What establishes Gold and Silver Prices?
Precious metals are naturally occurring metallic chemical elements of high economic value and are very rare. Precious metals are Gold (Au), Silver (Ag), Platinum (Pt), Iridium(Ir), Rhodium(Rh)and palladium (Pd).
Precious Metals Industry Sectors
Precious Metal Consumers
Precious Metals Trading Hours
Precious metals trade in OTC markets around the globe. Trading starts Sunday at 6:00 pm EST, when the Japan markets open, and ends Friday at 4:30 pm EST, when the U.S. markets close. There is also a 45-minute period from 5:15 to 6:00 pm EST, Monday through Friday, when trading is closed.
Spot and Futures Prices Explained
The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery.
The futures price, is the price at which the two participants in a futures contract agree to transact at a “future” settlement date.
The fixing (or fix) is a daily process, an agreement between participants on the same side in a market to buy or sell precious metals at a fixed price, or to maintain market conditions such that the price stays at a given level, by controlling supply and demand. Orders are changed throughout the proceedings as the price is moved higher and lower until such time as the orders are satisfied and the price is said to be “fixed”.
On March 20, 2015, the historic London Gold Fix was discontinued and replaced by the LBMA Gold Price, for which ICE Benchmark Administration (IBA) became the administrator.
IBA hosts an electronic auction process for the LBMA Gold Price. This process is independently administered and tradeable, electronically and physically settled, conducted in dollars, with aggregated and anonymous bids and offers, and published on-screen in real time.
The LBMA Gold Price is set twice daily in US dollars at 10:30 am and 3:00 pm each business day.
|Precious Metal Type||Venue||Time|
|Gold Fixing||London Bullion Market Association (LBMA)||10:30 GMT|
|Silver Fixing||London Bullion Market Association (LBMA)||12:00 GMT|
|Platinum & Palladium Fixing||London Platinum and Palladium Market||09:45 GMT|
London Bullion Market Associations (LBMA)
Three quarters of the world’s gold trading takes place over-the-counter in London between central banks, mining companies and private banks which are LBMA’s major clients. The basis for transactions between these institutional economic agents is the gold fixing which is done twice daily. Settlements, which are gold transfers or cash equivalents, are mainly done in cash, because the amount of available gold in the LBMA members’ vaults is very small in comparison to the amount of transactions. The GOFO, used as a basis for GOLD/USD swaps, is fixed once a day.
LBMA is made up of 77 members. These organizations trade, sell, store, mine, audit and conduct economic research.
Of the 77, 13 members are Market Makers, they participate in the price fixing by communicating their buy/sell prices on three products: spot price, futures and options.
- Barclays Bank Plc
- Goldmand Sachs International
- HSBC Bank USA NA
- JP Morgan Chase Bank
- UBS AG
- Bank Of America Merrill Lynch
- Citi Bank NA
- Credit Suisse
- Deutsche Bank AG
- Mitsui & Co Precious Metal
- Morgan Stanley & Co International plc
- Societe Generale
- Bank of Nova Scotia
The spot price corresponds to the physical market price for immediate gold delivery. Delivery in London is made within two working days.
Futures are transactions between two parties accepting to buy or sell gold at a fixed date in the future, generally for one month, three months, six months, or even one year or longer.
Options offer those who hold them the possibility, without the obligation, to buy or sell gold at a determined price at a fixed date in the future. For this right, they pay a compensation fee. The right to buy is called a “Call option” and the right to sell, a “Put option”.
Pricing Sources Explained
OTC Markets: Versus a physical trading floor, decentralized securities not listed on exchanges are traded via phone, fax or an electronic network with financial institutions acting as the market-makers offering bids/asks in which establishes the spot price.
Bullion Traders and Banks: Bullion traders and banks buy and sell precious metals on behalf or their clients as part of the trading process and, as a result, are reliable sources to establish precious metals spot pricing.
Exchanges: Precious metals futures contracts are traded in major exchanges around the globe. These exchanges are a key source for precious metals futures prices.
The major precious metal exchanges are as follows:
|Shanghai Gold Exchange||China|
|Istanbul Gold Exchange||Istanbul|