In more general terms, the spot price of a commodity is the price at which a commodity is immediately sold and delivered at the current time. This is compared to futures contracts and prices, which specify the prices of what you buy on a future delivery date. 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.
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. The “spot price” simply refers to the price at which the metal or raw material can be processed and delivered at this time. The spot price of gold represents the current purchase price of one troy ounce of the precious metal for immediate delivery. Sometimes the price of gold moves very little over the course of a week, and other times it advances by leaps and bounds over the course of a day.
In fact, many small companies that buy gold from individuals believe that the spot price is the price of the last physical transaction or the current price of physical ingots. While in the spot market, purchased gold is intended for immediate delivery, in the futures market gold is sold under a contract with a future delivery date at a predetermined price. The spot price of gold is commonly used in gold bullion transactions, and trading activity takes place in numerous financial centers around the world, from Hong Kong to New York, London and Delhi. However, if you're actually investing in gold coins or ingots, your interest will focus on medium- and long-term gold price factors.
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. Investors who are new to gold trading usually assume that the spot price is the only way the prices of the yellow metal are fixed. The London Bullion Market Association (LBMA) is a leader in setting the reference price of gold, as well as the price of silver. An analysis of the history of the price of gold over the past 30 years shows that the precious metal does especially well in times of uncertainty, as investors seek safe investments.
For example, the price of a gold ingot is quite clear, since it takes into account the spot price of gold, the cost of producing the ingot and, perhaps, a small profit margin for the dealer. At the same time, you'll have a little more peace of mind when it comes to investing in gold coins and bullion if you understand the primary importance of long-term price trends and why you rarely have to worry about short-term market fluctuations. In these cases, even small news or other factors can dramatically change the current spot price of gold.
