You can blame it on its name, but beginner investors often misunderstand the gold and silver spot market. Many erroneously believe that it signifies a location. In reality, the term refers to the discovery process of supply and demand. Therefore, the spot price represents a distributed market where professional dealers operate based on a shared set of rules and standards on how to buy and sell gold.
The idea behind the spot market is that it's a place where commodities and securities are purchased with cash for immediate delivery. For the market to function, the dealers quote the gold price to each other based on the following assumptions:
The buyer agrees to pay in full within 48 hours
The asking price is in US dollars
The quoted price is available for a troy ounce
The gold is unallocated at the time of the trade
Allocating the gold without further costs is done in London
The gold bars are in accordance with the requirements of the good delivery list as specified by the London Bullion Market Association
The gold delivered consists of full 400 oz bars
The buyer will send a recognized bullion currier to collect the gold at his own expense
Because there is a consensus regarding these assumptions, brokers will not waste too much time accounting for all the variables involved before closing a deal. The spot market includes all these options on default and saves brokers time and resources.
In general, large gold traders such as gold mining companies or central banks have the power to manipulate the spot gold and silver prices. Therefore, the spot price can go upwards or downwards shortly, depending on how the gold traders find it more advantageous. While it is true that large traders will have a say in this, the spot price is influenced by numerous factors:
Supply and demand
The devaluation of currency
Industrial demand and practical applications
If you're new to precious metal investing, then chances are that you've heard about gold fixing price. Many people may think that the term is synonymous with spot price. In reality, the fixing price refers to a momentary spot price adjusted for the top 5 most important customers of the major banks, clients who buy or sale in multiples of 400 ounces of gold.
What this means is the fixing price is not available for the vast majority of investors.
In general, the players in the spot market don't trade with private individuals. The reason for this stems from the nature of the market that typically deals high volumes on low margins. Moreover, because private individuals will not afford to purchase more than a few bars, the brokers will not turn a profit from the transaction.
The only way a private investor can get an attractive spot price is via a major bank. Unfortunately, banks are not eager or interested in dealing allocated gold to private investors. If they agree, then they're likely to convince to buy unallocated gold.
You can count on us to deal with the banks on your behalf. If you're interested to invest in gold via the spot market, then don't hesitate to contact us.