Exactly What Is the Spot Price of Gold?

Jesse’s Cafe American has a good post on how the gold market works:

When you ask even a relatively experienced and sophisticated precious metals trader “what is the spot price of gold or silver?’ you will generally hear a pause, and then they will come back with a price after checking their computer screen for the latest spot price from some ubiquitous and reliable provider of such quotes, or one of the lesser known, diverse providers of this information.
But when you say, “No what I was asking is ‘what is the spot price, where does it come from, who sets it?'” you will most often hear that this is the last physical trade, or the current market price of physical bullion.
Well, is it?
Actually despite what you might think or what you might have heard, it is not.
The reason for this is that there is no centralized and efficient market for the sale of physical bullion in the US at anything resembling a ‘spot price.’ What is their number, where are their prices and trades posted? Who is buying and selling what, TODAY, with the real delivery of bullion as the primary objective?

Read the whole thing.

Posted by on April 1st, 2010 at 9:09 am


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