By Bullion Shark, LLC ……
Just like the famous phrase in the movie Wall Street “money never sleeps,” neither does the gold market. Well, it almost never does. Unlike the stock market, which opens every day at 9:30 am Eastern time and closes at 4 pm Eastern time, the gold market trades 24 hours a day, five days a week. Gold trades daily across many countries and even continents using a free market system based upon supply and demand. However, this does not mean that there aren’t major influencing factors on the gold price. The London Bullion Market Association (LBMA) and the New York Mercantile Exchange (NYMEX) play a major role in guiding gold prices on a daily basis.
Many people ask; why there is sometimes a price differential between COMEX pricing and London Spot pricing? The main reason for this price differential is because the COMEX and the LBMA use different systems to determine the spot price of gold. Additionally, COMEX pricing is based on futures contracts, whereas LBMA’s pricing is based on gold available for immediate delivery.
Most investors and collectors of gold and gold coins have heard the word “spot” at some time. More specifically, many often use the “spot price” as a method to determine the value of their gold holdings or coins at any given time. Now, one might ask: what is the “Spot price” and how is it determined?
The answer is that two major associations set the “spot price” for gold. One is the London Bullion Market Association and the other is the New York Mercantile Exchange.
Each day these associations guide the market on what the Gold price should be. Specifically, the LBMA fixes the Gold spot price twice a day, once at 10:30am and once at 3 pm London time. The spot price is determined by the LBMA members via an auction process that an independent third party named the ICE Benchmark Administration (IBA) conducts. During this process, 12 members of the LBMA participate in the auction process and place their bids and offers for gold. These members are Barclays, Bank of China, China Construction Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Societe Generale, Standard Chartered, Bank of Nova Scotia, the Toronto Dominion Bank and UBS. The price is set in U.S. dollars per fine troy ounce of gold.
The COMEX is the subsidiary division of the NYMEX that deals with gold futures trading. Each futures contract controls 100 ounces of gold for a specified future delivery date. The COMEX also determines the price of spot gold in a different way than the LBMA. The COMEX uses a four step process to determine the gold spot price. First the COMEX analyzes gold futures between 1:28 to 1:30 pm, right before the exchange closes. Second, the COMEX determines the month of futures contracts that saw the most trading volume. Third, the COMEX averages futures prices for the most active month over the final two minutes of trading. Finally, they announce the spot price. The closing price of gold is determined daily by using the bid for that month’s futures contract. Each day the COMEX market closes at 1:30 pm.
In addition to the COMEX and LBMA, other major markets such as Zurich and Hong Kong make markets in gold. However, London is still the epicenter of over the counter gold trading by volume, followed by the COMEX which trades futures in gold and is based out of Chicago.
These are solely the opinions of Bullion Shark, LLC. Please consult an investment adviser before investing
You don’t mention the Shanghai Gold Exchange… Ignoring that elephant in the room completely, are we?
Hi MKable – The scope of the article was to just introduce readers to the two main price setting markets. You are correct that the SGE is a huge market for physical gold, but the paper investment market is still dominated by western interests and most likely will continue to be until China opens up it markets a lot more.
In additiuon, Shanghai Gold Exchange stopped publishing its gold vault withdrawal figures. This was one of the few transparent metrics for Chinese gold demand since the rules and tax incentives in China effectively push all physical gold supply to be sold over the SGE. In short, many consider gold pricing and information from the SGE to be somewhat opaque.