Spot Price vs. Retail Price

Posted on April 17, 2024

One potential source of confusion for new precious metals investors is a seemingly simple one: price. The price of gold and silver is not just one number, and it can be hard to know which one is the “right” one.

Furthermore, you’ll encounter an entirely new set of prices when you go to make a purchase or sale. So, it’s important you understand the spot price, the retail price, and all of the numbers that you’ll find with precious metals transactions.

What is the spot price?

The spot price is the price that you see at the top of this page. Generally speaking, it is the market price to buy an ounce of the metal in question at that moment in time.

The time element is an important one. The price available in the moment for that ounce of metal can be quite different from the price to buy the same amount at a point in the future. Future contracts tend to vary in price due to the uncertainty of the direction of the market as time passes.

The funny part is that there is really such a thing as a present contract. So, the spot price itself is formulated from future contracts – the ones that are expiring nearest to the present day. Traders move these short-term contracts – known as front month contracts – on the Commodity Exchange. This exchange, also known as the COMEX, is the main exchange for precious metals of all stripes, including gold and silver.

To be clear, the ounces you’re buying are troy ounces, not standard ones. A troy ounce is a unit of measure roughly 11% greater than the standard ounce.

The spot price is not a fixed amount, either – even over the course of a day (or hour). Instead, they can vary from second to second, which is why BGASC maintains its live feed above.

Bid and ask prices

The spot price is only one side of the coin, however. The price to buy an ounce of metal is not the same as the price to sell it.

The price to sell gold, silver, or other precious metals is (almost) always lower than the price to buy it. In other words, all things equal, you probably shouldn’t buy a bit of precious metal only to turn around and sell it. It’s almost a guaranteed loss to you.

Traders and investors commonly call these two prices the bid and ask prices. The “bid” price is the price at which you can sell your metal – that is, the price at which you could reasonably find buyers for your gold and silver. In essence, it’s the highest amount that buyers are “bidding” for your holdings.

The spot price, therefore, is known as the “ask” price. It is the lowest price that sellers agree to let you pay for their metals.

Within the two prices is a signal about a critical element of the metal’s ability to be traded at that time. The distance between the two prices is known as the “spread.”

The magnitude of the spread serves as a proxy for the liquidity of the metal. If the bid and ask are close together, it signals that buyers and sellers are mostly in agreement about the value of the metal. Thus, the metal’s liquidity – its ability to be converted back and forth into currency – is quite high because the metal is likely trading back and forth freely.

By contrast, a wide spread between the bid and ask means that buyers and sellers are not in agreement with one another about gold and silver values. As a result, sellers tend to hold onto their precious metals and buyers tend to hold onto their dollars more often. Needless to say, this condition means that the metal’s liquidity is low.

Liquidity matters to investors because it gives you an idea about how easily you could move – either buying or selling – on the metal. If you want to buy or sell in an illiquid market, you stand a higher probability of paying too much or accepting too little, respectively.

What is the retail price?

The eagle-eyed among you may have already noticed the problem with all the discussion above. Namely, the prices that you see listed for the spot prices are not the ones listed as purchase prices for BGASC’s inventory. Apparently, it costs more to buy than it “should.”

What you are seeing is the “retail” price. Like any business or retail shop, both online and in-person precious metals dealers add a markup to the base price of their product in order to turn a profit. So, you are paying the spot plus whatever added fee that the dealer has placed on the metal.

Retail prices exist on both sides of the transaction, too. The price that the dealer will pay for your gold is going to be at or slightly above the bid price. The underlying profit motive for precious metals dealers – including us, to be fair – is the same as almost any investor. Buy low, and sell high.

If retail pricing seems unfair to you, that’s understandable. However, the thing to realize is that you are paying for the convenience of not having to locate the other side of the transaction from you. Dealers always have quantities of metal on hand for purchase, and they are almost always willing to buy from you. They just have to monkey with the prices in order to keep the lights on, so to speak.

Make sure you shop around

Now, just because you will pay retail prices everywhere doesn’t mean that you have to accept them lying down. In fact, it is crucial that you don’t simply take the first offers you see – even from us.

Shop around. One of the primary advantages of the internet is that you can search through a host of online precious metals dealers to find the best deals you can. Even if you’re planning to buy or sell in-person, it’s good to have comparison points before you receive those offers.

The only caveat, though, is an extension of the too-good-to-be-true offers you may find. Make sure that whomever you use to buy and sell metals is a reputable dealer. Even if the prices look right on one site, you should be sure to check them out with the Better Business Bureau or some other type of corporate watchdog. Check to see if there’s a Reddit post about them, or some other review about their services.  Remember, price should not be the only consideration when choosing an online precious metals dealer to buy from.  Make sure you factor in overall reputation, customer service, shipping costs and even return policies.

Be careful when you deal with in-person shops, too. While many of them are quite honorable, it is much more difficult for you to shop around, as it necessitates that you drive to the locations.

Obviously, we hope that you choose BGASC.com for your precious metals needs. We are confident that we offer the best selection, price, and ease of mind. However, do what you need to do in order to feel that confidence, too.