All around the world, every day, gold is bought and sold. From the central government banks of individual countries to Wall St. megabanks to individual investors, there is a constantly fluctuating tug of war between supply and demand.
Typically, during times of systemic financial stress, demand for gold increases, as it has served as the most predictable and permanent store of value in human history. Likewise, when riskier assets such as stocks and real estate are performing especially well, demand for gold has decreased.
Gold is a commodity, a raw material of value taken from the Earth. It is traded on a commodity exchange called the COMEX alongside other commodities like cotton, coffee, and sugar. The COMEX is similar to a stock exchange in that it is the venue where buyers and sellers meet to agree on purchase and sale prices of a specific underlying item.
When you go to buy a gold American Eagle, the price that you pay is determined by what is known as “spot.” The spot price varies throughout the day and, on the major exchanges like the COMEX, from moment to moment. Many dealers, especially large ones like GoldSilver.com, track the COMEX fluctuations for you, in real time, and offer coins or bars based on spot.
Spot is basically initiated by the “AM gold fix,” which happens at the beginning of each trading day in London (at 10:30AM BST) at the London Bullion Markets Association (LBMA). It’s a sort of auction. The LBMA polls the 13 “Market Makers” — representatives of international banks that deal in gold — who are accredited by the Association to participate in the process.
The chairperson of the group sets the starting price in accord with current market conditions. Participants then electronically enter their current buy and sell orders by volume and price, with bids and offers aggregated and tabulated anonymously. Computers process all the information and arrive at a series of trades that can take place with immediate confirmations. The price arrived at — allowing for a spread between the bid and ask — sets the gold price in US dollars and the trading day begins.
There is also a “PM fix” that occurs at 15:00 BST. Platinum and palladium prices are likewise fixed twice daily in London, at 09:45 and 14:00 BST; the silver price is set once a day at 12:00PM BST. You can see historical London fix prices, as well as daily closing prices for gold and silver, here.
Gold is traded — at least electronically — somewhere in the world, at almost any hour of any weekday. But the primary market is made by the COMEX in the US. Click below for a an interesting trend Mike Maloney has noted about the gold stocks held by the COMEX, and why it may portend higher gold prices.
The COMEX commences trading at 8:20AM and ends at 1:30PM on weekdays. If you buy during this period, you will get a price that should match spot (plus the dealer’s premium, of course). You may buy at other times, but there will likely be an off-hours surcharge.
It’s important to remember that the COMEX is a futures market. That is, participants are buying and selling large lots of metal for a theoretical delivery at a future point. Each contract is for 100 troy ounces of gold (or 5,000 ounces of silver).
In reality, though, this is mostly speculative paper trading. Few contracts actually result in the transfer of physical gold from one party to another. As with any such market, there may be wild swings in price that are unrelated to the supply and demand for the underlying commodity, but reflect only supply and demand for the paper contract. This can be either a benefit or detriment to a buyer of individual physical coins or bars.
The London fix is important to the spot price. It’s the figure usually quoted as the opening and closing price of the metal for the day, and it’s what you’ll find if you look up historical price graphs.
Nevertheless, spot is always moving, all day long. If you look at a daily chart of the gold price, you can generally discover how it has moved from London through the COMEX, then to the New York Globex and then, during the nighttime hours in the US, to the Hong Kong and Sydney exchanges. All are closed on weekends, however.
In the end, where spot lies at your entry point will determine what you pay when you buy, and what you receive when you sell. While it may be useful to watch the action on a particular day — in order to see what the big boys are doing and to try to secure the best possible price — it also may not. Generally speaking, your own behavior is probably best governed by trading when it’s most convenient for you, and not by attempting to follow the kind of micro-trends you see in charts of the daily spot price.