Strike Price
Also: base price, exercise price, strike
The strike price is the standardised reference price of a precious metal, on which premiums, dealer margins and options contracts are based.
In the precious metals trade the strike price (or base price) denotes the reference price on which all further price components are built. Depending on the context the term has two closely related meanings: in physical trading it is synonymous with the spot price – that is, the current market price for immediate delivery. In derivatives trading (options, futures) "strike price" denotes the agreed exercise price at which a buyer or seller has the right to trade the precious metal.
Base price in physical precious metal trading
When buying gold bars or silver coins the base price forms the starting point of the calculation. Dealers add the premium (agio) on top of it, which covers manufacturing and distribution costs as well as a profit margin. The resulting formula is:
Dealer price = base price (spot) + premium (£ or %)
The base price itself is continuously determined at the international commodity exchanges – in particular the LBMA in London and COMEX in New York – and quoted in US dollars per troy ounce. You will find current values on the gold price page.
Strike price in options and forward transactions
In the derivatives field the strike price determines the rate at which an option may be exercised:
- Call option: right to buy the precious metal at the strike price
- Put option: right to sell the precious metal at the strike price
If the current market price with a call option is above the strike price, the option is "in the money". The historical price movement shows how strongly base prices can deviate from agreed strike prices.
Distinction from related terms
| Term | Meaning |
|---|---|
| Base price / spot | Current market price, immediate delivery |
| Buying price | Price a dealer pays the seller (below spot) |
| Dealer price | Price the buyer pays the dealer (above spot) |
| Spread | Difference between buying and selling |
| Strike price | Agreed exercise price for derivatives |
You can determine the melt value – that is, the pure material value without premium – directly in the calculator.
Note: Statements on the tax treatment of gains from derivative transactions on precious metals do not constitute tax or investment advice.
In brief
The strike price is the foundation of every precious metal transaction: it reflects the current market value and serves both in physical trading as a starting point for premiums and in the derivatives field as an agreed exercise price. Anyone who knows the base price can classify dealer prices, premiums and option premiums competently.