A spot price is the price that a commodity, such as gold, can be traded and delivered for right on the spot. If you wanted to purchase gold bullion now, then the spot price would be what you’re expected to pay if you bought it online right now. Spot prices are usually measured in single units (often grams or ounces, depending on the country that you are from). For example, if you’re in the United Kingdom, then the “spot price” of gold is referred to in grams. That would be the cost of performing the transaction and having it delivered to you right now. All spot prices are volatile and change depending on many different factors.
Spot prices contrast with futures contracts, which are determined using several factors such as the spot price, expected changes in the supply and demand of a commodity, and also the costs of transportation or storage. Futures contracts are a way for traders and producers to reduce the price risk associated with trading commodities and they can extend several years if needed.
Keep in mind that spot prices refer to the price which one could obtain gold including the transaction of the commodity itself and delivery. The fineness of gold sold by spot price must be at a certain quality.
How Is Spot Price Determined?
The spot price is often determined by a futures contract that extends to the current month. There’s often a lot of guesswork involved when dealing with spot price determination and there are many factors such as the trade volume and past statistics that can go into calculating how much the value of gold can change.
Commodities such as gold and silver are in a constant state of flux due to their markets. It occurs around the clock and the value of these commodities can vary greatly throughout the day. Whether it’s economic data, geopolitical news, events, reserve actions or even the actions of other companies, everything needs to be taken into consideration when it comes to determining the spot price.
If you’re considering investing in a precious metal such as gold, then it’s important to understand just how volatile spot prices can be and how they play a part in prices determined in futures contracts.