how is gold traded

Introduction

how is gold traded is a core question for investors, producers and consumers alike. This guide explains how is gold traded across physical and financial markets, the main trading venues and instruments, who the participants are, how prices are discovered, and practical steps retail and institutional players use to access gold — including options available via Bitget. Read on to get a clear, non‑advisory overview of the modern global gold market and where to find additional authoritative resources.

As of 15 January 2025, according to Cointelegraph and Reuters, analysis showed Bitcoin was unusually undervalued relative to gold (a Z‑score below -2), illustrating the continued relevance of gold as a store‑of‑value benchmark across financial markets. This signal and related ETF flows (for example, U.S. spot Bitcoin ETFs recorded $104.08 million in net inflows on 15 January 2025, per TraderT reports) demonstrate cross‑asset interactions that can influence demand and liquidity for gold-linked instruments.

Overview of the global gold market

The global gold market is large, highly liquid and effectively runs around the clock through a mix of physical trading and a larger “paper” market made up of derivatives and exchange‑traded products. Major regional hubs — London (the London bullion market), New York (futures and options via COMEX), and Shanghai (onshore Chinese markets and SGE benchmarks) — drive price discovery and liquidity. The market’s dual nature means physical bullion (bars, coins) coexists with forwards, futures, options, ETFs and other synthetic exposures.

Gold markets trade both for immediate settlement (spot) and for future settlement (forwards/futures). The availability of standardized exchange contracts, customized OTC deals and retail products like ETFs and CFDs gives diverse participants flexible ways to manage exposure, hedge production or take speculative positions.

Market participants

A wide range of participants interact in gold markets — each with distinct motivations:

• Central banks: Manage reserves and intervene to diversify sovereign balance sheets.
• Bullion banks and commercial banks: Provide liquidity, market‑making, custody and financing services.
• Refiners and vault operators: Produce and store deliverable metal meeting assay standards.
• Miners and producers: Hedge production to lock in prices and cash flows.
• Institutional investors and asset managers: Use gold for portfolio diversification, inflation hedging and reserve management.
• Hedge funds and proprietary traders: Speculate on price moves and exploit cross‑market arbitrage.
• Retail investors: Buy coins, bars, ETFs, CFDs or futures for exposure.
• Jewelry and industrial users: Demand physical gold for fabrication and consumption.

These groups create the supply/demand balance: central bank purchases lift reserves; recycling and mining supply add to physical available volumes; speculative flows influence short‑term volatility.

Trading venues and market structure

Over‑the‑counter (OTC) market — “Loco London”

The OTC market remains the backbone of wholesale physical gold trading. Much of the spot and forward volumes are negotiated bilaterally between dealers and clients. London historically dominates physical settlement practice (often termed “loco London”) and the London Bullion Market Association (LBMA) sets market standards for bar specifications, reporting and responsible sourcing.

Key OTC features:

• Bilateral contracts with flexible size, settlement date and delivery terms.
• LBMA standards for bar sizes (e.g., 400‑oz London Good Delivery bars) and assays.
• Allocated vs unallocated accounts: Allocated accounts assign specific bars to a client; unallocated accounts are claims against a dealer and carry counterparty credit risk.
• Anonymity and customization: OTC trades can be tailored and executed anonymously through interdealer brokers, but they trade off against reduced transparency and higher bilateral credit risk compared with exchange trading.

Exchange‑based trading (COMEX, SHFE, TOCOM, SGE, etc.)

Exchanges provide centralized order books and standardized contracts. Futures and options traded on regulated venues (for example, COMEX futures in New York) use defined contract sizes, margining and clearing through central counterparties (CCPs).

Exchange features:

• Standardised contract specs (size, quality, deliverable months).
• Transparent order books and price quotes visible to all participants.
• Cleared trades reduce bilateral credit risk via CCP margining and default funds.
• Defined physical delivery rules and registered warehouses for fulfilment.

Exchanges complement the OTC market: futures provide standardized hedging and price discovery; OTC markets supply physical metal and bespoke timing solutions.

Electronic platforms and interdealer brokers

Electronic matching engines and interdealer broker platforms speed execution and improve price discovery. These systems now handle much of the spot and forward flow that used to be voice traded. They allow market participants to access aggregated liquidity, live prices and electronic settlement instructions while still enabling large, negotiated OTC trades when required.

Primary instruments used to trade gold

Spot and physical bullion (bars and coins)

Spot trades settle quickly (commonly T+0 to T+2 depending on market) and often lead to physical delivery. Physical bullion comes in standardized bars and retail coins:

• Common wholesale bar: 400 troy ounce London Good Delivery bar (≈12.4 kg).
• Kilogram bars and smaller sizes are common in Asian and retail markets.
• Retail coins: Sovereign and bullion coins (e.g., those minted by government mints) are popular among retail buyers.

Physical trades require logistics, vaulting and assay standards.

Forwards and OTC derivatives

Forwards and swaps are bespoke OTC contracts allowing institutions to lock in a price for future delivery or to obtain financing. They are widely used by refiners, miners and large consumers to manage timing mismatches between production and sales or to hedge balance‑sheet exposures.

Key attributes:

• Customizable size and delivery date.
• Counterparty credit exposure unless collateralized or cleared.
• Often cash‑settled or converted into physical settlement via warehouse instructions.

Futures contracts

Standardised futures (for example, the COMEX GC contract) offer a regulated way to hedge and speculate. Typical features:

• Defined contract size (e.g., COMEX GC is 100 troy ounces), tick size and delivery months.
• Margining: initial and variation margins to manage daily mark‑to‑market risk.
• Physical vs cash settlement: many contracts allow physical delivery at expiry; most traders close positions prior to delivery.

Futures attract hedgers (miners, jewelers) and speculators seeking leverage with regulatory transparency.

Options on futures and over‑the‑counter options

Options (calls and puts) provide asymmetric payoff profiles for hedging and leveraged exposure. Exchange‑listed options on futures are standardized; OTC options are bespoke and used by large miners, funds and institutions needing particular strike, tenor or settlement terms.

Exchange‑traded funds (ETFs) and ETPs

Gold ETFs provide accessible, tradable exposure to gold price movements without handling physical metal. Two primary structures exist:

• Physically backed ETFs: Hold allocated metal in vaults; shares represent pro rata ownership of that metal.
• Synthetic ETFs/ETPs: Use derivatives to replicate gold exposure (carry counterparty/roll risk).

ETF mechanics include creation and redemption by authorized participants, management fees, and custodial arrangements. ETFs have materially broadened retail and institutional access to gold over the last two decades.

Contracts for Difference (CFDs) and leveraged retail instruments

CFDs allow retail traders to take long or short positions on gold price movements on margin. CFD providers offer leverage, but clients face financing/rollover costs, spreads, and counterparty risk. Regulatory frameworks for CFDs vary by jurisdiction and may limit permitted leverage for retail traders.

Gold‑linked equities and mutual funds

Indirect exposure to gold includes:

• Mining company stocks: Offer leverage to the gold price but add operational, jurisdictional and management risks.
• Royalty and streaming companies: Provide a different risk/return profile with revenue streams tied to mine production.
• Mutual funds and commodity funds: Pooled exposure to precious metals and related equities.

Price discovery and benchmarks

Price formation derives from multiple reference points:

• London benchmark and LBMA: Historically, London fixings and LBMA reference rates have served as spot benchmarks for contracts and valuation.
• Exchange futures (e.g., COMEX) provide transparent forward curves and tradeable prices.
• Shanghai Gold Exchange (SGE) and onshore Chinese benchmarks reflect local demand dynamics and can diverge briefly from offshore prices.

Arbitrage between spot, futures and ETPs — and across regional markets — keeps prices aligned. Differences in spot and futures (basis) reflect financing, storage costs, interest rates and short‑term supply/demand imbalances.

Settlement, delivery and custody

Allocated vs unallocated accounts

Allocated accounts: Specific bars are assigned to a client’s account and are segregated from the dealer’s inventory. This confers direct legal ownership and reduces counterparty risk.

Unallocated accounts: Customers have a general claim on the dealer’s pool of metal. These accounts are common for liquidity and margin efficiency but carry counterparty risk if the dealer defaults.

Vaulting, logistics and custodians

Vault operators and custodians provide secure storage, insurance and transport. They must adhere to industry audits and assay protocols. Reputable custodians enable physical settlement for ETFs and institutional holders.

Physical delivery on exchanges

When a futures contract goes to delivery, exchanges publish delivery notices, specify approved delivery locations and require deliverable bars to meet quality and assay standards. Registered warehouses hold approved bars under exchange control to support the delivery mechanism.

Clearing, counterparty risk and regulation

OTC bilateral trades carry credit risk between counterparties. Exchange‑cleared trades reduce this risk by interposing a CCP that requires margins and maintains default funds.

Regulation and industry bodies involved include:

• LBMA: Standards, Good Delivery List and market statistics for London settlement.
• Exchange regulators and clearing houses: Set margin rules and supervise exchange operations.
• National authorities and financial regulators: Oversee market conduct, reporting and anti‑money‑laundering controls.

Margin mechanics, stress testing and default waterfall rules are critical to systemic resilience when large price moves occur.

Market mechanics and trading practice

Order types, liquidity and spreads

Exchange order books support market, limit and stop orders. OTC markets use negotiated prices or streamed executable quotes. Typical spreads vary by instrument:

• Spot backward‑looking dealer spreads: very tight for large institutional sizes; wider for retail coins and small bars.
• Futures spreads: narrow for front‑month, widening in low liquidity periods.
• ETFs: tight intraday spreads but management fees apply.

Execution considerations include market depth, time of day, and regional liquidity differences.

Margin, leverage and financing costs

Futures and CFDs offer leverage but require margin and incur financing/rollover costs. Financing cost for physical metal (carry) includes storage fees, insurance and forgone interest. Basis and roll costs for futures reflect these carrying expenses.

Basis, contango and backwardation

Basis = futures price minus spot price. Common dynamics:

• Contango: futures > spot; often reflects positive carry and storage costs.
• Backwardation: futures < spot; can indicate tight physical availability or immediate delivery demand.

Basis behavior provides signals about near‑term supply/demand and financing stress in the market.

Hedging, speculation and arbitrage

Common uses of instruments:

• Miners hedge future production via forwards/futures to stabilize revenues.
• Consumers (jewellers, manufacturers) hedge anticipated purchases.
• Funds/speculators use futures, options, ETFs and CFDs for directional exposure.
• Arbitrageurs exploit price differences between spot, futures and ETFs or across exchanges (for example, COMEX vs SGE) to capture spreads — this activity helps align prices across venues.

Factors that drive gold prices

Gold prices respond to macroeconomic and structural drivers:

• Real interest rates: Lower real rates generally support higher gold prices as opportunity cost of holding non‑yielding gold falls.
• US dollar moves: Gold is often inversely correlated with the dollar; a weaker dollar can lift dollar‑priced gold.
• Inflation expectations: Gold is a common inflation hedge.
• Central bank policy and purchases: Large official purchases or sales affect supply/demand.
• Geopolitical risk and safe‑haven flows: Heightened uncertainty can increase demand for gold.
• Jewelry/industrial demand and recycling: Physical consumption and scrap supply influence available metal.
• Mining production and new supply: Cost curves and mine investment determine long‑run supply elasticity.

Careful observers track multiple indicators to understand demand shifts; for example, ETF flows, central bank purchases and physical world premiums can all provide actionable intelligence on market pressure.

How retail investors access gold

Retail options for exposure include:

• Buying physical bars and coins: Tangible ownership but involves premiums, storage and insurance costs.
• ETFs/ETPs: Easy trading, lower transaction costs and custodial arrangements; choose physically backed funds to minimize synthetic counterparty exposure.
• Futures (via brokers): Require margin, suitable only for experienced traders.
• CFDs and spread bets: Offer leveraged exposure but with counterparty and regulatory considerations.
• Mining stocks and funds: Indirect exposure, with additional equity and operational risk.

Pros/cons summary:

• Physical: high premiums and custody costs; full ownership when allocated.
• ETF: liquid, tradable, typically low fees; depends on fund structure and custodian.
• Futures/CFDs: leverage and margin; require active management.
• Stocks: company‑specific risk and often leveraged exposure to the gold price.

For retail crypto‑native investors seeking tokenized or digital gold products, Bitget provides wallet and custody solutions (Bitget Wallet) and trading access to tokenized instruments where regulatory frameworks permit. Always verify product structure (physically backed vs synthetic) and custody arrangements before allocating capital.

Costs, taxes and fees

Common cost components:

• Bid‑ask spreads on spot and OTC trades.
• Premiums over spot for physical bullion and coins.
• Storage/vaulting fees for allocated metal.
• ETF management fees and tracking error.
• Exchange and clearing fees for futures and options.
• Financing costs for leveraged positions and rollover charges.

Tax treatment varies by jurisdiction — capital gains, collectibles taxes, VAT on bullion and stamp duties may apply. Retail and institutional participants should consult local tax guidance to understand applicable liabilities.

Risks and market conduct issues

Key risks include:

• Price volatility and liquidity risk during stressed market conditions.
• Counterparty/default risk in OTC trades and unallocated accounts.
• Operational and logistics risks in transporting and storing physical metal.
• Market manipulation and irregular trading activity; regulators and industry bodies monitor for conduct issues.

Market participants reduce risk by using CCP‑cleared instruments, allocated custody, regulated custodians and by implementing robust operational controls.

Recent developments and innovations

The industry has seen several notable trends:

• Growth of gold ETFs and ETPs: These products expanded the investor base and increased tradable liquidity.
• Central bank buying: Several central banks have continued to add gold to reserves in the 2020s, affecting long‑term demand.
• Electronic trading: More flow has migrated to electronic platforms, improving transparency and reducing execution times.
• Tokenized gold and blockchain custody solutions: Emerging tokenized products promise improved liquidity and fractional ownership but require careful scrutiny of custodial arrangements and regulatory compliance.

As of 15 January 2025, according to Cointelegraph, the interaction between gold and digital stores of value (like Bitcoin) remains topical: extreme valuations in the BTC/gold ratio (measured by Z‑scores) have historically presaged notable cross‑asset moves. Reporting highlighted that a Z‑score below -2 can indicate Bitcoin is cheap relative to gold — a statistical signal that market participants watch closely. Such cross‑asset indicators can indirectly influence flows into gold ETFs and related instruments.

Practical examples / case studies

Below are brief illustrative scenarios showing how different market participants execute:

1. Institutional OTC spot purchase and vaulting

A large asset manager negotiates an OTC spot purchase of several tonnes with a bullion bank. The trade is executed on loco London terms, metal is allocated into the fund’s custodial allocated account at an LBMA‑approved vault, and the manager monitors ETF and futures basis to hedge portfolio timing risks.

1. Retail investor using a physically backed ETF

A retail investor seeking simple exposure buys shares of a physically backed gold ETF via a brokerage. The ETF’s prospectus shows allocated metal in insured vaults and a management fee; the investor avoids storage logistics but accepts fund fees and ETF structural mechanics.

1. Trader arbitraging COMEX vs Shanghai prices

A cross‑market trader observes a temporary price divergence between COMEX futures and SGE spot. The trader longs the cheaper market and shorts the richer market, hedging basis and execution risk to capture the spread until cross‑market flows and arbitrageurs restore alignment.

1. Hedging program by a gold producer

A gold mine hedges a portion of its expected production using a combination of forwards and options: forwards lock in guaranteed prices for a base production level, while options preserve upside participation if prices rally.

Further reading and references

Authoritative sources for deeper detail include materials and statistics from the World Gold Council, LBMA, CME Group (COMEX) educational content, major market coverage from Reuters and institutional research from market analytics firms. For digital custody and tokenized gold products, consult exchange and custodian disclosures and regulatory filings. (Note: no hyperlinks are provided in this article.)

Practical checklist: getting started safely with gold exposure

• Decide the objective: physical ownership, inflation hedge, portfolio diversification or tactical trade.
• Choose an instrument that matches the objective: bars/coins, ETF, futures, CFDs, or mining equities.
• Check custody and settlement terms: allocated vs unallocated, custodial provider credentials.
• Understand costs: premiums, storage, management fees, margins and taxes.
• Ensure regulatory compliance and KYC/AML for custody and trading accounts.
• For tokenized or digital gold, verify custodian audits and proof of reserves; where using web3 wallets, Bitget Wallet is available as an option for supported tokenized products.

Risks and final notes

how is gold traded depends on the instrument chosen and the participant’s needs. Physical ownership removes counterparty exposure to product replication but adds logistics and storage costs. Paper instruments (futures, ETFs, CFDs) enhance liquidity and reduce handling but introduce margin, counterparty and structure risks.

Remember: the interaction between gold and other assets (including digital assets) continues to evolve. As noted above, as of 15 January 2025, market analysis reported an extreme Bitcoin/gold valuation metric that highlights how cross‑asset comparisons can affect investor sentiment and flows into gold‑linked instruments.

Further exploration: To compare product structures, custody assurances and execution services, visit Bitget’s educational resources and product pages to learn about gold exposure options available on their platform and Bitget Wallet for custody of tokenized metal where regulated products exist. Explore Bitget to see how traditional precious metals exposure is integrated into a broader suite of financial tools.

If you want a downloadable checklist or a one‑page summary of the instruments and costs for retail investors, tell me which format you prefer and I’ll prepare it.