Gold is considered a relative safe-haven asset around the world, especially during times of economic uncertainty and volatility. While gold is somewhat well known as a commodity, understanding where it’s traded—including coins and bars—can be a little more complex. Thankfully, with a bit of know-how, you can add gold to your portfolio in several ways. In this article, we answer the question “Where is gold traded?” and explore the ins and outs of gold bullion trading.
What Is Gold Bullion Trading?
Gold bullion trading is the act of buying and/or selling gold—just as you would with many other assets, such as stocks. The two primary forms of gold trading in the wholesale market are over-the-counter and on exchange. However, these markets aren’t the same as stock markets and exchanges like the New York Stock Exchange.
What Are Gold Markets?
Gold markets are one of several places to trade gold and other precious metals internationally—usually on a 24-hour basis in the case of over-the-counter (OTC) markets. An OTC market is a decentralized market in which participants trade commodities, such as gold, without a central exchange or broker.
On trading at OTC markets, the World Gold Council says that two counterparties in a trade bilaterally agree on a price and have obligations to settle the transaction (exchange of cash for gold) with each other. This form of principal-to-principal gold trading is typically less regulated than trading on an exchange and is how most of the gold market has functioned historically.
Various gold bullion markets exist across the globe, with the three most important trading centers being the London OTC market, the U.S. futures market (COMEX), and the Shanghai Gold Exchange (GSE). These markets comprise more than 90% of global trading volumes, with the largest gold bullion trading location being the London Bullion Market.
How Do Gold Markets Work?
According to the London Bullion Market Association (LBMA), at an OTC gold market, two parties trade physical gold bullion in a bespoke, flexible, and confidential way. They do this in a manner that meets the needs of the customer, e.g., in terms of price, amount (size) to be bought and sold, and time to maturity. Typical clients of OTC gold markets include governments, central banks, mining companies, hedge funds, and refiners.
How Big Is the Gold Trading Market, and Where Is Most Gold Traded?
The size of the gold trading market is significant. At LBMA, where 70% of global gold trading occurs, 241.92 billion USD worth of gold is traded each week. For comparison, the silver trading market (through LBMA) is much smaller, with 32.12 billion USD worth of silver traded per week on average.
While London is easily the leader when it comes to physical gold trading, the U.S. futures market (COMEX), which is operated by the CME Group, has become an increasingly important venue in driving price discovery. According to the World Gold Council, trading activity on COMEX is primarily concentrated on the “active month” (nearest dated) contract, which acts as a proxy for the spot price of gold and other precious metals. Comparatively speaking, only a small number of contracts physically settle in delivery of gold bars into COMEX vaults, but the market is nonetheless tightly linked to physical markets through an Exchange for Physical (EFP) market. CME Group reports that nearly 27 million ounces of gold is traded daily.
Is Trading in Gold a Good Idea?
While trading in any asset comes with risk, gold is often considered as a more reliable store of wealth than some other asset classes. Historically speaking, this has been especially true during periods of economic volatility. During these periods, gold has tended to surge—even outperforming asset classes with traditionally higher levels of risk exposure. This is why many individuals seek shelter from economic storms by turning to precious metals, such as gold. By taking a longer-term view of buying and holding gold, we can see that the gold price per ounce increased by 650% in the 20 years between 2000 and 2020.
Popular Ways to Get Involved In Gold
There are a number of popular and easy ways to get involved with gold trading. They include:
Gold bars are rectangular slabs of .999 pure gold and are produced in sizes generally ranging from 1 oz. to 1 kilo. According to the U.S. Mint, a standard gold bar measures 245 x 84.5 mm—but that’s for 400-oz. gold bars held in central banks’ gold reserves. The average gold buyer is more likely to purchase a 1-oz. gold bar measuring approximately 41.60 x 24.60 mm or a 10-oz. bar that’s roughly 47 x 24 mm (Perth Mint gold bar sizes).
Gold bars are a popular way of getting involved in gold trading because they’re compact, durable, and portable. They can be stacked vertically or arranged side by side, with or without protective packaging. A gold bar can also take up less space than the same weight in coins, depending on the type of coin and your storage method.
Premiums on gold bars tend to be lower than on gold coins of the same weight and fineness, mostly because of production costs—making them a potentially ideal way to own precious metals.
Gold coins are one of the most popular forms of gold ownership. A gold coin’s limited production number, design, and marketplace demand all contribute to a coin’s overall price potential.
A bullion coin’s market worth is tied primarily to its weight in gold and current market price, making it a more liquid, short-term hold. The most common gold bullion coins range in size from 1/10 oz. to 1 oz., with various sizes in between. The two most common purities for bullion coins are 22- and 24-karat gold.
Popular gold bullion coins—available to buy online through U.S. Money Reserve—include Gold American Eagles, Gold American Buffalos, and Gold Canadian Maple Leaf coins.
Along with physical gold bars and coins, you can also buy gold as part of a self-directed Individual Retirement Account (IRA).
A precious metals IRA, such as a gold IRA, allows you to turn your cash-backed paper assets into tangible gold. With a self-directed IRA (SDIRA), you’re in control of your asset mix, which can allow for the addition of alternative assets not available through traditional retirement accounts.
With a gold IRA, you can also experience the tax benefits of an IRA, as well as the time-tested benefits of physical gold. A gold IRA may be a good option for your retirement planning, depending on your needs, to help secure your financial future.
As you can see, you have many options to consider if you’re thinking about purchasing gold—whether that’s trading it, buying physical gold, or holding it as part of a gold IRA. Therefore, it may be beneficial to speak with a financial advisor to find out what’s best for your needs. Always purchase gold and gold for IRAs from reputable distributors.