Gold Silver Spot Prices Explained

Good Delivery Gold Bar as seen in Central Banks around the world

 

There are many factors that go into the spot prices of gold and silver. Though they are different metals, spot prices for gold and silver tend to parallel each other. It is very unlikely for the price of gold to go in one direction and for silver to go in another. When it comes down to it, spot prices tend to flow in the same direction across the entire precious metals market, which also includes platinum and palladium.

Investment

Whether you are an individual or an entire government, gold and silver serve as one of the premier forms of investment. There is no way it can be artificially produced, which ensures its rarity and inherent value. Understanding this, you will realize that those entities with larger buying power will play a sizable role in the pricing of metals. If an individual purchases gold or silver, the market won’t realize. If an entire government buys gold or silver, like India or China, the market will be impacted.

Reasons for Price Movements

Aside from usage and general large buys, the prices of gold and silver tend to move with influence from current news and world events. If there is worry about the stability of a currency, gold and silver will generally see an uptick in spot prices. If the United States Dollar (USD) strengthens for extended periods of time, you should expect to see a downtick in the prices of precious metals. When currency becomes weak, metals become stronger, and vice versa.

Beyond currency movements, general economic news also affects the price of gold and silver. If the Fed (United States) makes an announcement in regards to any sort of government policy (be it interest rates, general economic outlooks, etc.), gold and silver usually react in one way or another. Gold and silver frequently play off of expected future events. Of course, this is true for almost any form of investment, and prices can certainly be reactive as well.

In the end, there are almost infinite factors that come into play when discussing spot price of gold and silver and how it is determined. Supply and demand define the prices for all commodities, with ETFs and other similar vehicles setting the bar for the price of physical gold and silver.

The commodity exchanges trade commodities for immediate delivery and payment—the spot market—or for future delivery and payment at a specified time to come also known as the “futures” market. Companies use the futures market to ensure they have the commodities they will need at a known price. Speculators use the futures market to try to make a profit from price fluctuations. The New York Commodities Exchange (Comex) provide a very significant input to the gold, silver spot prices.

How Spot Prices are Calculated

Spot prices are determined by futures contracts. Futures contracts are traded in much the same way as stocks and other commodities. A future contract exchanges delivery of an item (gold and silver in this case) for a set price, with quantity and exact order details being specified from contract to contract.

The reason futures contracts are used to set the spot prices is because the majority of the daily traded volume of gold and silver is done electronically as opposed to physically. Since more gold and silver are traded electronically via futures than physically delivered, the futures markets provide the most accurate, up to date prices for both gold and silver.

The largest gold trading center in the world is the Chicago Mercantile Exchange (CME) Group. Under its control is the world’s largest physical commodity futures exchange, the New York Mercantile Exchange (NYMEX), which includes a division called COMEX, formerly known as the Commodity Exchange, Inc. Other major exchanges include the London Gold Exchange and the Shanghai Gold Exchange.

For tracking gold prices continuously, 24/7, the CME Group operates GLOBEX, an electronic trading platform that is not restricted by borders or time zones. For truly large trades, such as those made by major manufacturers, mining companies and governments, CME also has the COMEX 100 for futures, in which contracts are denominated in lots of 100 ounces. As a result, it sets a standard for gold and silver to be quoted in USD per troy ounces.

At GoldSilver2u.com, there is a box at the middle right column corresponds to the spot gold price after conversion to RM per gram

Buy vs. Sell Prices

Even though gold investors may not buy or sell on the exchanges, the spot prices are still important to them because the current spot prices determine the value of any gold/silver bullion items they own.

All individual gold and silver investors face the same problem when buying and selling physical metal: they have to buy slightly above spot price, but have to sell at or slightly below spot price.

The reason for this is simple: while precious metal retailers may pay you spot or slightly below spot for your products, the retailers still have plenty of overhead costs just to stay in business. When you include a retail company’s website expenses, office rent, employee wages, shipping and refining expenses, insurance, etc, the company has to charge customers a small premium over spot simply to cover costs and stay in business.

The premium also varies depending on the size, brand and type of product. For example (with regards to the brand), the 50gm gold bar from both PAMP Suisse and Iconic Twin Towers are priced differently although they are both the same weight, same purity and same material - gold. This is because, the PAMP Suisse is an imported item from the world renowned gold refinery and manufacturer, PAMP of Swistzerland whereas the Iconic Twin Towers is our house brand, Tomei produced locally. Therefore, the cost of producing, branding and bringing them to the market are lower here in Malaysia.

Due to the fact that all precious metal traders, regardless if they are online, offline, on eBay, in a pawn shop, or elsewhere, have overhead costs and other expenses, there will always be a small spread between buy and sell prices. You can compare this to the commissions that stock brokers charge when buying or selling stocks on your behalf.

At GoldSilver2u.com, you can be assured that the buy/sell prices quoted are transparent . The physical gold will be delivered to a collection point nearest to you (one of the 15 selected Tomei Gold and Jewelry outlets, nationwide) without any additional charge. Setting up a login account with GoldSilver2u.com is also free. Note that there will be a 2% admin fee should you make payment using Visa/Master Credit Card.

Points to Consider when Selecting a Gold Trader

Unlike other commodities such as natural gas, cement, steel bars and petrol, Gold is not a controlled price item governed by the Malaysian Government. Due to that, the selling prices of gold differ from merchant to merchant. Therefore it is important to consider some factors when selecting your merchant.

• End product: It may in the form of Ingots, minted bars/ coins, jewelries or even a paper-based scheme (e.g. Gold savings passbook account).

• Additional charges: Always check with your merchant and its fine prints if there are costs incurred in the registration of an account, stamp duty, passbooks, cost of traveling to the banks to fill up registration forms, cost of withdrawal, delivery cost, commissions during reselling of the gold/silver etc.

• Merchants’ track record and reputation: Some promising schemes that seem too good to be true may turn out to be a fraud. Others may be a one-off deal that do not offer any after-sales support/ buy back guarantee.

• Authenticity of the gold/silver products: Be sure that you get what you paid for. Some gold/silver may be of lower purity e.g. 999.5 grade.