How Do We Get the Price of Gold?

You won't likely come across a gold bar with a price tag hanging off it, but of course, it does have a price.

Have you ever wondered who sets that price?

The simple answer is nobody and everybody.

However, when you delve into the nuts and bolts of gold pricing, it’s not exactly simple. 

If you are perusing the news, you might encounter three (or more) different gold prices at any given moment.

From the fast-moving spot market to formal benchmarks and futures contracts, each price tells a different part of gold's daily story. But how do we untangle this web of pricing and make sense out of it?

To get the full picture, we need to understand how each price is derived and how it is used.

The Spot Price

When you visit MoneyMetals.com and check the price ticker, you’re seeing the “spot price” of gold. That reflects the current market price for immediate delivery and serves as the benchmark for real-time pricing and trading activity.

The spot price isn’t “set” by any single entity. It is determined by decentralized, global market activity. The spot price you see quoted on various financial news platforms is a composite derived from real-time trades across multiple exchanges and trading platforms.

The data is compiled using both over-the-counter (OTC) markets and formal exchanges, and it includes private trades between institutions, dealers, and banks. Major dealers such as JPMorgan, HSBC, and UBS also influence the spot price by continuously quoting buy/sell offers.

Financial news outlets and pricing services aggregate the data and update the spot price continuously. Given that different feeds pull data from different sources, you will find the spot price can vary a few dollars at any given moment, depending on which news platform you use.

Retail investors, dealers, and traders rely on the spot price as their primary reference. If you buy gold coins from Money Metals, the spot price will serve as the starting point.

The Futures Price

You will often see news outlets quoting the “futures price” instead of the spot price. This represents the agreed-upon contracted price for gold delivered at some future date, and it reflects the market’s expectation of the price of gold at the time the contract expires.

A gold futures contract is a legal agreement to buy or sell a set amount of gold at a predetermined price on a specified future date. Most standard contracts are based on 100 ounces of gold. Futures contracts primarily trade on the COMEX division of the Chicago Mercantile Exchange (CME Group).

The futures price serves as a key indicator of sentiment around the gold market.

While most futures contracts are closed out before expiration through offsetting trades, some are settled by physical delivery, depending on the contract holder’s intent.

The futures price can differ significantly from the spot price due to factors including interest rates, storage costs, and market expectations.

Speculators, institutions, and hedge funds primarily operate within the futures market.

LBMA Gold Price

The London gold price, sometimes referred to as the London gold fix, sets a globally recognized benchmark price used by financial institutions, central banks, and investors.

This price is set by twice-daily auctions held by the London Bullion Market Association (LBMA) at 10:30 a.m. and 3 p.m. London time.

A group of large, LBMA-accredited financial institutions, including JPMorgan, HSBC, and UBS, submit buy and sell orders during the auction, thereby “fixing” a price.

Here’s how it works:

• The auction opens with a proposed price.
• Participants determine the amount of gold they want to buy or sell at that price.
• If buying and selling volumes match within a tight tolerance (±10,000 ounces), the price is "fixed."
• If not, the price is adjusted, and the process repeats until equilibrium is reached.

The final price is published and used globally for gold contracts, ETFs, mining deals, and other financial instruments.

The LBMA isn’t the only organization that sets a benchmark gold price. For instance, the Shanghai Gold Exchange sets a regional benchmark for the Chinese and broader Asian markets.  

To sum it up:

The spot price is the go-to quote for buying or selling bullion at any given moment.

The futures price reflects price expectations.

The LBMA price is a formal benchmark for contracts and other purposes, but is not used in real-time pricing.

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