in the world is deep in the vaults of the Federal Reserve Bank of New York, a few blocks from Wall Street.

In sum, the particular set of prices that we referred to at the outset, the London p.m. fix price, means the price per troy ounce in the London exchange at the end of the daily trading session.

Unfortunately, none of that tells us what will happen to the price per troy ounce tomorrow—or next year. In a future post we'll consider the argument sometimes heard about how gold prices fare in a recession. That is, the price of gold goes down in recessions, but by less than the prices of commodities generally.

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