How is the gold price set? Spot, LBMA and COMEX

Key points

• How is the gold price set? Mostly by trading in London and New York, where banks and funds buy and sell all day
• The spot price is the live wholesale price for an ounce delivered now; it moves every second the market is open
• The LBMA Gold Price is a benchmark set by auction twice a day in London, used to settle contracts and value funds
• Futures on COMEX in New York trade a little above spot, by roughly the cost of borrowing money until delivery

How is the gold price set? There is no single office that sets it. The price you see quoted, such as about $3,997 an ounce at Friday 23 October's close, is the result of continuous trading between banks, funds, miners and refiners, mostly in London and New York, with Shanghai setting the tone in Asian hours.

That one sentence hides three different prices that people often mix up: the spot price, the London benchmark and the futures price. This guide explains each, how they stay close together, and why the price in a shop is always higher.

What is the spot price of gold?

The spot price is the wholesale price for gold delivered now, quoted in US dollars per troy ounce. It is what most websites, including ours, show as "the gold price", and it changes every few seconds while the market is open, from Sunday evening to Friday evening New York time.

Spot gold is traded over the counter, meaning directly between banks and dealers rather than on a single exchange. Most of that trading is settled in London, in large bars that weigh about 400 ounces, roughly 12.5 kilograms, and must be at least 99.5% pure. Traders call this "loco London" gold.

A troy ounce is 31.1035 grams, slightly heavier than the ounce used for food. So Friday's spot price of about $3,997 an ounce works out at about $128.50 a gram of pure gold, on our price data. Every local price on our site starts from that number.

What is the LBMA Gold Price?

The LBMA Gold Price is a benchmark: one agreed price, set at fixed times, that contracts can refer to. It is set twice each London business day, at 10:30 and 15:00 London time, by an electronic auction run by ICE Benchmark Administration on behalf of the London Bullion Market Association.

The auction works in rounds. An opening price is announced, and participating banks enter how much gold they want to buy or sell at that price. If buyers and sellers do not balance, the price is moved up or down and a new round starts. When the two sides are close enough, that price becomes the benchmark.

This replaced the London Gold Fixing, a meeting of a handful of banks that ran from 1919 until 2015. Central banks, miners, jewellers and many gold funds use the benchmark to value holdings and settle deals, because it gives everyone the same number at the same moment.

The benchmark and spot are almost always within a few dollars of each other. Spot keeps moving after the auction; the benchmark does not.

How do COMEX gold futures fit in?

A futures contract is an agreement to buy or sell gold at a set price on a future date. The main market is COMEX in New York, part of CME Group, where the standard contract covers 100 troy ounces. Most traders never take delivery; they close the position before the contract ends and settle the gain or loss in cash.

Because futures are cheap to trade and easy to use with borrowed money, New York futures often lead the price during US hours. Big moves after a US economic release usually show up in futures first and in spot a moment later.

Why is the futures price higher than spot?

Mostly because of interest. Someone who buys gold now has to pay for it today and store it; someone who buys a future does not pay until later and can earn interest on the cash in the meantime. That difference, called the cost of carry, pushes the futures price above spot.

A worked example makes it concrete. With US short-term rates near 4% after the Federal Reserve's September increase, a contract for delivery in a year would sit roughly 4% above spot. At Friday's spot price of about $3,997, that is about $160 an ounce more, or roughly $4,157, by our calculation. A contract for delivery in two months would carry a much smaller premium, a little under $30.

The gap is kept in line by traders who buy in one market and sell in the other whenever it drifts too far. A deal called an exchange for physical lets a trader swap a futures position in New York for metal in London, which ties the two markets together.

When is the gold market open?

Almost all the time on weekdays. Futures trade electronically from Sunday evening to Friday evening New York time, with a one-hour pause each afternoon, and spot dealing follows the sun from Sydney and Hong Kong to London and New York.

That is why the price moves overnight. Asian hours tend to be quieter, with Shanghai and Hong Kong setting the pace, while the busiest stretch is the few hours when London and New York are both open, roughly the European afternoon. Most big moves on US data releases happen then. At weekends the market is shut, so Monday's opening price can jump if news breaks on Saturday or Sunday.

What role does Shanghai play?

China is one of the largest gold markets in the world, and the Shanghai Gold Exchange runs its own benchmark. The Shanghai Gold Benchmark Price, launched in 2016, is set twice a day in yuan per gram for one-kilogram bars of 99.99% purity.

Converting it back to dollars rarely gives exactly the London price. The gap, often called the Shanghai premium, shows how strong Chinese demand is compared with the rest of the world. When Chinese buyers are keen and import quotas are tight, local prices run above London. When demand is weak, they can fall to a discount.

India has a similar local layer. The India Bullion and Jewellers Association publishes daily reference rates that include import duty, and the MCX exchange in Mumbai trades rupee gold futures.

Why is the price in a shop higher than spot?

Because spot is the price of a 400-ounce bar between banks. Turning that into a 10-gram coin or a necklace costs money, and so does getting it to a shop and keeping it safe. Retail prices add three layers on top of spot:

1. A premium for making and distributing the product, which is higher for small coins and much higher for jewellery.
2. Local taxes and duties, such as India's import duty and GST or VAT on jewellery in the UAE.
3. The dealer's margin, which is also why the price a dealer pays you is lower than the price they charge.

Our guide to gold premiums over spot shows typical ranges, and our piece on how to sell gold explains the buyback side.

How does the spot price turn into a local price?

With two pieces of arithmetic: divide by 31.1035 to get a price per gram, then multiply by the exchange rate. Using Friday's close and the latest exchange rates in our data:

For lower purities, multiply by the share of gold: 22 carats is 22/24, or about 91.7% gold, so 22K in dirhams is about AED 432.60 a gram. These are metal values only, before the extra costs above.

What actually moves the price?

The mechanics above explain how the price is recorded. What pushes it up or down is supply and demand from central banks, investors, jewellers and industry, and the forces behind them: interest rates, the dollar, inflation and fear. Our guide to what moves the gold price covers each driver, and our gold price history shows how far the price has travelled since 1968.