As with other commodities, the market price of gold is mainly determined by supply and demand of both physical gold as well as non-physical gold (e.g. cash-settled, derivatives, futures trades).
The gold spot price is continuously changing, depending on the supply and demand of each geographical market (London, Shanghai, New York, etc). Normally, HelloGold sets its prices based on the gold spot market.
The supply of gold is mainly made up of:
- Gold owners
- ETF’s (GLD)
- Central banks (BNM)
- Insurance companies
- Private investors (such as the affluent through their family offices and you, our HelloGold customer)
- Refineries and scrap smelters
The global gold spot market price is mainly used as a price basis for contracts such as gold future contracts and gold option contracts, where physical delivery may not be the primary goal.
When it comes to the actual purchase and delivery of physical gold bars, a premium is added to the gold spot market price. This is because the production of gold bars or coins comes at a cost which often includes: transport, insurance, and handling. In addition, there is a profit margin of each business at each part of the process; from the refineries who make our gold all the way down to our supplier.
We can call this type of costs, or premium, ‘normal premium’, which is relatively stable in the long run.
In other words, the global gold spot market price displayed online is not the total sales price of gold when a buyer buys physical gold. The sales price is always the global gold spot market price plus this normal premium.
Factors that drive normal premium
There are other factors that can change the normal premium associated with physical gold such as:
- The quality/fineness and weight offered
- The volume of gold offered or requested