Spot Price: Definition & Practical Uses
This guide will break down what spot prices are in regard to commodities.
We will also go over the ins and outs of how spot prices factor into gold and silver coin prices, and how you can get the best deals for your money.
What Is Spot Price? Defined
The spot price refers to the current price of a commodity for immediate delivery. It is the market price of an asset "on the spot." This takes into account both the time (i.e. right now) and the place (your locality).
Visit our live spot price charts for up-to-the-minute metals spot prices and historical price charts.
Spot prices are used for most commodities, including each of the precious metals: platinum and palladium in addition to gold and silver. This is sometimes referred to as the bullion spot price. The typical unit of measurement is the troy ounce.
Links to the individual spot price pages for each of the metals are provided below:
Price charts are an important tool for investors
What Is the Difference Between Gold Spot Price and Futures Price?
Futures prices are specifically what market participants are willing to pay for a set amount of gold (usually 100 troy ounces in the case of a COMEX contract on the New York Stock Exchange) at a set date for future delivery (generally one month forward). Different contract sizes are used in other gold hubs like London or Hong Kong.
You may also hear futures referred to as "forward contracts" or "forward prices." The idea is the same. The contracts trade like a security and represent ownership of the underlying asset.
The biggest difference between spot prices vs futures is how they are used and by whom. Futures contracts are used by speculators in financial markets to "bet" on the direction of the gold price. They are also used by gold producers and sellers to hedge their positions, and by large institutions to purchase gold in bulk quantities.
By contrast, the spot price is the current price for gold at a given time and place. It is essentially the melt value of a unit of gold (typically measured in troy oz). Spot prices are used by producers, wholesalers, and retailers to set fair prices for their products.
Like crude oil or any other commodity, the current spot price of gold is derived from the futures price. This process of price discovery is how a current market price for gold is determined. There tends to be a modest gap between the two prices, but spot and futures virtually always move in the same direction.
What Spot Price Isn't
Spot prices are not exactly what you should expect to pay for bullion products. The spot price doesn't include factors such as the cost of labor or manufacturing. So the price for a coin or bar made of precious metal will be higher than the raw spot price of the given metal.
Moreover, spot prices are not set in the stone. Prices constantly change, fluctuating throughout the day and changing moment to moment based on activity in the trading markets. This is not unlike the value of a stock market index like the S&P 500 or other securities.
Investopedia has an excellent in-depth explanation with its nuanced spot price definition.
Frequently Asked Questions (FAQs) About Spot Prices
How do you calculate spot price?
There is no set formula for spot prices. They are determined by the futures price, which is itself a reflection of supply and demand for gold. Spot can be expressed in any currency by using exchange rates.
As you move down the supply chain, a small premium is added to the spot price. This mark-up covers the cost of labor and fabrication for manufacturers of gold products. It also often covers overhead costs for businesses that sell gold.
Why is silver selling for so much over spot?
The premium over spot on silver bullion is always the result of the dynamics between supply and demand. During the economic shock that accompanied covid-19, there were major disruptions in supply chains for silver, as well as production delays in the mining sector. This meant that demand for silver is far outstripping the available supply on the market.
The combination of less silver available and strong demand to buy silver has resulted in higher mark-ups on silver products throughout the supply chain.
Can the future price be lower than spot?
This actually does occur on occasion and is known as "backwardation." Periods of backwardation are generally brief, however. The normal situation where futures prices are higher than spot is known as "contango."
Joshua McMorrow-Hernandez is a journalist, editor, and blogger who has won multiple awards from the Numismatic Literary Guild. He has also authored numerous books, including works profiling the history of the United States Mint and United States coinage.
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