Understanding spot pricing is essential to buying and investing in Precious Metals. The spot price represents the price of one ounce of raw, unprocessed Precious Metal. It’s the price point at which Precious Metals can be purchased and delivered this very instant. Precious Metals are traded 24 hours a day and spot prices are perpetually changing based on market speculation, current events, supply, demand and the value of various currencies.
Most investors can’t purchase Gold at spot price because it doesn’t include the cost of manufacturing and distributing a Precious Metal product. The mint or manufacturer will pay to produce the coin, round or bar, and dealers will in turn pay the manufacturer’s cost and slightly increase the price of a product in order to earn a profit.
Origins of Spot Pricing
Most all Precious Metals, but Gold and Silver in particular, have a long history with human civilization. Spot price, in comparison, is a relatively recent phenomenon.
Beginning in 1919, the London Gold Fixing has been the most common benchmark for the spot price of Gold. Members of the London Gold Market Fixing Ltd. telephoned into the offices of Nathan Mayer Rothschild & Sons twice daily to settle on the price of Gold. At that time, The London Gold Market Fixing Ltd. included some of the world’s largest Gold bullion traders and refiners.
In 2004, Barclays bought Nathan Mayer Rothschild’s place on the fixing. Ever since, fixing has taken place on a dedicated conference line to keep up with the demands of a global market.
Trends in the Price of Precious Metals
Throughout history, Precious Metal prices have experienced fluctuations. Peaks and valleys are to be expected, even in periods where the price of Precious Metals is at an average high or low.
Gold spot prices have increased since the 1960s experiencing spikes in 1980, 2008 and 2011. Since 2005, the spot price of Gold has risen, though prices in 2015 are not as high as those in 2011, 2012 and 2013.
The spot price of Silver has followed a similar trend: Down-swinging in the 1990s after a peak in the 1980s, a subsequent upturn after 2005 followed by spikes in 2012 and 2013. In 2015, Silver spot prices are almost back down to where they were in 2010 and 2011.