Spot Gold Prices

The spot price or spot rate of a commodity, a security or a currency is the price that is quoted for immediate (spot) settlement (payment and delivery). Spot settlement is normally one or two business days from trade date. This is in contrast with the forward price established in a forward contract or futures contract, where contract terms (price) are set now, but delivery and payment will occur at a future date. Spot rates are estimated via the bootstrapping method, which uses prices of the securities currently trading in market, that is, from the cash or coupon curve. The result is the spot curve, which exists for each of the various classes of securities.

Gold is traded around the clock and in so many places and in so many forms, ranging from the abstractions of futures contracts to the solid tangibility of rings and bracelets, that it’s not clear what the “real” price of gold is.

As a private investor, you can’t easily buy or sell gold at the spot gold price. Until very recently, you couldn’t get anywhere near it. You had to buy gold through a retail coin or small bar dealer who would charge you a significant mark-up on your gold purchases, and pay you after deducting a big discount on your gold sales.

Spot gold is a commonly used standard for the value of an ounce of gold. Among small, individual and retail buyers of the physical metal, it is the most common and most important. Even though purchases from, or sales to, large bullion brokers will often range from five percent above to five percent below spot, most use the current spot price as the benchmark value for gold.

Significance

Nevertheless, the official spot gold prices are used as the standard benchmark for individual transactions away from the official spot gold market. For a variety of reasons, these sales of gold can vary rather widely from the current spot price. The transactions are usually in significantly smaller quantities, or of non-standard purity or design, and some buyers or sellers can have profits priced into their bids or offers.

Gold prices have managed to touch all new highs on the back of a weakness in the dollar. But with the improvement in the economic scenario, gold prices are also rising as gold is being bought as a hedge against inflation. Rising crude oil prices are also leading to inflationary concerns and that is supporting gold prices on the upside.

Considerations

The spot price of gold can fluctuate dramatically for many different reasons. Gold reacts strongly to changes in currency markets, and these can have an effect on the relative value between the different spot markets. Also, because the readily available supply of small bullion is not necessarily linked to the supply of investment bars on the spot market, tighter supply for individuals can keep prices significantly over spot.