Apr 2012


Apr 2012

Spot Gold

By StoneX Bullion

Spot Gold Fixing

The definition for the spot price is the following: the price at which a certain commodity is sold on the market at a specified time; therefore, the spot gold is the price at which this precious metal is sold at a certain time on the spot market. The spot gold is internationally valid for all bullion dealers, the spot market having no physical location. So, bullion gold is traded on the spot market by different individuals at a price established twice a day.

The price for the gold traded on the spot market is fixed by five representatives from major bullion trading companies. The meeting takes place in London. This form of establishing the spot gold is also called London Gold Fixing.

When a dealer wants to sell gold and it automatically quotes the spot gold it means that the spot price for gold will be expressed in US dollars per troy ounce, that the buyer obliges himself to pay within 48 hours, at the moment of trading the gold has the characteristic of being unallocated which means that the buyer can allocate it anywhere in London without being charged for that, the buyer will support the costs of sending a specialist bullion courier to receive the gold from the seller, and the bullion gold involved in the transaction must be produced by refiners quoted by the London Bullion Market Association (LBMA).

Spot Gold Investment

To put it simply and to offer you one obvious reason for which you should invest into spot gold is that it diversifies portfolios. An investor will no longer have to express all his assets in terms of currencies which are susceptible to devaluation. Individuals will be relieved to know that their assets are at safe guard from economic disruptions.

There is a high demand on the market for spot gold and what way to demonstrate it better than to give you some numbers. The number that speaks for itself is the fact that in 2011 the demand exceeded US$200billion for the first time. It weighted 4,067.1 tones and valued US$205.5 billion. The main contributors to this breaking the level were the major players India, Europe, and China.

Big traders and investors concentrate their attention of investing into spot gold by tracking the gold spot price because it is above all profitable.

Obtaining Spot Gold

The main disadvantage for private individuals regarding the obtainment of spot gold is that on the spot market the dealers do not transact with them because on this particular market the volume of transactions is high and on low margins. The profit for the dealers and sellers trading on the spot gold market cannot come from selling a small number of gold bars to private individuals that will usually hold on to that bars maybe for years.

A method for dealers to obtain gold when they do not have the necessary funds is borrowing. They take a loan in the currency with the lowest LIBOR and this is the Japanese yen as of 2006. When they borrow bullish investors leverage their position which can increase their profit as well as increase the risk they are taking when it comes to spot gold.