Current Gold Price

What does “spot price” mean?

The “spot price” refers to the price an investor will pay for the immediate delivery of one ounce of gold. The transaction happens “on the spot,” hence the name. 

When someone says “the gold spot price,” it gives the impression that there is a centralized, authoritative spot price of gold. But this is not the case. The “spot price” is a theoretical estimate of the real-time market value of gold. It is not published by any government or official entity. Rather, individual exchanges and brokerage firms find the closest approximation using different benchmarks, such as futures contracts, gold-backed ETFs, and the LBMA Gold Price. 

The gold spot price fluctuates constantly based on trading activity from marginal buyers and sellers. Retail investors cannot purchase gold at the “spot price” because dealers and brokerage firms always charge a premium or commission over spot.

What does “market price” mean?

The “market price” refers to the price which equalizes supply and demand.  

When market participants are allowed to freely trade an asset, the market price naturally rises to eliminate shortages and falls to eliminate surpluses. At any given time, if the number of people willing to buy outweighs the number of people willing to sell, the price will adjust higher. Conversely, if supply exceeds demand, the price will fall.

What are “bid” and “ask” prices?

When you view a live price for gold, you often see two prices: a “bid” and an “ask.”

• Ask Price: the lowest price a seller is willing to accept

• Bid Price: the highest price a buyer is willing to pay 

In most markets, the ask is higher than the bid. 

To understand why, we must understand the role of market makers. Market makers are financial institutions that provide liquidity by quoting both a bid and an ask price for gold. Basically, they buy from anyone that accepts their quoted bid price. Likewise, they sell to anyone that accepts their quoted ask price.

Market makers set their ask price slightly higher than their bid price so they can earn the difference. 

For example, if gold is trading at $2,300.00 (bid) — $2305.00 (ask), the market maker will buy gold for $2,300.00 and sell it for $2305.00. In this case, the bid-ask spread is $5.00.

How is the current gold price calculated?

There is no centralized, authoritative price of gold. Gold is mined and traded all over the world, resulting in a decentralized market. 

When you see a dealer quote the “spot price” of gold or display a gold price chart (like the one above), they are typically using a combination of reference sources, such as:

• The NYMEX Continuous Contract Price 

• The LBMA Gold Price 

• Gold ETF Prices 

• Prices from gold wholesalers 

For a more detailed explanation of these reference sources, click here. 

In a liquid market with many buyers and sellers, we get the impression of a smooth, continuous, unified price. But it is important to remember that the prevailing price in any market (gold included) is always the result of many individual transactions between marginal buyers and sellers. 

What makes the gold price rise?

The price of gold rises when some event encourages marginal buyers to buy or discourages marginal sellers from selling. 

For example, when interest rates fall, investors tend to buy gold. Other bullish events include a weakening US dollar, increasing market volatility, political and economic crises, and rising inflation expectations. When these events occur, demand from buyers tends to outweigh supply from sellers, pushing the market price higher.  

News headlines give the impression that events have a causal impact on prices – the recent rate cut caused gold prices to rise by 5%! But we should remember that market prices are determined not by events themselves, but by how marginal buyers and sellers react to events. 

For a more detailed explanation of factors that influence gold, click here.

What makes the gold price fall?

The price of gold falls when a certain event discourages marginal buyers from buying or encourages marginal sellers to sell. 

Rising interest rates, a stronger US dollar, decreased market volatility, and falling inflation expectations can encourage investors to sell gold (or kick buyers to the sidelines). As a result, supply outweighs demand, pushing the market price lower.

For a more detailed explanation of factors that influence gold, click here.

What is the gold’s average return?

Since the end of the gold standard in 1971, gold has achieved an average return of 9-10% per year. Gold’s CAGR during that period was 7.96%.

Since 2000, gold’s best-performing years were 2007 (up 31.0%), 2010 (up 29.6%), and 2020 (up 25.1%). Gold’s worst-performing years were 2013 (down 28.0%), 2015 (down 10.4%), and 2000 (down 5.5%).

What is the gold/silver ratio?

The gold/silver ratio (or mint ratio) is the price of gold divided by the price of silver. It represents the number of silver ounces required to buy one ounce of gold. If the ratio is 50, gold is 50 times more valuable than silver. 

When the gold/silver ratio is rising, gold is outperforming silver. When it is falling, silver is outperforming gold. 

People track the gold/silver ratio for several reasons. A high ratio indicates that silver is undervalued relative to gold, and vice versa. Historically, the ratio tends to rise during periods of economic uncertainty or deflation (when gold outperforms silver) and fall during periods of economic growth and inflation (when industrial demand for silver increases). 

For more information about trading the gold/silver ratio, click here.

When should I buy gold?

When considering entry points for gold, investors often focus on real interest rates and the strength of the U.S. dollar, as these indicators are inversely correlated with gold’s performance. For example, a trader might buy gold when they expect real interest rates to fall. However, it is very difficult for the average investor to identify and act on these trends because they are “priced in” to the gold market in real time.

Individuals are generally better suited to a strategy of buying gold in small amounts over a long period. This approach allows investors to diversify their entry points and take advantage of gold’s long-term average returns, which have historically been strong.

Alternatively, gold investors can concentrate their gold purchases when gold is undervalued compared to other markets. Specifically, gold investors tend to track the following ratios: 

• Gold/M2 ratio: compares the total amount of money in circulation to the price of gold. 

• Gold/S&P 500 ratio: divides the price of gold by the S&P 500, providing insights into the relative valuation between gold and the stock market. 

• Gold/Dow ratio: divides the price of gold by the Dow Jones Industrial Average (DJIA). 

When these ratios are low compared to historical averages, gold is undervalued. Historic undervaluation presents a strong buying opportunity. Over time, these ratios tend to revert to historical levels.

How should I buy gold?

There are many ways to gain exposure to gold, including gold-backed ETFs, futures contracts, and physical coins. 

At Vaulted, we have built the most convenient, secure, and affordable way to own gold. Clients get instant ownership of segregated, serial-numbered bars stored in professional vaults. Clients can buy and sell instantly at the best prices and take physical delivery of their metal at any time. 

Click here to set up your free Vaulted account.