Gold Spot Price, Premium and Spread: How Dealer Prices Are Made
The gold spot price is the price at which gold is traded for immediate delivery in the wholesale market – usually in US dollars per troy ounce. Private buyers pay a dealer a higher price because a premium is added, and receive somewhat less when they sell. Knowing these building blocks lets you compare offers objectively.
What is the spot price?
The spot price is the price for gold that is delivered and paid for immediately. It is formed continuously in trading between banks, dealers and other market participants, above all in the London over-the-counter market and on futures exchanges. It is usually quoted in US dollars per troy ounce.
The key point: the spot price applies to large wholesale quantities, i.e. bars to the Good Delivery standard. No private customer buys a 50-gram bar at the spot price. The spot price is the starting point on which dealers build their prices.
LBMA Gold Price: the daily fixing
Alongside the continuous spot price, there is a fixed reference price, the LBMA Gold Price. It is set every trading day in two electronic auctions at 10:30 and 15:00 London time. For silver, there is one auction at 12:00. Both prices are administered by ICE Benchmark Administration.
The auctions run in US dollars. The results are also published in pounds and euros. Many contracts, funds and central banks use these reference prices for valuation.
Premium: what you pay above the metal value
The premium, also called agio, is the amount you pay above the pure metal value. It covers the production of the bar or coin, transport, insurance, storage and the dealer’s margin.
You can calculate the premium yourself: divide the selling price by the metal value and subtract 1. An example: if a 1-ounce coin costs €3,780 and the gold price is €3,600 per troy ounce, the premium is €180 or 5%. Small units and coins usually carry a higher premium than large bars.
Spread: the gap between buying and selling
Dealers quote two prices. The selling price, also called the ask or offer, is what you pay when you buy. The buying price, also called the bid, is what you receive when you sell. The difference is called the spread.
The spread shows how much the gold price has to rise before you would avoid a loss on an immediate resale to the same dealer. A low premium when buying is of little use if the dealer applies a large discount when buying back.
Comparing offers properly
Do not just compare the selling price; compare the total price per gram of fine gold including shipping and insurance. Also ask for the buy-back price for the same product. A fair comparison only works with an identical product, i.e. the same manufacturer, size and fineness.
Pay attention to timing as well. The spot price changes constantly, and dealers adjust their prices several times a day. An offer from yesterday may no longer be valid today.
Why the price in euros moves differently
Because gold is traded internationally in US dollars, the price in euros also depends on the exchange rate. If the gold price rises in dollars while the euro gains against the dollar, the rise in euros is smaller. Conversely, gold can become more expensive in euros even though the dollar price stays the same.
For buyers in Germany, the price in euros per gram or per ounce is therefore what matters. Most dealers convert their prices continuously based on the current spot price and the exchange rate. The LBMA Gold Price published in euros serves mainly as a reference for valuations and contracts.
