The spot price of gold, silver or other metals is indicative. Various coins, ingots and other ingot-derived products will be sold for varying quantities above the spot price depending on a number of factors, such as product, minting, relative scarcity, year and dealer profit margin. In technical terms, the spot price is effectively an average net present value of the estimated future price of gold, based on the futures contracts traded and on the nearest month, called the first month. In fact, declines in the current price may be a reason to buy more gold if you believe that long-term trends are still bullish.
For example, in the month of July, the September silver futures contract is most active in the first few months and, therefore, the spot price of silver is derived from this futures contract. As important as the spot price is, many people lack a clear understanding of what it is and how it is used to determine the price of gold. By investing in gold coins, you are buying a physical item with a gold price that is affected by the futures markets, apart from normal supply and demand problems. All of this means that, in a bit of market alchemy, the spot price is actually a mix of these factors and influences in the short and long term.
In these cases, even small news or other factors can dramatically change the current spot price of gold. Called the Great Confiscation of Gold, citizens had to hand over all their gold and ingots for paper notes. When laws were amended in the 1970s so that Americans could buy gold again and keep it, the gold market was too entrenched in the LBMA. When you understand that the price of gold changes one second on a normal trading day, you can see that there are opportunities to make a profit or lose money, as is the case with any security or commodity.
As transactions around the world move from London to New York, the fixed price in London adjusts to the trading of gold futures on the COMEX, which is part of the New York Mercantile Exchange, and other exchanges. Similarly, the price of gold at which you sell gold coins or ingots is based on the same calculation of the current spot price of gold. In general, this additional cost compared to the spot price of any bullion coin is due to a number of factors, including the manufacturing, distribution and administration costs incurred by the mint or refinery to manufacture the coin, in addition to a “profit margin” that represents the cost of selling and profits of the wholesaler who sells the coin to a retail distributor. Learning how to buy gold requires understanding these factors and how they affect the price of gold.
Another way of saying it is that when you buy gold coins at the current spot price of gold, you are paying a price that actually represents that expectation of future value, rather than the actual momentary price of a physical transaction.