What Does Gold Spot Price Mean? How Does Spot Pricing Work?

By Oxford Gold Group
Oxford Gold Group
Oxford Gold Group
The Oxford Gold Group helps investors protect and grow their wealth by purchasing physical gold and silver for their IRAs and for home delivery as effortlessly and securely as buying bonds or stocks. That's why investors have turned to the security of gold and silver and the Oxford Gold Group.
September 19, 2022 Updated: September 19, 2022

You may be curious about how the gold market fluctuates or how its price is determined. Or how a spot price works with the futures market. So, what do spot prices mean for gold, and how does it work?

Buying gold is a prudent option for investing. It can be volatile in the short term, but it has always maintained its value over the long term. There are several ways to invest in gold, such as bullion, coins, jewelry, stocks, gold exchange-traded funds (ETFs), and mutual funds. There are pros and cons to investing in physical gold, but today we will focus on gold spot prices and the optimal time to buy gold.

Defining the Spot Price of Gold

The spot price for gold is the current price being sold on the day and time of the transaction, although individuals can’t buy gold at a spot price. However, you can try to buy near its spot price. Gold prices are determined per ounce and quality; some get spot prices confused with futures prices.

The specific term for an ounce of gold is the troy ounce. A single troy ounce equates to 31.1034768 grams, though you may not see the word “troy” written out when purchasing it; for example, it’s $/oz.

Many factors can affect the spot price of gold, such as the currency’s value, market speculations, fluctuating gold futures, current global events, and the demand for gold. Spot prices update each minute worldwide and will update by the given time zone. Major world markets like China, New York, and London will see these changes as they come.

However, these spot prices are not affected by product or shipping costs, nor do they depend on specific or rare gold items. There is no consideration regarding the critical aspects of producing gold, like manufacturing, design, transportation, and other factors. While you can watch the spot price of gold, there is, as said, no way you can purchase it at the spot price.

Spot Price Determination

How are spot prices determined? Surprisingly enough, it depends on the futures contract with the highest volume, and it can be in the current month or a few months ahead.

For a hypothetical example, let’s say apples cost 10 cents per ounce today. If we were to examine the futures contract for apples, the cost of apples per ounce might be about the same price in the current month of April. If we look at the futures for June, we see the cost at about the same as April. A few months later, we noticed that the volume was the highest in August, so that this month would determine the spot price.

There’s more activity in August, so that it would be considered the spot month.

There are two terms you should be familiar with when dealing with futures and spot prices:

  • Contango, which is the lowering of futures prices to meet low spot prices, and
  • Backwardation, which is the rising of futures prices to meet high spot prices.

Notably, backwardation leans toward a net-long position because prices aim to raise the value to reach their spot price when the contract grows close to expiring. Opposite of this would be contango, which favors shorter positions because the futures decline in value when the contract grows close to expiring. The futures markets are liable to fluctuate over time, leading to temporary or long-term contango periods or backwardation. When trading on the stock market, looking at futures prices to evaluate the spot price is essential.

What Does Determining the Spot Price Mean for Gold?

Determining the spot price for gold doesn’t mean you can purchase it for the amount, but it helps you project the market trends for gold’s value, providing long-term investment opportunities. After multiple months of any given year, you can see how the market fluctuates from contango to backwardation, helping you establish the right time to buy. In essence, the spot price doesn’t directly affect the investor; rather, it affects the accumulation of market trends and fluctuations throughout a given time.

While you can always check the Oxford Gold Group for gold spot prices to see how they change, remember, you can’t buy gold at a spot price. However, you can buy it close to the amount of the spot price. For more information, check out the price chart for gold.

Changes in Spot Price

As mentioned above, there are many reasons for the spot price of gold to change or the fluctuation of contango and backwardation in futures. But what exactly changes the spot price of gold?

Gold prices can vary for specific global reasons, like the economy, U.S. Federal Reserve activity, international political news, gas and oil prices, and supply and demand. Just like with every commodity around the world, gold experiences stagnant periods of slight movement or periods of more movement and activity in the market.

Supply and demand control worldwide markets for gold and other precious metals. Every minute, the spot prices for gold change in the market, causing investors to keep track of their gold assets each day to see if they’re in a period of activity or stagnation. Some of the most known stock markets in the world are the New York Stock Exchange (NYSE) and New York COMEX, among other regions, such as Hong Kong, London, and Zurich. COMEX is the primary market for precious metals, and spot gold prices come from futures traded on COMEX.

What Should You Look for When Investing in Gold?

Once you understand how spot prices of gold work, how can you determine the best route to purchasing it? Should you observe the long-term directions gold’s been going in or the short-term spot price trends? The truth is, you should be following both.

If you’re looking to trade gold, check with the spot prices to see when your next move is. Even though you can’t buy from the spot price, it’s crucial to consider how these prices fluctuate daily to understand their market value. Don’t let the fluctuation in spot prices intimidate you when investing in precious metals, such as gold.

If you’re looking to invest in gold for investment growth, it’s best to observe the long-term trend in gold. Although you should always consider the spot pricing of gold, keeping up with the long-term market trends will give you a better feel of the market history. Over time, gold prices will fluctuate just as other commodities do on the market.

It’s important to understand that the value of gold will experience long- and short-term effects from the market, but this doesn’t mean you shouldn’t invest. When looking to invest in gold for value growth, it’s critical to observe the overall market trends instead of daily spot prices. These long-term market trends will give you a good idea of how your investment will change over time.

The Oxford Gold Group helps investors protect and grow their wealth by purchasing physical gold and silver for their IRAs and for home delivery as effortlessly and securely as buying bonds or stocks. That’s why investors have turned to the security of gold and silver and the Oxford Gold Group. Call 833-600-GOLD or visit OxfordGoldGroup.com to receive a complimentary copy of “Your Precious Metals Investment Guide.”

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The Oxford Gold Group helps investors protect and grow their wealth by purchasing physical gold and silver for their IRAs and for home delivery as effortlessly and securely as buying bonds or stocks. That's why investors have turned to the security of gold and silver and the Oxford Gold Group.