by Susan Paige
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While spot price and product price may seem identical to some, there are several differences which can be used to distinguish between the different pricing methodologies. The spot price is the price at which precious metals can be transacted and delivered on at a given time. This is different from prices for futures and forward contracts. For a precious metal like gold, the spot price relates to the price of an ounce of gold. Similarly, the spot price for silver relates to the price of an ounce of silver.
Analysis of Spot Prices
For many buyers, purchasing bullion or coins at spot price can prove to be difficult. This is especially true in cases where private dealers make money from a deal. Nevertheless, coins and bullion can be purchased for figures close to the spot price.
Spot prices can be used to carry out analysis which can help one to make better informed investment decisions in relation to precious metals. It is important for investors to understand how spot prices move over long periods of time.
Spot prices for precious metals are primarily based on speculation. Ironically, an understanding of futures contracts and exchanges can help to determine spot prices. Analysts tend to use month-to-month futures contracts with the most volume to carry out their analysis. The volume for a particular month may be determined by the amount of future buying and selling activity taking place.
Other Factors Affecting Spot Price
Futures contracts are not the only factors that can affect spot prices and spot price change. The spot prices of precious metals are also affected by economic data, major world events, Federal Reserve actions, and numerous other factors. The prices never stand still seeing that precious metals are being traded around the world at any given time, and supply and demand for those metals is also fluctuating constantly. This can also affect spot prices.
As one goes down the value-added stream, factors such as labor, energy, and transport costs have a more significant influence on the product prices of precious metals.
In order to set prices, one requires significant understanding of various organizational objectives as well as the market environment. While most organizations do not fully understand marginality rules, they make attempts to set prices where marginal revenue is equivalent in value to marginal cost.
It is critical for retailers in the precious metals sector to get their product pricing right. Many factors have to be considered in product pricing including risk factors from price fluctuations, pricing processes, and profit margins.
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