Before getting into the details of who and where the gold price is established, it’s important to understand that there are different types of gold prices:
The Spot Price
Typically, when you buy and sell gold bullion, the price is set based on the spot price. The spot price is a determined set weight of gold before it gets refined and fluctuates according to supply, demand, and currency strength. which means that the price is set by the market at the time of purchase.
The Fixed Price
For larger orders, a fixed price is used. This is an average gold price and is used to counter minute-by-minute fluctuations in price. Each price is arrived at by testing and adjusting an initial price that is close to the spot price through a number of electronic auctions. It is set by the likes of the LBMA or Comex and is set twice daily, at 11am and 3pm UK time.
Futures Contract Price
A customer and a supplier agree to a set price for gold of a specified weight, all to be delivered at a set time. It’s basically a purchase contract for the future.
Now that you have an understanding of the differences between gold prices, it’s important to know that the international gold price is not set by one single factor or retailer. Simply put, the gold price is set by supply (gold mining) and demand.
Gold prices are set by several banks, an oversight committee, and a panel of internal and external chair members who calculate the figures based on supply and demand in the gold futures derivative markets and establish averages for both the spot price and the fixed price. Comex (CME) in the United States and the London Bullion Market Association (LBMA) in the UK operate these major derivative markets.
So how do they do it? The spot price is set by calculating an average of the estimated future price of gold based on the traded futures contracts for the nearest month, called the “front month.” The futures markets are the fastest to react to financial movements, quickly incorporating them into gold prices.
Who sets the actual price? The spot price of gold is set electronically from the supply and demand figures in the gold futures derivative markets. Algorithms assess the same market data that the banks, committees, and derivative markets use, and this then generates the live gold price, allowing for changes in demand as well as any fluctuations in a domestic currency such as the pound, dollar, or yen.