Whether you are going to sell or trade precious metals, you must know and understand how their prices are determined. Remember that setting the prices of precious metals is not the same as determining the value of assets like equities or fixed income, nor it is easy.
In this gallery, we are going to provide you with the basic information you need to know how precious metals prices are set.
A metal is considered precious if it is rare, naturally-occurring, and has an important economic value. Most precious metals emit a high luster. Examples of precious metals include (but are not limited to): gold, silver, platinum, palladium, ruthenium, rhodium, and iridium.
The businesses that are known to deal with precious metals are:
- Firms that deal with exploration and development of precious metals
- Mining companies
- Consumers (industrial companies, jewelry companies, and investors)
Fixing is a daily transaction that involves two parties on the same side in the market. Their intention is either to buy or sell precious metals in a set price or to keep market conditions under control in such a way that the prices stay at pretty much the same level. Controlling supply and demand are one of such ways.
During the proceedings, there are changes in orders as prices of the precious metals fluctuate. The price is considered “fixed” when the orders are finally fulfilled or satisfied.
The London Gold Fix (or London Fix or simply Gold Fix) is a procedure in which the price of gold is determined on the London market by the five members of the London Gold Pool. This “fix” also applies to other precious metals like silver, platinum, and palladium.
Informally speaking, the London Fix has been recognized as a benchmark for pricing most of the precious metals and their products as well as derivatives on several markets all over the world.
The fixing occurs twice daily (at 10:30 AM and at 3:00 PM, London time)
The two types of prices are:
- Spot price – current market price of an asset or security at which it is bought or sold for immediate payment and delivery, at a particular place and time.
- Futures price – the price at which the two parties involved in a futures contract agree to carry out transactions on the settlement date.
- Spot prices: Over-the-counter (OTC) market – also known as “off-exchange trading,” is a decentralized market of securities that are not governed by an exchange. Parties involved in this market do transactions by remote means such as phone, fax, or electronic network as opposed to doing transactions from the actual trading floor. Major banks and bullion traders – they trade large volumes of precious for clients through buy and sell. This is a good source for spot pricing.
- Futures prices: Exchanges – Major exchanges across the globe trade precious metals futures contracts. The following major precious metals exchanges include TOCOM in Japan, Shanghai Gold Express in China, MCX in Mumbai (India), DCGX in Dubai (UAE), Istanbul Gold Exchange in Istanbul (Turkey) and COMEX in New York, USA.
Unlike stocks which are listed on stock markets (official closing hours and closing prices), precious metals bear no “official closing price.” It’s because they are traded in several OTC markets across the globe, 24 hours a day.
Some businesses require a daily “closing price” as part of their day-to-day operations. In order to achieve that, they have to choose two options:
- Using the fixed price for the precious metal
- Using the “closing price” determined by the data vendor.
Multiple OTC markets across the globe trade precious metals. Trading officially begins on Sunday at 6:00 pm EST (the opening of Japan markets) and officially ends on Friday at 4:30 EST (the closing of the US markets).