You may have wondered what a gold or silver necklace is worth. Gold and silver prices can fluctuate every day. How do they decide on the price? This puzzle may seem complicated, but is actually quite fun. Find out the formula for determining gold and silver price.
The following will be discussed:
- Why is gold so special?
- Fixing the daily prices or “fixing” is a term used to describe this process.
- What is the difference between paying today and later?
- The prices of goods and services around the globe
What Are Precious Metals?
Silver and gold are “precious” metals. The world is not full of precious metals. They are rare and therefore have high values. Imagine them as super-rare trading cards. Everyone wants to own one if there are only a limited number. The price will rise.
Platinum and palladium are also precious metals, but silver and gold are most well-known. They are used for a variety of things, including:
- Jewellery: Gold and silver are used to make necklaces, bracelets and rings because they’re beautiful and won’t rust.
- Investment: Many people invest in gold or silver, believing that it will retain its value. This is like saving in another form.
- Industry Because of its excellent conductivity, silver is widely used as a component in electronic devices such as phones and computers.
What is the “Fixing”?
Imagine that you, your friend and a few others want to exchange toys. You must all agree to a fair price. You might agree, for example, that a toy car was worth five marbles. The “fixing” idea is similar for gold or silver.
Two times a day, big banks and experts in finance meet to determine the official gold price. This is done through electronic auctions.
- Then they look at the number of people who want to purchase gold, and those that want to sell.
- The price is adjusted up or down to match the number buyers and sellers.
- Fixing a price is when they reach the perfect level of satisfaction for all.
The gold price is fixed at 10:10 AM and 3 PM, respectively in London. The fixed price is used as a reference for people around the globe.
Futures prices vs. Spot prices
You can pay now for something you purchase or pay later. There are two types of gold and silver prices.
What is a spot price?
This is the current price of gold and silver. The price of a coin you buy in a store will depend on the current spot price. You pay for the candy at the shop and receive it immediately. Spot prices are constantly changing throughout the day depending on the buyers and sellers around the globe.
What is the Futures price?
The “future price” refers to the price that you agreed on for silver or gold today, but will receive in the future. Imagine that you’re interested in buying a new video game. Pre-ordering the game for $50 is possible today. Pre-ordering it today will lock in the $50 price.
The way futures contracts are structured is as follows: The buyer and seller will agree to a set price on the exchange of a specific amount of silver or gold at a later date. It helps individuals and businesses plan.
Where Do the Prices Come From?
Gold and silver are priced by many different sources at the same time, unlike a toy shop that only has one price. These metals are exchanged all over the world, day and night. There is no “official” gold or silver price.
Over-the-Counter (OTC) Markets
The majority of gold and silver trades don’t take place in a single large building. The trading takes place on computers that connect banks and dealers around the globe. It is referred to as an OTC (over-the counter) market. The global gold spot price is determined by the prices of these banks, which are constantly buying and selling gold.
Futures Exchanges
Exchanges are large, well-organized markets where futures prices can be set. Imagine these as a huge auction where everyone agrees on the price for future delivery. New York, London and Shanghai are the most popular cities for exchanges of precious metals. Prices on these exchanges can be a good indicator of what gold and silver are expected to cost in months to come.
Putting It All Together
How are the prices of gold and silver determined? There are a couple of big factors:
- What is the supply (Provision)?The amount of new gold and Silver being extracted from the earth by mining companies.
- Demand (Demand:Number of people who want to invest, buy coins or electronics, etc.
- Daily FixingLondon’s twice-daily price benchmark is a point of reference for everyone.
- Trading Globally:Constant buying and selling on OTC and futures markets pushes prices up and down throughout the day.
Gold and silver prices are a snapshot in time of this global activity. This is a global conversation on the value of these rare, shiny metals. Next time you look at a gold or silver piece, you will know more about its amazing journey.
The Next Steps
You can now pay attention to the changes in prices of things. Now that you know the basics, you can pay more attention to how prices change.