For private investors, the spot price of gold effectively determines how much gold is worth. The spot price is the price at which gold is traded at a particular point in time and location for immediate delivery.
Note however, that the when it comes to buying and selling, the buy price will always be slightly more than the spot price and the sell price will be slightly less. This ‘spread’ represents the costs and profit margin of the broker.
Other than the standard economic fundamentals of supply and demand, the gold price is affected by other important factors such as oil prices, interest rates, the $USD index, central bank involvement and geo-political tensions to various degrees.
Like all other stocks and commodities, how much gold is worth is determined on exchanges. However, not all bullion trading exchanges are created equal. The two most critical exchanges are the LBMA in London and the COMEX in New York. Between these two financial centers, gold sees most of its trading action.
Other bullion exchanges exist in major cities such as Tokyo, Hong Kong, Sydney, Singapore, Shanghai, Dubai and Zurich. Given this global reach, a gold spot price is continually being established even when the COMEX and LBMA are closed, allowing gold to be traded 23 and half hours every day excluding weekends.
The LBMA which stands for ‘London Bullion Market Association’ operates between the hours of 07.30 GMT and 15.00 GMT. It used to be the foremost bullion exchange in the industry but during the crisis of 1968 in the run up to the end of the ‘gold standard’, its importance waned.
Nevertheless, the LBMA is still a leading exchange whose ‘Good Delivery’ list is widely accepted as the ‘de facto’ standard for the quality of gold and silver bars, thanks to the strict standards of assaying and bar quality that refiners must satisfy in order to be listed
Nowadays, the most important bullion exchange in the world is the Commodities Exchange of New York. Known as the COMEX, it operates between the hours of 08.30 and 13.30 Eastern Time.
In 1994, the COMEX became a division of the New York Mercantile Exchange (NYMEX) and as such, how much gold is worth, is determined via a procedure documented in what is known as the NYMEX ‘Rule Book’. This is largely based on the price of contracts being traded in the most active futures month.