Contrary to stock markets, the daily gold prices have been relatively stable at different times throughout its history. Gold trade is seen as a hedge against inflation and devaluation of currencies in certain parts of the world. Hence, investment in the bullion market or trading gold as a commodity is seen as a good option. Officially recognized gold bullion is minimum 99.5% pure and is in the form of bars or ingots. However, gold can also be traded in the form of coins or other gold products. Along with several other precious metals, gold prices or gold rate is referred as spot price in the market. Gold is traded in terms of ounces (oz.), grams (gm), and kilograms (kg) in the US market.
Most commonly, gold price refers to the spot price of 1 ounce of gold in the current market at any given point of time used for buying or selling. Daily gold prices fluctuate every minute like any commodity that is traded on the market. Daily gold prices are affected by several factors like current events (geopolitical, economic, etc.), market speculation, currency values (of the US dollar), buying powers (of large entities and governments), supply (production), demand (jewelry and industrial purposes), central bank reserves (in the US, Germany, Italy, etc.) to name a few. There is high demand for gold as it is seen as an enduring gift for festivals and special events. Also, there is an industrial demand for the manufacture of medical devices like stents and electronics like GPS units. The daily gold prices are inversely proportional to the value of the US dollar. If large investors or governments diversify their holdings by buying more gold and less paper money, it leads to a stronger US dollar and a lower value of gold.
The spot gold price is the current market price at which gold can be bought or sold for immediate payment and delivery. It is different from the forward price at which gold can be bought or the futures price for which it can be sold in the future for delivery. The spot gold price is fixed based on the data from the front-month futures contract traded on the COMEX (Commodity Exchange, Inc.). Data for the next delivery month with the most volume will be considered for setting the spot price in case there is an insufficient volume on the front-month contract.
Five important things to know before entering the gold trade:
A good understanding of the metric equivalences helps determine the value of gold in a better way. The term “ounces” used by the Americans in daily life is the “avoirdupois ounces.” Daily gold prices is measured in terms of “troy ounces.” Ensure that the gold prices are compared to troy ounces. Often, there are chances that gold prices are displayed per gram or kilogram.
- 1 troy ounce is equal to 1.09711 avoirdupois ounces.
- 1 troy ounce is equal to 31.1035 grams
With a spot price that is varying on a minute-to-minute basis, gold fixing (commonly known as the London gold fixing) is done to provide a recognized gold price around the world for benchmarking the price of gold products and derivatives. The London gold fixing representatives (Including the bullion-trading firms, Bank of Nova Scotia-Scotia Mocatta, Barclays Bank, HSBC Bank USA, and Société Générale) meet twice on weekdays over a telecon to set the current price of gold.
Although daily gold prices are the base price used to express the value of gold in trade, the actual buying or selling price may be higher. A premium price will be added to the spot price depending on whether it is bullion or antique/vintage coins.
Bullion premium prices include the fabrication costs, distribution costs, and dealer fees. This is the actual price for its raw gold value.
The gold coin premium includes numismatic or collectible gold value depending on its content (quality), condition (factors like an appeal from its artistic or historic value), and rarity (where the coins were minted, number of coins minted, ease of availing, etc.). In addition to this, some may even charge distribution costs and dealer fees.
Gold price is same across the world at any given time. Gold is traded in US dollars across the globe and is converted to the local currency based on existing currency rates. This means the price of 1 troy ounce of gold is same irrespective of the country at any given time. This prevents the chances of arbitrage by buying and selling in different countries to take advantage of the price difference. This also forms the basis for setting a gold price of bullion (Gold American Eagles and Gold American Buffalos) and collectible vintage gold coins with high numismatic value.
Unlike stock markets which have a fixed trading hours, gold trading mostly never stops at any time in any place in the world with just a 45-minute break on weekdays. There is no official trading hours and closing prices for gold trade. However, it is important to know that daily gold prices or closing prices are used by a few firms for their convenience to balance the price at which orders are bought and sold from the customers.
Some use the fixing rates as “daily gold prices.”
Some use a data vendor’s daily gold price. This is a snapshot of gold spot prices at a specific time each day.
Some of the commonly traded bullion coins are American Gold Eagle coins, Gold Buffalo coins, Austrian Philharmonic coins, South African Krugerrands, Canadian Maple Leaf coins, etc. Several investors consider gold bullion over coins as the best investment since bullion has a lower premium compared to the numismatic value of coins.