In this week's article, we'll be looking at the term ‘spot price’, what this is, why investors use these to secure purchases of commodities and contracts, and how this relates specifically to precious metals.
The ‘Spot Price’ is the current market asking price for a particular commodity at a particular point in time. Spot prices will constantly fluctuate due to supply and demand in the markets. Stocks are also traded on spot, so if an investor agrees on buying a contract, the spot price is how much they will be charged at that time.
Why is it important?
With commodities and stocks that fluctuate heavily, spot prices are important to ‘lock in’ the purchase price at that specific time and date. Spot prices are different from the futures prices, which is the price of an asset that can be bought or sold for delivery at a specific time and date in the future.
When investors look at price charts, the price displayed is usually a mid spot price (the price in between the buy and sell price). You will often be able to select the currency you wish to use to view prices and can look at different timeframes.
The line on the graph is the spot price. For example, on the 10th March 2014 the gold spot price was £814.98. The spot price of gold on 4th September 2018 was £932.82. You'll see prices change constantly throughout the course of a day when you narrow your view, depending which price chart you check.
There are many market forces that drive these prices and investors need to do their own research and keep their eyes on market data to inform their investment decisions. As a starting point, Bleyer’s Bullion Academy also offers a wide range of articles on many different bullion investment topics and tips for a beginner into bullion.
Spot price in relation to precious metals
The spot that applies depends on whether you are buying or selling. These prices are usually very close together but the ‘spread’ (the difference between buy and sell prices) is determined by the volume of transactions being executed at any point in time.
Use of the spot price when buying
When you buy an item from Bleyer (or any other bullion dealer) the pre-tax price is reached by taking the ‘ask/buy’ price and adding:
- The mint or refiners production charge.
- The cost of inbound and outbound postage.
- Packaging and profit which covers the cost of our service to you.
Costs (a), (b) and (c) are fairly fixed. It may be that the bullion dealer would offer to cut their profit margins by offering special offer bullion rates to make way for new stock.
Use of the spot price when selling
When you sell an item to Bleyer (or any other bullion dealer) the price is reached by using the ‘bid/sell’ price as a starting point. We then look at what we can resell that item back to a refiner and the cost of getting it to them, in case we can’t resell it. Thirdly we consider how desirable the item is and it’s condition.
When speaking with any bullion dealer, especially when it comes to selling, the majority of the time, you’ll be dealing in relation to the spot price. It’s a term commonly used within investment circles so if you’re a beginner in bullion, this is important fundamental knowledge to understand.