LONDON (Reuters) - When gold reached dizzying heights above $800 a troy ounce in recent weeks, it cast a spotlight on a ritual that has taken place in London for the past 88 years.

Twice a day, representatives of five banks pick up the phone to trade physical gold and arrive at the London "fixing" price, which then becomes a benchmark for gold around the world.

As the clock in the vast Barclays Capital trading room in London ticks towards 3 p.m., attention turns to Marc Booker, the bank's head of spot gold trading.

Booker joins a conference call with the four other banks who take part in the fixing. The chairman, from Deutsche Bank, suggests an opening price and Booker relays it to his trading room and customers. Booker and the other participants say whether they are buyers or sellers at that price, and the chairman adjusts the price until the buyers and sellers are in balance.

It usually takes between five and 15 minutes to fix the price, longer when the market is volatile.

"The mechanism is efficient and it is a benchmark which has continued to function through all types of market stress," Martyn Whitehead, director of commodity sales at Barclays Capital, said as Booker traded.

The fixing price has gained greater significance as gold prices have jumped more than 30 percent in 3 months and doubled in 3 years, with a wider audience becoming interested in the price and the volume of spot gold trading has jumped..

It reflects the price of gold in the wider spot market and is used around the world by producers, investors and central banks as a benchmark for pricing a variety of transactions. Refiners use the fix to settle their contracts.

When fixing started on Sept 12, 1919, the first price was $20.67 a troy ounce. The highest fixing of the recent gold rally was on November 7, when it fixed at $841.75 an ounce in the morning session, less than $10 below its historic high of $850, fixed on January 21, 1980.

In addition to Barclays and Deutsche Bank, the other banks who take part in the fixing are HSBC Bank, Societe Generale and Bank of Nova Scotia's bullion division, Scotia Mocatta.

Until about three years ago, the gold fixings took place at the premises of N.M. Rothschild and Sons Ltd., with each bank sending a representative who would remain in contact with his dealing room by telephone. When Rothschild moved out of the commodities business, it was replaced at the fixing by Barclays.

In those days, each representative had a small British flag that they raised after receiving any change from their dealing room. As long as any flag was raised, the chairman could not declare the price as fixed. Now they say "flag up" or "flag down" depending on whether they agree to the fixing price.

London developed as a gold centre in the second half of the 19th Century, when it became the point through which gold from the mines of California, South Africa and Australia was refined and sold.

Its history as a hub for trading in gold bullion goes back even further, to the formation of the oldest original member of the market, Mocatta and Goldsmid, in 1684.

These days, investment funds are taking keen interest in physical gold, with about $13 billion in trades passing through London's clearing system each day. To avoid cost and security risks, bullion is not usually physically moved and deals are cleared through paper transfers.

On November 7, the same day the gold fixing price reached its recent high, spot gold hit a 28-year high of $845.40, less than $5 away from its record high of $850, spurred by a lifetime low dollar and historic high oil.

During the recent rally, jewelers and other gold users stayed on the sideline, watching the bull run, while individuals around the world sold old ornaments and gold bars to take advantage of high prices.

Small investors were looking at coins and bars, not wishing to miss the bus.

The wider media coverage of high prices also attracted investments into exchange traded funds (ETFs), which allow people to buy the metal on a stock exchange without taking physical delivery of the metal.

Gold held in U.S.-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, rose to a record high of 599.50 tonnes in early November.

"We continue to see a huge amount of retail inflows. They are not generally the first to the party and they are generally not the first to leave either," said Stuart Thomas, managing director of World Gold Services, sponsor of StreetTRACKS.