Gold Spot Definition
The gold spot is that particular form of this precious metal traded on the spot market during a certain period of time between different specialized dealers. The spot market is a virtual place for bullion traders following the same set of rules and having one common interest, to trade this commodity called gold in order to maximize their gains.
As any market it comes with a risk, there are losers and winners, and they all guide their decisions by analyzing the evolution of the gold spot price. The price of the spot gold is formed twice a day during a meeting which takes place in London that is why it is also known as London Gold Fixing. The idea of this meeting is the gathering of five representatives of the biggest bullion trading players on the spot market.
Other two influences for the gold spot price are the supply and demand manifested towards gold. These are two fundamental economic indicators that influence the evolution of any traded commodity. If the demand is higher than the supply of spot gold, therefore more dealers want to buy gold than to sell it, the price increases, and vice versa.
Gold Spot Trading
The main disadvantage for individual private dealers when it comes to obtaining gold spot is that the dealers participating on the spot market will not get involved in transactions with them. That is because private individuals invest into gold in a small proportion and they may end up keeping it for years, which is not at all convenient for the participants on the spot market because it automatically means that they will not make a profit. The principal on whom the spot market functions is that large quantities are traded on low margins.
As a conclusion, for small private individuals the only solution of getting gold spot is by contracting the services of a bank. This is not a very bright solution because in general the bank will sell unallocated gold which means that will absorb your money for free.
Besides these small advantages, the spot market is a great place for making money if a person is into the stress of trading. However, it is less stressful to trade gold than to trade the currency of a country.
Quoting the Gold Spot
When one trader wants to buy gold spot and the other wants to sell it, they will be automatically involved in a transaction. The first step in the development of the exchange is that one of them will quote the gold spot price. After this, the buyer has at his disposal 48 hours to pay to the seller the owned amount for the traded precious metal.
Other things involved by the transaction and by the quoting of the gold spot price are: the buyer can freely allocate the gold anywhere in London, the gold involved in the transaction must be produced by a company listed by the London Bullion Market Association (LBMA), and the buyer is the one to support the cost of sending a specialist courier to receive the gold spot from the vault of the seller.