What Do Words Like Spot & Ask Price Mean?

money melon, gold stash, gold adviceQ: Precious metals terms can be confusing – what do ‘spot price,’ ‘ask price,’ etc. mean?

A: It helps to understand the terminology when investing in precious metals. And understanding the terms for the various pricing mechanisms is part of that.

Spot Price
The spot price is what major institutional buyers and bullion banks are paying on commodities exchanges around the world for all sorts of commodities, including gold and silver. These trades are primarily futures contracts and do not involve physical delivery. This is the value for delivery of gold or silver in the next 30 days.

Production Cost
This is simply the cost of minting the particular coin or bar you are considering; also known as production cost. Typically, production cost is only about 3-4%.

Dealer Profit
Every dealer needs to make a profit from selling gold and silver products. Whereas in other markets like cars or clothes the markup is a large percentage of the final price for the product, dealers typically mark up their products only about 2-4%, depending on the product and quantity sold.

Ask/Bid Price
The bid or ask price is the sum of all previous costs combined. The most common silver bullion coin is the American Silver Eagle, so we’ll use this for our example on how pricing is determined. For this example, let’s say the current spot price is $35. The production and minting costs average about $2.50 per coin, and the dealer profit is $1.50 to $2 per coin. In this case, we have $35 + $2.50 + $1.50. This means your price would be $39. This is the ask price.