Gold dealers are in business of buying and selling gold. They offer buy and sell prices for gold. These prices are based on the spot price which is constantly going up and down. The movement depends on factors like supply and demand, economic policies and geopolitical tensions, etc.
The price of precious metals like gold is in constant flux which is why gold dealers are always adjusting their buy and sell prices. Whether the price of gold goes up or down, the dealer is always looking to buy below the spot price and make a profit by selling a little above spot.
Gold dealers are more eager to buy gold when the prices are going up. Popular wisdom dictates that they should be buying when the prices are low, so why is it that they are more likely to buy more gold when the price is going up? This has to do with supply of certain gold products like gold bullion bars and coins. When prices go higher, supply of specific gold products can be tight. When supply tightens, gold dealers will want to acquire as much gold as possible. Moreover, the premiums on certain gold Bullion products could go up, which helps the dealer to make more profit. A gold dealer who had to provide buy and sell prices is mostly concerned with the spread between the two.
Let’s say, the spot price of gold is $1,309 and that a gold dealer sells a 1 ounce American Eagle gold bar for $1,345. This would be about a $36 dollar premium above the spot price. Now, the same gold dealer says that they will buy the 1 ounce American Eagle gold bar for $1,304. This is essentially $5 premium under the spot price of gold. If the gold dealer buys at a premium of $5 premium under and then sells at a $36 over, then the gold dealer would have made a gross profit of $41.
If the price if gold rises dramatically over the next coming weeks to about $1,400 an ounce, the gold dealer is likely to keep the same spread on the gold bar. At $1,400, the dealer might buy the bar for $1,395 and sell it for $1,436.
Buy and Sell Spread
Most gold dealers are simply interested in the spread. Whatever the gold price may be there will always be someone looking to sell gold or to buy. And since dealers are primarily interested in the spread, the actual spot price is irrelevant.
Gold bullion dealers are more than familiar with the market they operate in and they are often comfortable buying back gold bars, gold coins or gold rounds at their buy-back prices. Various dealers will have different prices. This depends on factors like the size of the business or products they buy and sell, etc. The moral of this story is that, when all has been said and done, when it comes to buying or selling gold products the spread trumps the spot price.