What Is Spot Pricing? A Brief History

The price of an iPhone might be the same for quite a while, but that is not the same when it comes to a precious metal such as gold. The price of a few things keeps varying from time to time. First, it was gold, but now the trend is also infiltrating into other markets, such as electronics.

There are many definitions for spot pricing as such, but this is the most simple one. Spot pricing is the current market price of an asset. The price here could refer to both the cost price and the selling price.

According to Investopedia, “The current price at which a particular security can be bought or sold at a specified time and place. A security’s spot price is regarded as the explicit value of the security at any given time in the marketplace. In contrast, a securities futures price is the expected value of the security, in relation to its current spot price and time frame in question.”

“The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery. It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future.”

But that is all when it comes to normal things. But we are dealing with something which is slightly different and more specific. The spot pricing of precious metals is not actually a very simple thing to understand. At the same time, it is not a difficult concept as well. In this genre, we could say hat he spot price refers to the“price of one ounce of raw, unprocessed Precious Metal”.

When you are buying a piece of precious metal, let’s say 50 grams of gold, you will pay for the spot price to take it home. Therefore, spot price is also referred to as an ‘instant price’ at which precious metals can be purchased or delivered at that particular instant. But the irony is that you cannot get gold as it is raw.

To process gold into a bullion, a coin, or an ornament in any form, the gold has to be melted and processed into a specific shape. That again, adds extra cost to the spot pricing, and hence you will not buy gold at a spot price from the shop or a goldsmith. But chances are that the goldsmith will get the gold at the spot price.

But where did all this begin? Spot pricing has a short history when compared to the history of precious metals. Some time back, man found some metal and considered it to be precious. Sadly, the trend follows till today. Most spot pricing strategies are based on benchmarks.

The most common benchmark of spot pricing is the London Gold Fixing price. This began in 1919, and based on the price of gold in London, it is altered internationally. In the early 20th century, the London Gold Market Fixing agency got so famous that it became a company. Gold traders all over London kept calling them to check the price of gold.

Nathan Mayer Rothschild & Sons used to get a call from London Gold Fixing twice a day, once in the morning, and then at night. This became a trend and it slowly went to the media. That is where spot pricing began to come into existence. In 2004, Nathan Mayer Rothschild & Sons was bought by Barclays, a leading bank in London. That is when price fixing got way too serious. Well, the corporate is the corporate.

Then came the drama. Along with it came the fluctuations, price hikes, price falls, and a lot more. Until 1960, the gold prices did not get huge. After that, they started soaring. Of course, not just gold, everything else started soaring. Thanks to the Chinese, we are at least able to buy cheaper electronic gadgets with better technology.

Gold prices increased in 1980 followed by another in 2008, and the next in 2011. Gold prices in 2015 are high, but still, the spot price has not bet the price which was there in 2011. The same thing happened to silver prices. The spot price of silver was high in the 1980s and  it further increased to a maximum in 2013. In 2015, the prices have decreased a lot.

There are a great many small but significant factors that define spot pricing, but again, they are quite complicated. If you want to know more about these, we will be covering some of the more detailed aspects in future articles.