What is spot gold price and why is it important?

What Is Gold Spot Price?

It’s always daytime somewhere in the world, so the gold market is always open (during the week). From New Zealand, across the Asian continent to Europe and then on to America, gold is traded continuously, and the price of gold changes continuously. This is known as the spot gold price, the price of gold at that exact moment in time (rather than at some point in the future), and it is in constant flux.

How Much is Gold Worth?

The spot gold price is based on the law of supply and demand, with buyers bidding low if there are a lot of sellers in the market, and sellers raising their prices when demand outstrips supply. These demand and supply pressures are influenced by speculation (the expectation of the price going up or down), currency (gold is denominated in dollars and the price in other currencies will be impacted by the movements of that currency). Current events, which may cause more people to buy or sell the safe-haven asset, also play their part and many other impacts which push and pull the price of gold daily, hourly, by the minute or the second.

Spot Price History

The spot gold price is set by aggregating trades made in the market. Long before electronic trading, the volume of trades made between multiple brokers made it difficult to pin down the exact balance of supply and demand. So in 1919, five banks took matters into their own hands and resolved to come together in London and set twice daily prices to trade gold and arrive at a ‘fixing’ price. This gold spot price set by London quickly became the benchmark for gold prices around the world.

The London fix price was set at 10:30 every morning, and a second 3pm fix was added in 1968 to take into account the US market opening price of gold. The first five banks to set the London fix were N.M. Rothschild & Sons, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co., and Sharps Wilkins. Over the next 95 years, through mergers, acquisitions and the sale of ‘seats’ at the fix table, a rota of different banks have performed the daily fix.

London Fix

The London fix is the spot price of gold at two precise moments each day, and is used as a benchmark to trade gold internationally. It has always been open to criticism because it relies on a small number of traders to agree and set the price and this privilege can be abused. 

The concerns about market manipulation were proved correct when in 2014 Barclays Bank was fined for failing to prevent a trader from manipulating the gold price. It prompted a reorganisation of the fixing process, which is now electronically controlled and set with the participation of 15 banks from around the world.

While the London fix represents the gold price fixed twice a day, the spot price is in constant flux. Over the last century, the spot price has risen from around $20 in 1919 to the current spot price at the time of writing of $1,461.60. The turbulent geo-political and economic climate of the last three years has seen the spot gold price fluctuate widely. When the referendum outcome surprised the market, sterling fell, gold rose and the result was a 30% surge in the spot gold price in one day. After losing some of those gains, the spot gold price has this year once again been on an upward trajectory, and since January, spot gold is up almost 14% in dollar terms and 11% in sterling terms.

Benchmarking Retail Gold Price

For retail investors, the spot gold price is an important benchmark for the value of the gold they wish to buy, but it is unlikely you would find a dealer selling gold at that exact price. This is because there are costs associated with procuring the gold and managing a business. It also makes a difference when buying gold that has been formed into coins, which require more processing and thereby demand a premium to the spot price. 

It’s similar to a currency in this respect. Just because £100 will give you $129 on XE.com doesn’t mean that you will get this price when transacting. The spot gold price is used as a benchmark for the relative fluctuations in the currency market and gold works in a  similar way.

Calculating Your Gold’s Value

Knowing the gold spot price is a key part of the process of buying gold. Coins will command a percentage premium above the Gold spot price and if you know what that percentage is you can work out if the gold price offered is fair or if you need to shop around more. 

Similarly, if you want to sell your gold, UK gold dealers will offer a price below the spot price to cover the costs of the transaction, so it is worth contacting different places to get the best price.

Arabian Pure Gold, however, do not buy back below the spot price and therefore have a smaller difference between the selling price and the buy price compared to most other UK gold dealers. Whilst gold is capable of being converted into cash (in any currency) anywhere in the world, it is prudent to ensure that you buy your gold through a dealer that will give you a fast and reliable exit mechanism (when you need it) and Arabian Pure Gold are known for providing exactly this. 

Owing to all the uncertainly surrounding at present – we’ve seen a notable increase in people selling properties to buy gold. For many – their plan is to use their gains in gold to take advantage of cheaper property in the next couple of years.  What makes this possible for them is us providing our clients with a guaranteed means of instant liquidity through Arabian Pure Gold’s BuyBack Guarantee.

The fluctuations in spot gold make it a more suitable long term investment. Someone who bought gold twenty years ago will have seen their investment grow over 400%, but even a new investor in 2019 will have seen a 14% rise. Many commentators and financial experts expect spot gold to rise. Investment bank Goldman Sachs sees gold rising to $1600 in the next six months while ABM Amro expects gold to be at that level by the end of 2020.

Meanwhile, the political situation in the UK is impelling an increasing number of people to protect their assets by buying physical gold. With the global covid-19 Pandemic and the conclusion, at some point, to the Brexit issue, there are so many uncertainties in the global investment market that safe-haven assets like gold are looking increasingly attractive. Globally the unresolved trade war between the US and China is impacting international economic policies and markets, and the impending presidential election in the US in 2020 will invariably weigh on sentiment.

Gold historically holds its value well when other assets are falling, and stock markets dislike uncertainty. So, while there is concern and confusion in politics and economics, gold will remain an attractive asset.