By Angela Koch
U.S. Money Reserve CEO
You don't have to be a precious metals expert to know that the price of gold can fluctuate daily, especially when there’s a political curveball like Donald Trump thrown into the mix. The world is now watching to see how every crevice of the U.S. economy responds to Trump’s win. Will stocks continue their slump? Will the price of everyday commodities go up or down? Will the dollar gain in strength or weaken? Much remains to be seen.
As you continue to read about the ramifications of the election’s outcome, you may find yourself reading about the impact Trump’s victory has had on the price of gold and be confronted with a host of new terms. For instance, what do precious metals companies, reporters, and analysts mean when they reference “the spot price” of gold? And what’s a “futures price?” Understanding the terminology related to precious metals pricing can help you make the best, most informed decision for your portfolio, especially during such a sensitive time as this. Whether you're getting ready to buy gold for the first time or the fifth, read on to learn more about spot prices, futures prices, and how Trump’s victory has impacted both.
What are “spot prices?”
The spot price is the current market price at which silver or gold is bought or sold for immediate payment and delivery. This can also be referred to as the cash price, notes Nasdaq. The spot price of silver refers to the price of one ounce of silver. Accordingly, the spot price of gold refers to the price of one ounce of gold. Spot prices do not account for any other costs that may be associated with the purchase or sale of a precious metal, like the cost of shipping, handling, and insurance.
Spot prices can sometimes be confused with the price of bullion. The term “bullion” refers to precious metals in bulk form, with the price of bullion being partly determined by the coin or bar's weight and partly by the spot price, as well as taking into account the manufacturing and distribution expenses.
Precious metals companies use spot prices to help guide product pricing, but a host of other factors are taken into consideration as well. Coins, bars, and bullion may sell for varying amounts depending on a number of things, including the current market supply and demand, local, national, and global economic conditions, as well as the mintage, product type, and relative scarcity of the product in question. When it comes to spot prices, the most important thing to remember is that “spot” simply refers to the price at which you could buy gold or silver right now (essentially what you would pay “on-the-spot”), as opposed to some date in the future.
Trump sends spot price of gold soaring
Spot gold rose as much as 4.9 percent to $1,337.40 an ounce, its highest since September 27, reports Reuters, and it may not be done with its upwards climb anytime soon.
“Gold will rise between 5-10 percent over the next few days … basically until the market determines what the right price of the dollar is in this situation,” says Amanda van Dyke, fund manager at Peterhouse Asset Management.
Plus, futures traders see only a 36 percent chance of the Federal Reserve raising interest rates next month, adds CNBC, which “should support further gains in gold.”
If you haven't yet entered into gold ownership, you may not want to wait any longer. “We forecast gold prices to average $1,420 in 2017,” reports Thomson Reuters in their Gold Survey 2016 Q3 Update & Outlook. If gold prices were to continue to climb, would there be a point at which you could no longer afford to buy gold? Call 1-844-307-1589 for live pricing and inventory selection today!
What are “futures prices?”
As you read about Trump’s impact on the spot price of gold, you may also see it followed by mention of “gold for December delivery” or “gold futures.” Why is this price different than the spot price? A forward or futures price indicates the price at which gold or silver may be bought or sold for in the future. In normal markets, writes Kitco, futures prices tend to be higher than spot prices, but could end up being either higher or lower depending on the outlook for supply and demand for the asset.
“The difference is determined by the number of days to the delivery contract date, prevailing interest rates, and the strength of the market demand for immediate physical delivery. The difference between the spot price and the future price, when expressed as an annual percentage rate is known as the ‘forward rate,'” notes Kitco.
Now you may be wondering, who uses futures prices? Futures prices are relevant for futures contracts. Futures contracts are used in a variety of industries and for a variety of reasons, but are primarily seen as a method of potentially mitigating risk. In a futures contract, notes Sunshine Profits, two parties agree to exchange an asset (which could be anything from gold to grain) for a price agreed upon today, but with delivery taking place at a specified future date.
Since spot prices change continuously and sometimes often (reacting to varying supply and demand, unforeseen economic and political events, natural disasters, etc.) some buyers look to “futures” to help them “lock in” a price at which they can buy or sell an asset in the future.
The party that agrees to buy the gold or grain hopes that the price will go up by the time the contract expires, and the party agreeing to sell the asset hopes the price will decline. Futures contracts can extend for a few hours, weeks, months, or even years.
Gold futures up on wake of Trump win
Gold futures were up 2.3 percent in early trading the morning after the election, reports CNBC. Gold futures contracts for December delivery, in particular, jumped $41 (or 3.22 percent) to $1,315 an ounce by 2:50 AM ET after rising by as much as 4.7 percent to $1,338.30—the most since September 26, reports Investing.com.
The last time the market saw a single-session rise of this size was the day after the U.K. voted to leave the European Union. “The U.S. election and Brexit had a similar feel to it,” says Shree Kargutkar, associate portfolio manager at Sprott Asset Management. People will likely be looking for uncorrelated, safe haven assets as they search for ways “to insulate their portfolio from possible tail risks related to a Trump presidency,” she adds.
Precious metals making positive moves across the board
Gold isn’t the only precious metal basking in the rays of Trump’s victory. Spot silver rose as far as $18.996 an ounce, its highest since October 3, reports CNBC. Platinum also rose nearly 0.2 percent, with copper seeing some sharp gains as well.
Movement in the price of precious metals is admittedly complex. Former Federal Reserve chief Ben Bernanke once famously told the Senate Banking Committee that, “Nobody really understands gold prices and I don't pretend to understand them either.”
At U.S. Money Reserve, though, our experienced and knowledgeable Account Executives do their best to explain the factors influencing gold and silver prices for that day using up-to-date market news, plus the factors that could potentially influence prices in the future. U.S. Money Reserve monitors historical prices and reports on the live prices of gold and silver in the Knowledge Center, a resource that's available to you 24 hours a day, 7 days a week. To deepen your understanding of how precious metals move and how Trump’s victory could impact your portfolio, call U.S. Money Reserve today at 1-844-307-1589. You'll receive a free one-on-one consultation that's directly related to your financial goals.