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The Gold Market

These gold prices are from Galmarley.Com which has a lot of information about how the gold market works. The "Gold Market" is not one single entity, but many:

  • jewellery
  • bullion coins and small bars
  • big bars (allocated and unallocated)
  • mining shares
  • e-gold
  • gold futures
  • gold backed securities
  • gold pool accounts
Allocated and Unallocated Gold

"Allocated Accounts
These accounts are opened when a customer requires metal to be physically segregated and needs a detailed list of weights and assays. The client has full title to the metal in the account, with the dealer holding it on the client's behalf as a custodian.
Clients' holdings are identified in a weight list of bars showing the unique bar number, gross weight, the assay or fineness of each bar and its fine weight. Credits or debits to the holding will be effected by physical movements of bars to or from the client's physical holding.

Unallocated Accounts
An account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding metal. The units of these accounts are one fine ounce of gold and one ounce of silver based upon a 995 LGD (London Good Delivery) gold bar and a 999 fine LGD silver bar respectively. Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties.
Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held: the client is an unsecured creditor.
Should the client wish to receive actual metal, this is done by 'allocating' specific bars or equivalent bullion product, the fine gold content of which is then debited from the allocated account."

The prices quoted here are the "spot" price: the current price for OTC trades …

"The London gold market is an Over The Counter market - which means that buyers and sellers choose each other, and do not necessarily find the best price on an exchange floor purely through price competition between different players.
Buying gold is more like shopping in a rather exclusive shopping centre than trading in a modern financial marketplace. The [gold] shopkeeper tells you his price and you take it or leave it without benefiting from an immediate direct comparison with other players - which is what you would normally find on an exchange.
It has become difficult to explain the OTC nature of the gold market in the modern world. In the case of gold its existence probably derives from a simpler world of 150 years ago."

As well as the spot price, there is the more commonly reported "fix" price:

"Twice a day the members of the 'fix' in London conduct what amounts to an elegant private auction which establishes the price at which the number of buy orders matches the number of sell orders. The fixers will be acting both on their own behalf and for those customers of theirs who have issued orders for them to trade at the 'fix'.
The result is the gold fix price which comes out once in the morning and once in the afternoon. The fix price is published widely in newspapers, on the internet and on teletext services, and is a good guide to the value of gold at that instant. It is the widely used method by which traders establish a fair price for a physical gold transaction."

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