Spot Market
Also: Cash market, Spot trading, Spot-rate market
The spot market is the market for the immediate delivery of precious metals at the currently prevailing spot rate.
The spot market (also cash market) refers to the market on which precious metals are traded for immediate – that is, instant or near-instant – delivery at the currently prevailing spot price. In contrast to forward markets (futures), the purchase price is agreed today and the metal is physically transferred, or credited to a metal account, usually within two banking business days (T+2). The gold price and the silver price that appear on price portals and in the media always come from the spot market.
How the Spot Market Works
Spot trading in precious metals takes place predominantly over the counter (OTC), that is outside regulated exchanges, directly between banks, dealers and institutional market participants. The heart of the global gold spot market is the London market under the supervision of the LBMA (London Bullion Market Association). Zurich, New York and Shanghai complete the 24-hour cycle.
Price formation on the spot market follows the classic supply-and-demand principle: market makers continuously quote a bid and an ask – the difference being the spread. The global consensus spot price is quoted in US dollars per troy ounce and updated to the second.
Spot Market vs. Forward Market – a Comparison
| Feature | Spot market | Forward market (futures) |
|---|---|---|
| Delivery | T+2 (immediate) | Fixed maturity date in the future |
| Price setting | Continuous, OTC | Exchange (e.g. COMEX), standardised |
| Main actors | Banks, dealers, central banks | Speculators, hedgers, producers |
| Leverage | Low (physical) | High (margin) |
| Physical delivery | Common | Rare (mostly cash settlement) |
Price Components in Spot Trading
Anyone buying physical gold or silver as a private investor does not pay the pure spot price, but a dealer price made up of several surcharges:
Dealer price = Spot price + Premium (agio) + VAT (on silver/platinum/palladium)
The premium (agio) covers minting, logistics, insurance and the dealer's margin. In Malta, investment gold is VAT-exempt (EU Directive 2006/112/EC), whereas silver, platinum and palladium carry 18% VAT (the Maltese standard rate). Note: tax details should be clarified with a qualified adviser – this is not tax or investment advice.
Main Trading Centres at a Glance
- London (LBMA) – the largest OTC gold market in the world; the daily LBMA fixing is also determined here.
- New York (COMEX) – the leading futures exchange, whose futures prices correlate closely with the spot price.
- Zurich – traditional physical trading centre of the Swiss major banks.
- Shanghai (SGE/SHFE) – a growing spot market for the Asia-Pacific region, quoted in CNY/g.
Impact on the Private Investor
The spot market is the reference basis for all dealer buying prices as well as for ETCs. Because the price fluctuates around the clock, it is worth keeping an eye on exchange rates (the EUR/USD rate directly influences the EUR price) and on historical price trends.
In Brief
The spot market sets the global reference price for precious metals in real time – anyone buying or selling always orients themselves to this rate, but always pays or receives premiums or discounts on top of it.