One of the special terms that you will hear often when you begin to research gold investments is the “gold spot price”. This short article will attempt to clear up any confusion about what the gold spot price is and how it is determined.
There are basically two types of precious metal deals. One type of deal is scheduled to take place at a later time then when it is negotiated. These deals are referred to as futures or forward contracts. The other type of deal is meant to be transacted and delivered immediately, just like when you go to a shop to buy something right now. The price at which you buy a commodity such as precious metals right now (and not at some date in the future) is the spot price.
The spot price of the precious metals gold, silver, platinum and palladium is always for one ounce of the precious metal which needs to be of a certain purity. Precious metals are traded all around the world throughout the week. The Japan market is the first to open on Monday morning (at 6 pm EST on Sunday evening). Trading continues almost uninterrupted from then on until Friday with the exception of a 45 minute break every week day (5:15 pm to 6:00 pm EST). Trading for the week ends at 4:30 pm EST on Friday when the New York COMEX exchange closes. The COMEX exchange and the London Bullion Market Association (LBMA) are arguably the two most important precious metal exchanges in the world but major trading also happens in Hong Kong, Zurich, Australia and Shanghai.
So technically, there is not a single gold spot price but several. All the trading at each precious metal exchange in the world will result in a certain spot price at that exchange. Since gold and other precious metals can be traded worldwide, the differences of the spot prices at the different exchanges will be minimal. The market would correct any major imbalance between one market and another.
The significance of the gold spot price for investors
The major significance of the gold spot price for you, the investor, is that it allows you to easily compare the premiums that various gold dealers will charge you on top of the spot price. When selling gold bullion, the gold spot price is the approximate price that you should get for your bullion. Some gold bullion coins (including historic gold coins) that have a high collectability value due to their scarcity trade for prices that far exceed the gold spot price though.