When you’re researching or reading up on the gold market, you’ll likely come across different terms that describe the price of gold. Whilst beginners may find monitoring the live gold price gives them enough insight into the market, it’s important to understand how the different prices are determined and what each of them represents.
The gold spot price, gold futures prices and the gold fix price each have a different purpose and are set in different ways.
1. The gold spot price
The spot price of gold is simply the live gold price, meaning it’s the price gold could be bought and sold for right now. It represents the price for one troy ounce of gold and, typically, the higher the demand, the higher the price.
The spot price of gold is determined by over-the-counter (OTC) trading in which traders typically work on a one-on-one basis to make independent deals. It’s quite simply the current price of gold as a commodity in this market.
2. Gold futures prices
Gold futures are public and regulated exchanges where gold is traded (in the form of contracts) for its expected value at a specific time and place in the future.
This means that the amount and prices the buyer is willing to buy and pay are determined now, but the exchange takes place on a date in the future. The trade is essentially an educated guess at where the market value of gold will be at that specific date in the future.
Most futures traders use the time between the initial deal and the eventual exchange to sell anything they’ve bought or buy back anything they’ve sold. That way, when the exchange (or settlement) date comes around, they will only have to settle their gains and losses.
3. The gold fix price
The LBMA sets the price of gold twice each day in an independently operated auction that is administered by the ICE Benchmark Administration (IBA).
The first price is set at 10:30am UK time and is otherwise known as the ‘London fix’. As other parts of the world wake up and begin trading on the gold market, the London fix gold price is then adjusted according to COMEX, a division of the New York Mercantile Exchange (NYMEX). The second price is then set at 3pm UK time.
