Gold has been one of the most talked-about markets this year, and anyone following it quickly runs into a puzzle. The gold price quoted on one screen is often slightly different from the price on another. The usual reason is that one is showing spot gold and the other is showing gold futures. They are closely linked, but they are not the same thing.
What spot gold means
Spot gold is the price for gold delivered almost immediately, in practice within a couple of days. The main spot market is the over-the-counter market centred on London, where banks and dealers trade large bars directly with each other rather than on a central exchange. Prices are quoted in US dollars per troy ounce, the traditional unit for precious metals.
When you see “gold” on a financial news ticker or a retail trading platform, it is often a spot price or a product based on one, such as a CFD or a spread bet.
What gold futures are
A gold futures contract is an agreement to buy or sell a set amount of gold at a fixed price on a specific date in the future. The best-known contracts trade on COMEX, part of CME Group in the United States. The standard contract covers 100 troy ounces, and there are smaller versions too.
Most futures traders never take delivery of physical gold. They close or roll their positions before expiry. The contracts are used by producers and jewellers to hedge, by funds to gain exposure and by speculators to trade price moves.
Why the prices differ
Futures usually trade slightly above spot. The difference reflects the cost of carrying gold until the delivery date. If you bought gold today and held it, you would tie up money that could have earned interest, and you would pay for storage and insurance. The futures price builds in those costs, so it tends to sit above spot by an amount linked mainly to interest rates and time to expiry.
That gap is known as the basis. In normal conditions it is small and fairly predictable. It can widen when interest rates are high or when there is strain in getting physical metal to where it is needed, as happened at times when traders worried about moving gold between London and New York. Our explainer on contango and backwardation covers the same idea in oil markets.
Which one moves the market
The two markets are tightly linked by arbitrage. If the gap between them drifts too far from the cost of carry, large traders can profit by buying in one market and selling in the other, which pulls prices back into line. In practice, much of the price discovery happens in the futures market during US hours, while London dominates the physical trade.
Data from futures markets, such as volume and open interest, also helps traders gauge participation. Our guide to open interest explains how to read it.
What drives both
Spot and futures respond to the same underlying forces: real interest rates, the strength of the US dollar, central bank buying, safe-haven demand during geopolitical stress and investment flows through exchange-traded funds. Our explainer on what moves gold prices covers these in more depth.
Practical points for traders
If you trade gold through a CFD or spread bet, check whether it is based on spot or on a futures contract. Spot-based products usually charge or pay an overnight financing adjustment, while futures-based products have a set expiry and build carry costs into the price. Both approaches have costs, and they show up in different ways.
When comparing levels in the news, make sure you are comparing like with like. A headline quoting a futures contract may differ from a spot quote by a meaningful amount, especially when rates are high.
The bottom line
Spot gold and gold futures are two views of the same metal, separated mainly by time and the cost of holding it. Understanding the link helps you read prices accurately and choose the product that suits how you trade.
If you would like to understand which markets and instruments best suit your experience, our free trader assessment is a sensible starting point.
