Sunday, July 15, 2012

Gold Price vs Gold Price vs Gold Price

Gold Bullion
There is more than one gold price it seems. In fact there are three.

Spot Gold Price
Gold Futures Price
Real Gold Price

Spot Gold Price
Firstly there is the Spot Gold Price. The spot price of gold refers to the price paid immediately upon delivery of gold on order. The spot price of gold is updated throughout the day around the world and can be seen posted on many websites.  It is posted live on also.

It is the price that gold is being bought and sold on the Comex (Commodity Exchange) in New York. A gold price is also set by the five members of the London Gold Pool1 and is used as a benchmark for the pricing of gold, gold products and derivatives world wide. The spot gold price is often regarded as the actual or real value of gold at any given time in the marketplace. This is in contrast to the future gold price which is the expected value of gold at some time in the future.2

Gold Futures Price
So the Gold Futures Price is the price to be paid on gold at some future date rather than right now.  This is the gold price you often see glibly given in the media as the ‘gold price’. Sometimes they say ‘gold futures’ price but sometimes they omit the word future giving the apparency that this is the actual gold price when it is not.

In pricing gold futures, the futures price is determined using the spot price, the risk free rate and time to maturity of the contract (along with any costs associated with storage or convenience). It also includes the expected change to the price of gold.  The Gold futures price, as has been noted frequently by various analysts, is subject to manipulation such as short selling or shorting for example.

Short selling, in this case, is selling gold that you do not own but that you promise to deliver at some time in the future. How this works is that your broker lends you the gold from their or another’s (broker) inventory. The shares will be sold and the funds credited to your account.  Eventually you will need to close the short by buying back those shares (this is called covering) and return them to your broker.  Now people that short sell are betting that the price will drop so they can then buy back the gold at a lower price and make a profit on the difference. If the price rises, of course, you would have to buy back at the higher price and consequently lose money.  It is this manipulation that causes the price of gold to be so volatile.

This is all done on paper you understand, no actual gold changes hands.  The buying and selling takes place before the designated time is up.  Other complexities can enter into this but essentially this is a paper gold price more than anything else.

Real Gold Price
The real gold price however is what would someone be willing to pay for gold in the open market place?  If gold could be bought on the open market (and it can if you know where to go) you can buy all sorts of gold from gold bullion to nuggets, coins to blanks, gold biscuits to gold jewelery.  There is invariably a premium to pay but even so the material value people place on gold determines the real price people will pay. Check out the volume and prices of gold in such places as China and Indian and you get a real sense of the value people have in storing their assets in gold.

This can easily be seen with the price that gold is selling for on eBay.  Checking the eBay gold prices, for example, ( shows that gold generally sells for a minimum of around 4 percent and up to 18 or so percent above the spot or futures price.  The highest commanding gold is the Canadian Maple Leaf one ounce gold coins at about 18 percent over premium with the American Gold Eagle close behind at 14 percent.  Gold bullion is up to 5 percent on average (the price changes on a regular basis and can be seen if you refresh the page every few minutes) so the spot price of gold you see in the media is generally the lesser price or cheaper if you will.

 This is a screenshot of today’s current prices.
So there is more than one gold price it seems.  You can also calculate your gold price by going to
 Which one is the right one?  Well the one that people are willing buy gold for of course, the real gold price!

No comments: