Spot Market
Also: Cash market, Spot trading, Spot-rate market
The spot market is the market for immediate delivery of precious metals at the currently valid spot rate.
The spot market (also cash market) is the market on which precious metals are traded for immediate - that is, immediate or near-immediate - delivery at the currently valid spot price. Unlike futures markets, the purchase price is agreed today and the metal is physically transferred, or credited to a metal account, usually within two banking 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), i.e. 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 in the spot market follows the classic supply-and-demand principle: market makers continuously quote a bid price and an ask price - the difference is called the spread. The global consensus spot price is quoted in US dollars per troy ounce and updated to the second.
Spot market vs. futures market - a comparison
| Feature | Spot market | Futures market |
|---|---|---|
| Delivery | T+2 (immediate) | Fixed maturity date in the future |
| Price determination | Continuous, OTC | Exchange (e.g. COMEX), standardised |
| Main participants | Banks, dealers, central banks | Speculators, hedgers, producers |
| Leverage | Low (physical) | High (margin) |
| Physical delivery | Usual | 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, which is made up of several surcharges:
Dealer price = spot price + premium (agio) + VAT (for silver/platinum/palladium)
The premium (agio) covers minting, logistics, insurance and dealer margin. For investment gold, VAT does not apply (HMRC exemption). Note: tax details should be clarified with a tax adviser - not tax/investment advice.
Important trading venues at a glance
- London (LBMA) - the largest OTC gold market in the world; the daily LBMA fixing is also determined here.
- New York (COMEX) - leading futures exchange whose futures prices correlate closely with the spot price.
- Zurich - traditional physical trading venue of the Swiss major banks.
- Shanghai (SGE/SHFE) - growing spot market for the Asia-Pacific region, quotation 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 such as Xetra-Gold or gold savings-plan products. Since the price fluctuates around the clock, it is worth keeping an eye on exchange rates (the EUR/USD rate directly influences local prices) 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 takes their bearings from this price, but always pays or receives surcharges or discounts on it.