A spot prices is, by definition, an indication of how the market expects the price of the commodity to move. The spot price of gold bullion today, is based on gold of 99.99% purity. You can protect yourself against spot prices falling when you need them to rise or by rising when you want them to fall by arranging the sale/purchase of the commodity on a forward contract basis. Under a forward contract, a buyer agrees to buy a certain quantity from the seller at the price specified in the contract. Delivery and payment will occur at a future date hence the name. The person selling the commodity is protecting themselves against the possibility that the spot price at the time the contract is executed will be less than the price agreed under the contract.
For example, if company ‘A’ knows that they need a specific amount of gold bullion to fulfill a contract in six months time, they may consider a futures contract as the spot price of gold bullion is rising. They could buy the gold today but that would mean tying up cash for six months adversely affecting the cash flow of their business. So the alternative would be to secure a price under a forward contract if they could get a lower price than the current spot price. They don’t have to pay out any cash until the delivery date of the futures contract comes about. Of course it can go the other way and this is the danger with these types of contracts.
With crude oil, the spot price is generally not very relevant as most oil is purchased by either private negotiation or under contracts. But with commodities like gold and silver bullion when you can purchase it by the ounce, the spot price is something that you should watch.
If the value of a currency is falling the spot price of gold tends to rise. We have seen this in recent months with the fall in the value of the US dollar and the rise in the price of gold spot price. The spot price of gold, silver and crude oil is influenced by the news of possibility of armed conflicts in the mining regions, fear of inflation, news of bad weather in the gulf region and the changing uses of them in there industry. Supply and demand also influences prices of every commodity.
In times of economic crisis like the current recession, people turn to gold and silver as they believe it will be safer to keep their wealth in a physical product as opposed to leaving it at risk in the event of a bank failing. This lack of investor confidence in financial companies is likely to fuel the trend for increased gold trading for some time to come.
The chart above you can convert the price into Canadian dollars, Australian dollars and more.