Regardless of whether you trade, mine, recycle, or deal in precious metals, the most important thing that you need to know is how to price them accordingly. However, this is quite difficult as pricing precious metals such as gold is not as simple as determining that values of assets like fixed income and equities.
What kinds of firms deal with gold and precious metals?
There are actually four different kinds of firms that are in the precious metals industry, and they are:
• Exploration and Development
• Mining
• Consumer Products
• Scrap Recyclers
Who are the Gold Consumers?
There are three general categories of gold consumers:
• Industries
• Jewelry makers
• Investors
What is a fixing?
The fixing is a daily process wherein an agreement between the participants on the same side of the market to buy or sell gold and other precious metals at a fixed price, or to maintain the condition of the market so that the price of gold stays within a certain level, and the prices remain at a certain level , and they do this using the law of supply and demand. The orders are constantly changed all throughout he proceedings while the prices of precious metals are moved higher and lower until the orders are filed and the price itself is the current price in the market wherein assets are bought or sold for.
On the other hand, the spot price is the current price at the market at which an asset is traded for. The thing that makes this different from futures price, is that the former is the price at which the two participants of the agreement have agreed to trade for on a date agreed upon.
What are the sources of pricing?
Spot Prices
OTC Markets – This is a decentralized securities market that isn’t listed on any exchange. Instead of a physical trading floor, participants in this kind of market can trade via phone, fax, or online.
These financial institutions function as market-makers, and they offer a bid/ask price that also acts as the spot price.
Large Banks & Bullion Traders – These financial institutions trade in large volumes of precious metals, including gold, in behalf of their clients. Because they trade in precious metals, they are reliable sources of spot pricing for them.
Futures Prices
Exchanges – Major exchanges around the world trade in precious metal futures, and these exchanges are one of the key sources of precious metals futures prices.
The major precious metal exchanges around the world are as follows:
• TOCOM – Japan
• Shanghai Gold Exchange – China
• MCX – Mumbai, India
• DCGX – Dubai, UAE
• Istanbul Gold Exchange – Istanbul, Turkey
• COMEX – New York, USA
Is there an official closing price for precious metals?
Traditional stocks are listed on venues like the NASDAQ and the NYSE, which have official trading hours, thus have closing prices. On the other hand, precious metals are being traded all over the world in numerous over-the-counter marketplaces around the clock, which means there are no official closing prices for precious metals.