Spot Market
Also: Cash market, Spot trading, Immediate-delivery market
The spot market is the marketplace for immediate delivery of precious metals at the currently prevailing cash price.
The spot market (also known as the cash market) is the marketplace on which precious metals change hands immediately — that is, for prompt or near-prompt delivery — at the currently valid spot price. Unlike forward or futures markets, the purchase price is agreed today and the metal is physically transferred, or credited to a metal account, usually within two business days (T+2). The gold price and silver price quoted on price portals and in the media always originate in the spot market.
How the spot market works
Spot dealing in precious metals takes place predominantly over the counter (OTC) — that is, away from organised exchanges and directly between banks, dealers and institutional participants. The beating heart of the global gold spot market is the London market, overseen by the LBMA (London Bullion Market Association). Zurich, New York and Shanghai round out the 24-hour cycle.
Pricing in the spot market follows the classic interplay of supply and demand: market makers continuously post a bid and an ask, and the gap between them is the spread. The global consensus spot price is quoted in US dollars per troy ounce and refreshed to the second.
Spot market versus futures market — a comparison
| Feature | Spot market | Futures market |
|---|---|---|
| Delivery | T+2 (immediate) | Fixed maturity date in the future |
| Price discovery | Continuous, OTC | Exchange (e.g. COMEX), standardised |
| Main players | Banks, dealers, central banks | Speculators, hedgers, producers |
| Leverage | Low (physical) | High (margin) |
| Physical delivery | Common | Rare (mostly cash-settled) |
Price components in spot dealing
A private investor buying physical gold or silver never pays the bare spot price but a dealer price made up of several add-ons:
Dealer price = Spot price + Premium (agio) + VAT (on silver/platinum/palladium)
The premium (agio) covers minting, logistics, insurance and the dealer's margin. In Ireland investment gold is VAT-exempt under the VAT Consolidation Act 2010 (Schedule 1) and EU Directive 2006/112/EC, whereas silver, platinum and palladium attract the standard 23% Irish VAT rate. Note: tax questions should be settled with a qualified adviser — this is not tax advice.
The main trading centres at a glance
- London (LBMA) — the world's largest OTC gold market; also home to the daily LBMA fixing.
- New York (COMEX) — the leading futures exchange, whose contract prices track the spot price closely.
- Zurich — the traditional physical trading hub of the big Swiss banks.
- Shanghai (SGE/SHFE) — a growing spot market for the Asia-Pacific region, quoted in CNY/g.
What it means for the private investor
The spot market is the reference base for every dealer buying price, as well as for ETCs such as Xetra-Gold and gold savings-plan products. Because the price fluctuates around the clock, it pays to keep an eye on exchange rates (the EUR/USD rate directly affects the euro price) and on historical price charts.
Quick recap
The spot market sets the global reference price for precious metals in real time — anyone buying or selling always takes their bearings from this rate, yet always pays or receives a premium or discount on top of it.