What is the spot price?

Customers often ask me how I set my gold and precious metal prices. Basically I am governed by the price set by the London Bullion market twice daily as set out below.

          

                                      

 

The Spot Price

Since 1919 the value of gold in London and the UK is determined via what is known as the London Spot Fix. Effectively this is the gold price per ounce including other precious metals such as silver, platinum and palladium and is determined daily at 10:30 and 15:00 GMT via a brief conference call among the five members of the London Gold Pool (Scotia-Mocatta, Barclays Capital, Deutsche Bank, HSBC and Société Générale). The London spot fix price is then fixed to a price at the moment when the conference call ends.

The London Gold pool is supported by Associates of the London Bullion Market Association (LBMA) which provides the daily spot fix prices across the precious metals industry. This is communicated in UK Pounds, US Dollars and Euros. The price does not remain fixed throughout the morning and throughout the afternoon, however, and will fluctuate immediately after the spot fix.

How does it work?

                                                       

When you buy gold via one of the five mentioned firms (or via smaller providers who set their price in accordance with the London Gold Fix), investors will pay the price at the next fix that day. In simple terms, you make the purchase prior to knowing the actual cost; the London Gold Fix determines the price later. This is a tantalizing balancing act, if the fix is very high, investors will shop elsewhere. Actually most people would rather not purchase gold in this unclear way; people and investors who buy gold via the spot market typically have a frantic need for it immediately, maybe they are restricted by law to command a proportion of their assets in gold. As a result, the big 5 who fix the spot price of gold have a motivation to fix it as low as possible (to attract more people who want to invest in gold) without losing money. When the fix is very low, then more people are willing to buy gold in the next spot cycle, and then the cost will be fixed slightly higher.

This can be a confusing subject for the “ordinary” Gold seller or indeed gold buyer but Spot fixing is basically how the “big 5” players and smaller providers attract customers who want to invest in Gold and subsequently provides a pricing model across the board from afore mentioned market investors to the person in the street who wishes to sell scrap gold themselves!

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