Gold trading spreads: the hidden cost of gold investing

It almost goes without saying that when trading gold, the key things investors are looking for are security and profit.

For gold traders - whether professional gold market players or personal gold bullion investors - a clear way of eating into those profits is by paying the high hidden trading charges that wide gold price spreads can generate.

Fortunately, there are ways and places where you can trade gold without attracting unnecessary premiums.

What is the price spread in the gold market?

The price spread is the difference between the price offered to you when you want to buy precious metals and the price bid for your bullion when you want to sell.

Just like in all other markets, you'll find that bid prices for precious metals are always lower than offers. Because buyers want a bargain, while sellers want to get top price.

On BullionVault's Order Board we always show you these two prices so you can see the difference between them – the spread.

That's because the spread represents a cost to you, the investor. And you must take this cost into account to know if you're getting a good deal. As with other spread markets - from the financial markets to spread betting to foreign exchange - investors don't want to pay "airport price" for their transactions.

Why do many gold trading websites hide the spread?

On almost all websites selling gold, silver, platinum and palladium, you are unlikely to see these prices side by side.

Why is that?

Well, we probably wouldn't want to show you sell and buy prices side-by-side either if BullionVault's spreads were 5% or more!

In our busiest market for gold, Zurich, spreads are regularly between 0.10% and 0.20%. That translates to just a few Dollars, Pounds or Euros on 100 grams of gold.

Also note that it's a "market spread" and not a "dealer's spread".

Because when trading gold online at BullionVault, you can set your own price as you wish, at no extra charge. We know of no other physical platform that offers this.

So, can all the other thousands of buyers and sellers using our Order Board. And between them, they create a genuine market, with a genuine market spread, rather than pricing gold simply so a dealer can make a profit.

How do spread percentages work out in real pounds and pence?

If you take 100 grams of gold this is what the difference in spread could look like:​​

Last updated on 12 September 2023.

As you can see from the example above, which for BullionVault includes the 0.5% commission charged when you buy and when you sell, you will pay the most and receive the least back if you buy a 100g gold bar compared with 100g purchased and vaulted using BullionVault.

Please don't take our word for it. Check the prices on any website selling bullion and compare their spreads.

Then compare our live order board prices 24/7. Remember that a round trip, buying and then selling, will also carry a dealing commission of 0.5% each side.

What do spreads tell us about market liquidity?

When you trade gold online, the size of the spread in gold markets doesn't only determine the transaction cost, it also gives clues about market sentiment and the liquidity of the asset.

The lower the spread, the more liquid the market. Securities that have a high spread are typically more volatile and less liquid. Currency is considered the most liquid asset in the world and the spread in the currency market is one of the smallest. Less liquid asset classes and commodities may have spreads that are equivalent to at least two percent of the asset's value, but the Zurich gold market's spread hovers between 0.10% and 0.20%.

How spreads impact trading strategies

Gold is known as a relatively safe haven asset and hedge against inflation. It's possible to invest in the metal long-term and let its value accrue (and if you're doing that, it may make sense to have your asset stored in professional and secure vaults).

But many also have specific gold trading stategies, which involve physical bullion, gold futures contracts, gold exchange traded funds (ETFs) and other ways of speculating on and profiting from the price of gold.

If you're looking to trade for maximum profit, we recommend that you learn as much about the gold markets as possible, both on the BullionVault site and elsewhere. Then you'll be ready to develop a trading strategy, and think more carefully about market spreads.

Now, you can earn the spread

Unlike any other way to trade gold, BullionVault allows you to undertake active gold trading like a market professional, by quoting prices to others in the market, rather than having to take what's on offer. This allows you to trade gold and earn the spread.

For example, if gold prices are at $1,900, a gold trader might bid to buy $1,898 and offer to sell at $1,902. As a liquidity provider you earn the $4 in the spread. If you start trading on BullionVault, you can become a liquidity provider as well as gold owner.

Make money on every gold trade

BullionVault's most active traders pay just 0.05% commission (that's 95 cents on a $1900 ounce) when they trade gold. If they're picking up a $4 spread and paying 95 cents each side, then round-tripping an ounce of gold on a stable $1900 price earns them $2.10. This means that on an unmoving price you can earn money by providing liquidity.

There are very few systems in the world that let participants access the spread. With trading "costs" effectively locked in as profit, this access means that you can take home all the profits from your gold trading, without commission eating into the margins.

Spread access is a handy tool that gives you the ability to trade gold and profit, and that's why most businesses and brokers keep it for themselves.

Spread betting and gold: a surprising history

The most common spreads that most people have heard about - and try to leverage - are those in the currency markets and those on spread betting indexes. As with gold trading, the smaller the spread, the less you "pay", but did you know the link between gold trading and the development of the "spreads" market?

In 1974, it was illegal for British citizens to trade gold purely for speculative purposes, so a young stockbroker called Stuart Wheeler hit upon the idea of allowing people to trade the price of gold as an index.

Wheeler made a 'buy' and a 'sell' price on where he thought the next fix of the gold price would be set. Those who thought that the price of gold would be above his placed a 'buy' bet, those who thought the price would be below placed a 'sell' bet. This is how the Investors Gold Index, later abbreviated to IG Index, and later still taking in all sorts of other currency and commodity spreads, was born - out of the gold markets. And from IG Index came all subsequent foreign exchange, commodities and even sports betting spread providers.

Safety in gold stocks

But BullionVault, of course, is not a bookmaker. The relevance of gold spreads for our company and our investors is as a way of keeping investment costs as low as possible by minimising the difference between buy and sell prices.

Combined with keeping our commissions low and providing competitively priced storage for gold, this is how we provide a compelling platform for both long-term and more active investors in the gold market.

With precious metals offering a hedge against geopolitical uncertainty, and with constant industrial applications ensuring the demand that makes them a popular long-term investment, gold has remained a strong asset class throughout the financial downturn.

But, in a liquid market, gold prices have been fluctuating up and down by as much as twenty percent over the past three years, meaning that maximising profit will involve some level of trading, and trading through market movements will involve understanding spreads.

It also means considering your fixed costs. If you're buying and selling gold regularly, you're unlikely to want to store the physical gold yourself. But even if you're holding for the long term, investing through BullionVault at very low cost can make financial sense.

Saving on storage and insurance

If you are tempted by buying coins or a small bar to keep at home, you should first check your home insurance policy.

Many insurance companies specify that you must list individual high-risk items you own, such as gold coins and bars.

And when you do declare your bullion-at-home to your insurer, you may very likely see your premium increase and even incur an admin fee to add your precious metal to their records.

With BullionVault your gold, silver, platinum and palladium are stored and insured in professional vaults. We charge $4 minimum per month for gold (currently around £3.25) and $8 minimum per month for silver, platinum and palladium (around £6.50 at current exchange rates - May-23).

You can see our tariff here and use our cost calculator to estimate your full expenses.

Hand in hand with the peace of mind of storing your bullion at low cost in professional vaults, using BullionVault means you can also sell your precious metals instantly at any time 24/7.