Spot price definition

The spot price is defined as the price paid to buy or sell a security, commodity, or currency for immediate payment and delivery. The spot price is determined by supply and demand on the market at that time, and is in a constant state of flux. Spot price is sometimes referred to as the market price, or the live price.

For gold then, spot price is the basic rate that a mine might charge for the metal, and is used by dealer in order to price their products. As we discuss below however, spot price is ultimately an indicator of initial value, and is not the price most investors will pay.

What is spot price?

Spot price is the value of a commodity intended for immediate delivery, which separates it from the futures price. A futures price is an agreed price for an asset's delivery in the future, to be paid at an agreed future date; locking in the price and ignoring what the spot price will be on that future date.

Wholesale buyers and sellers therefore have two choices; they can choose to purchase now and take delivery of their gold, which would use the spot price, or alternatively they could agree on a price and take delivery sometime in the future – using a futures price.

Spot and future prices are interrelated. High immediate demand increases the spot price. High spot prices can then push buyers into the futures market and away from the spot price. In turn, this switch will reduce spot price due to the higher demand for futures. Increased overall demand during times of economic uncertainty will see both spot and future prices rise.

An example of twenty-four hours movement in the gold spot price.

An alternative to the spot price is the twice-daily gold fix price or LBMA gold price. This is based on the gold price set in auctions at 11:00 and 15:00 GMT. The is generally very similar to the spot price, but helps mitigate any sudden movements that could negatively impact either side in a large transaction. The fix price is a middle ground between the spot price and the futures price, providing a compromise for those looking to place large precious metal orders.

Gold premium

Very few people actually pay spot price for gold. Mines and refiners may occasionally sell for lower or higher than spot price, depending on their supply and demand. Private investors will always pay slightly above the spot price, and this is commonly called the gold premium . The gold premium covers a number of costs in supplying the metal. These are cost such as the labour involved in crafting a bar or coin, delivery from refiners to dealers, insurance, packaging, and administration fees.

The premium is also very dependent upon the physical form of the precious metal. At one extreme, large cast ingots are relatively easy to produce. Coins that take more work to produce, such as Proof coins, will inevitably have a significantly higher premium due to the artisanal work involved. The economies of scale apply to gold as much as any other commodity, and the premium reflects this.

All BullionByPost bars and coins are sold at low margins as close to spot price as possible. We have a range of bars and ingots which provide low premiums on precious metal investments.

• Spot price is defined as the current price for a gold
• The spot price of gold is continuously changing
• Private investors buy precious metals at spot price plus premium