Base Price
Also: Underlying, Strike price, Exercise price
The base price is the standardised reference price of a precious metal on which premiums, dealer margins and option contracts are built.
In precious-metal trading the base price is the reference figure on which every other pricing component rests. Depending on context the term carries two closely related meanings. In physical trading it is effectively the spot price - the current market price for immediate delivery. In derivatives (options and futures) the base price is the pre-agreed exercise price (the strike price) at which a buyer or seller holds the right to trade the metal.
Base price in the physical market
When you buy gold bars or silver coins, the base price is the starting point of the calculation. Dealers add a premium (agio) on top to cover manufacturing, distribution and their own margin. The formula reads:
Dealer price = base price (spot) + premium (EUR or %)
The base price itself is set continuously on the international commodity exchanges - notably the LBMA in London and COMEX in New York - and quoted in US dollars per troy ounce. Current values are on the gold-price page.
Base price in options and forwards
In the derivatives world the base price fixes the rate at which an option may be exercised:
- Call option: the right to buy the metal at the base price
- Put option: the right to sell the metal at the base price
If, for a call option, the current market price sits above the base price, the option is "in the money". The historical price series shows how far base prices can drift from agreed strike levels.
How it differs from related terms
| Term | Meaning |
|---|---|
| Base price / spot | Current market price, immediate delivery |
| Buying price | What a dealer pays the seller (below spot) |
| Dealer price | What the buyer pays the dealer (above spot) |
| Spread | Difference between buying and selling |
| Strike price | Agreed exercise price on a derivative |
You can work out the melt value - the pure material worth without any premium - directly in the calculator.
Note: Any comments on the tax treatment of gains from derivative trades on precious metals are not tax advice.
In a nutshell
The base price is the foundation of every precious-metal transaction: it mirrors the current market value and serves both as the starting point for premiums in physical trading and as the agreed exercise price in derivatives. Knowing the base price lets you make sense of dealer prices, premiums and option premiums alike.