Spot Prices Explained
What is spot price, and how does it affect precious metal buying and selling?
Spot prices are used by precious metal collectors and sellers alike to follow up-to-the-minute prices for gold and silver. Because prices change by the minute, many are confused when it comes to how these spot prices are determined on such a fluctuating basis.
Here, we will take a look at what exactly spot prices are, how they’re determined, and how you can use spot prices in your next precious metal investment.
What is a Spot Price?
A spot price is typically defined as the current market price for which a commodity can be bought or sold in the present moment. When it comes to precious metals, gold, silver, and platinum metals each have their own spot price that fluctuates several times a day.
A precious metal’s spot price differs from futures prices in that a spot price is the most current price available for any specific type of metal. A futures price provides a contracted value for a particular metal at a future date in order to decrease the buying risk. If one invests in a futures contract for gold, he or she agrees to receive gold for a predetermined price for a set amount of time regardless of whether the price of gold rises above or falls below that predetermined rate in the future.
For example, if you decide to purchase a futures contract for gold in December, your December rate will be locked in whenever you decide to enter the contract. If you decide to wait and buy your gold based on the spot price come December, you risk buying for a lower price should the market fall in that direction. Buyers usually use futures contracts to protect their price point, but others still pay spot price for immediate purchases.
How are Spot Prices Determined?
Spot prices for precious metals are mostly speculation, but they are typically determined by looking at futures contracts and exchanges in the coming months.
When determining the spot price for precious metals, month-to-month futures contracts with the most volume are looked at. A month’s particular volume is determined by how much future buying and selling is taking place.
Futures contracts are not the only factors that can affect spot prices and spot price change. The spot prices of precious metals are also affected by economic data, major world events, Federal Reserve actions, and numerous other factors. The prices never stand still seeing that precious metals are being traded around the world at any given time, and supply and demand for those metals is also fluctuating constantly. This can also affect spot prices.
How to Use Spot Prices
In reality, buying precious metal bullion or coins exactly at spot price is difficult, especially from private dealers who also have to make a cut. However, it is still possible to purchase bullion or precious metal coins relatively close to the current spot price.
Firstly, decide which bullion or coin in which you would like to invest. A certified rare coin in near mint condition is likely to have a sizable premium over spot. If you are looking to stay around spot price with your investment, you should probably steer clear of rare bullion or coins and instead go for more popular gold or silver coins like American Eagles or Canadian Maples.
Once you have decided on your new investment, check the current spot price. This part is pretty easy, seeing as numerous websites offer live prices on gold, silver, and other metals (including ours – just look at the bottom of your screen for the latest spot price charts).
Then, you can search online dealers to find one selling at a price closest to the current spot price. it is important to note there may be other fees involved such as shipping or insurance on your investment. Factor these in before you decide to purchase.
