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What is the Gold Spot Price and How is It Set?

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Trading gold or other precious metals the very first question you may ask is, how much does gold cost? The answer lies in the gold spot price. This is the price gold is trading for at any given time on the markets where it is available.

Here we will take a closer look at exactly what the spot price for gold is, what you actually get for the spot price of gold and the major factors that move the price on the markets.

What Does the Spot Price of Gold Mean?

The spot price you see first of all is based on one troy ounce of gold. This is the standard measure in which gold is traded on the international markets. You will also notice that the price of gold (and other precious metals) is quoted in US Dollars. Again this is the currency in which gold is priced and traded around the world.

The price you will usually see quoted as a spot price will also be the “bid” price. This is the highest price that buyers in the market are currently willing to pay. This price comes predominantly from the gold futures market in the US where gold and other commodity futures contracts are traded on the COMEX. This is the world’s largest exchange for gold and commodity futures.

What this means is that the price of gold is actually primarily set by the trading in futures contracts, which do make up the majority of the gold trade, rather than trading in the actual physical metal and exchanges like the Shanghai Gold Exchange. These all derive their prices based on those established in New York and the “fixed” price which is offered twice daily by the OTC market in London and the London Bullion Market Association (LBMA).

The Price You Pay For Gold

If you want to buy physical gold, then you will have to pay slightly more than the spot price. The actual price you pay will depend on the form of gold that you want to purchase. This is typically known as a “premium”. It is required since the spot price you see on the market is the price for “raw” gold. Much like you will see crude oil prices, this material still needs to be refined, processed and fabricated to make the finished physical gold form that you wish to purchase.

The final price you pay will depend on a few factors. The form of physical gold you buy has an impact. Gold bars will typically have the lowest premium, followed by gold coins, and finally jewelry though particularly with coins you may also have to account for collector’s value.

Beyond this, each dealer will have their own premium and fees that they charge. You can manage these by making sure you shop around and only purchase from a reputed dealer. There are many to choose from around the world that can fit your needs as a trader.

What Moves the Spot Price of Gold?

As with any type of asset, there is a range of factors that can move the market on a regular basis. Here though are a few of the most important factors when it comes to moving the dial in the gold market:

USD Value: There is a historically inverse relationship between Gold and the US Dollar. This means that as the Dollar gets stronger, the price of gold usually drops lower. The opposite is also true in that a weaker Dollar makes for a higher gold price. This is mainly due to increased purchasing power from other currencies in USD. This increases the demand for gold which in turn increases prices.

Interest Rates: Another inverse relationship for gold is with interest rates. As these rise, the value of gold tends to drop while a low interest rate usually increases gold prices as investors look for more substantial returns for their cash. These also tend to increase inflation.

Inflation: Gold is well known as maybe the best hedge against inflation for investors in history. During periods of inflation, the value of gold typically increases. This kind of price rise can also be brought about by expected inflation.

Stock Market Activity: It is unlikely for both stocks to rise and the price of gold to rise. This is because gold is typically seen as a safe haven investment when things are not going well in the stock market and others. Therefore, a down period for stocks tends to increase gold prices as traders look toward a safer, more secure investment alternative.

Economic Uncertainty: Economic uncertainty, and wider than that, and kind of political instability, or national crisis usually works to propel the price of gold higher. Again this is due to the safe-haven status that gold holds in the mind of investors, the fact that the precious metal is quantifiable in physical form, can be easily transported, and holds an intrinsic value of its own all play a role.

The Gold Spot Price of Gold Today

There are many places where you can check the current gold price including this website, analyze it against past performance, or even compare it to other markets and index funds. Recent in 2020 gold prices has been rising steadily. This rise can be attributed to a combination of factors as mentioned above.

With the COVID-19 pandemic ongoing around the world, a protracted period of economic uncertainty has emerged. This in itself would be enough to increase gold prices, though central banks around the world have also moved to lower interest rates and enact other measures to stimulate the global economy.

What this means for the price of gold is that we have seen a steady rise in the spot gold price over the last year. Highs of more than $2,000 have been reached at its peak. While it is unknown if this will continue, while there remains a pandemic problem it seems likely that gold prices will also remain elevated.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.