Since 2004, there has been no official gold price. It is now the London fixing which serves as an international reference to define the price of a gram of gold. However, the value of gold and silver coins and bars may differ from one market player to another. In this context, it is not always easy to understand how prices are set when investing in gold or selling antique jewelry.
What determines the price of gold and silver? Why can a coin have a different price from a gold bar? Follow the guide to get answers!
Who Sets The Price Of Gold?
The fixing of the price of gold is established according to supply and demand. Supply is directly linked to world gold production, mining reserves, and central bank gold stocks. Demand is essentially made up of jewelry needs, with buyers representing mainly China and India.
The fixing of the price of gold is established according to supply and demand. Supply is directly linked to world gold production, mining reserves, and central bank gold stocks. Demand is essentially made up of jewelry needs, with buyers representing mainly China and India.
Until 2015, A Gold Price In Troubled Waters
The gold market is currently based on the spot price, defined twice a day in London. More specifically, the London Bullion Market Association is responsible for this daily process. This organization brings together certain banks (Goldman Sachs, HSBC, Société Générale, etc.) and gold traders, representatives of gold mining industries, and refiners.
Before 2015, however, it was the London Gold Fix that was in charge of setting the price of gold. This group of professionals in the purchase and sale of gold established by conference call the fixing of the price of an ounce of gold, according to supply and demand on the world markets. These exchanges then kept secret, aroused the anger of investors and producers because of their lack of transparency. In the 2000s, the GATA (Gold Anti-Trust Action Committee) denounced several times the taking sides of the companies establishing the price of the ounce within the London Gold Fix.
At the center of the debate, we found in particular paper gold contracts and other ETPs (Exchange Traded Products, grouping financial products listed on the stock exchange linked to gold). Although based on the price of the precious metal, these assets are particularly volatile, as they are subject to the vagaries of the stock market. Until 2015, their value would have been artificially inflated or underestimated, to the advantage of banks and industrialists. The London Gold Fix price-fixing methods were therefore revised and cleaned up in 2015 by the World Gold Council, and several banks were condemned.
Until 2015, A Gold Price In Troubled Waters
The gold market is currently based on the spot price, defined twice a day in London. More specifically, the London Bullion Market Association is responsible for this daily process. This organization brings together certain banks (Goldman Sachs, HSBC, Société Générale, etc.) and gold traders, representatives of gold mining industries, and refiners.
Before 2015, however, it was the London Gold Fix that was in charge of setting the price of gold. This group of professionals in the purchase and sale of gold established by conference call the fixing of the price of an ounce of gold, according to supply and demand on the world markets. These exchanges then kept secret, aroused the anger of investors and producers because of their lack of transparency. In the 2000s, the GATA (Gold Anti-Trust Action Committee) denounced several times the taking sides of the companies establishing the price of the ounce within the London Gold Fix.
At the center of the debate, we found in particular paper gold contracts and other ETPs (Exchange Traded Products, grouping financial products listed on the stock exchange linked to gold). Although based on the price of the precious metal, these assets are particularly volatile, as they are subject to the vagaries of the stock market. Until 2015, their value would have been artificially inflated or underestimated, to the advantage of banks and industrialists. The London Gold Fix price-fixing methods were therefore revised and cleaned up in 2015 by the World Gold Council, and several banks were condemned.
The Fixing Of Gold By The London Bullion Market Association
Since 2015, the LBMA has set the official gold price twice daily, at 10:30 a.m. and 3 p.m. This is the spot price, which serves as a reference for international traders. The price-setting process is both physical and electronic, settled in dollars and communicated to the public in real-time. The information on which the fixing of the price is based is now accessible to everyone: quantity of physical gold and silver held in the vaults of London, order books listing the details of the purchases and sales of the precious metal. The gold fixing is thus established based on an agreement between the stakeholders of the LBMA, to buy or sell at a fixed price by controlling market conditions.
London concentrates 90% of the world’s gold trade, and the price established there is therefore considered the international benchmark. But other places like New York, where mainly gold derivatives are traded, and Shanghai, with the growth of the Asian market, also provide reference prices to local players. The majority of gold traders rely on the London course; but some prefer quotations representative of their market, based on the observed average of gold exchanges and adjusted according to the international daily rate. Unlike stocks, which are subject to official trading hours, precious metals are traded worldwide in multiple markets at once, 24 hours a day. There is therefore nono official gold closing price.
The Silver Price Fixing
As with gold, the price of the silver metal was determined until 2014 by an organization made up of major banking institutions, during a daily conference call. Suspicions of price manipulation have led to more transparency. Silver price fixing is now set by the LBMA, as the London Silver Price, daily at noon.
Price Of Gold Coins: A Special Case
Gold bullion and coins may be worth more than their precious metal content alone. In addition to the value of the precious metal, defined by the spot price, some pure gold bars can benefit from a small percentage of additional value thanks to their premium. In the case of gold coins, the premium can be much higher.
The prime
The oldest gold coins or ones loaded with a strong symbolism can benefit from a higher quotation than their only value in gold. Prized by numismatists, sometimes reserved for museums or auctioned off for private collections, the value of certain coins produced in just a few copies can be close to several million dollars. If all are not as well rated, it is nevertheless possible to take advantage of a nice capital gain on resale if you own a rare gold coin. This component of the final price of the coin is called the premium.
The premium of a coin is defined according to several elements:
- The value of gold on the day of the purchase-sale
- International supply and demand
- The collection bonus for rare, old, or vintage products
- Manufacturing and logistics costs, in the case of a new part
- The seller’s margin
In numismatics (study and collection of coins and medals), the collection bonus is the most important: it is this which defines the rarity of a coin and which therefore has the greatest influence on the purchase price and the price of sale.
