Commodity Trading Glossary

A

Arbitrage

Simultaneously buying and selling the same commodity in different markets to profit from price differences. Gold arbitrage between London and Shanghai is common due to time-zone and regulation gaps.

Ask Price

The lowest price a seller is willing to accept. Also called the "offer price." The spread between bid and ask reflects market liquidity.

Assay

A test to determine the purity of a precious metal. Gold bars must be assayed to verify their fineness (e.g., 999.9 fine gold).

ATR (Average True Range)

A volatility indicator measuring the average daily price range over a period (typically 14 days). Higher ATR means more volatile price action.

B

Backwardation

When the spot price is higher than the futures price. This is unusual for gold and signals strong immediate demand or supply concerns.

Basis

The difference between spot and futures prices. Positive basis = contango; negative basis = backwardation.

Bid Price

The highest price a buyer is willing to pay for a commodity. The bid-ask spread narrows in liquid markets.

Bullion

Gold or silver in bar or ingot form, valued by weight and purity rather than face value. Investment-grade bullion is typically 99.5%+ pure.

C

COMEX

The Commodity Exchange division of the New York Mercantile Exchange (NYMEX). The primary futures exchange for gold, silver, copper, and aluminum trading.

Contango

When futures prices are higher than the spot price. Normal for gold due to storage and financing costs. The difference represents the "cost of carry."

Cost of Carry

The total cost of holding a physical commodity: storage, insurance, financing, and opportunity cost. Drives the contango in futures markets.

Carat / Karat

Karat measures gold purity (24K = pure gold, 18K = 75% gold). Carat measures gemstone weight (1 carat = 0.2 grams). Different spelling, different meaning.

D

Dealer Spread

The markup between a dealer's buy and sell price. Typically 1-5% for gold coins and 0.5-2% for large gold bars. Wider spreads indicate less liquid products.

Deliverable

A commodity that meets exchange standards for physical delivery against a futures contract. For gold, this is typically 100 oz bars of 99.5%+ purity.

E

ETF (Exchange-Traded Fund)

A fund trading on stock exchanges that tracks commodity prices. GLD (gold), SLV (silver), and USO (oil) are popular commodity ETFs.

EFP (Exchange for Physical)

A transaction where a futures position is exchanged for the physical commodity. Common in gold markets between COMEX and London.

F

Fineness

The purity of a precious metal expressed in parts per thousand. 999.9 fine = 99.99% pure. Investment-grade gold bars are typically 999.5 or 999.9 fine.

Fix / Fixing

The LBMA Gold Price (formerly "London Fix"), set twice daily (10:30 AM and 3:00 PM London time). Used as a benchmark for gold transactions worldwide.

Futures Contract

A standardized agreement to buy or sell a commodity at a specified price on a future date. Gold futures on COMEX are 100 troy ounces per contract.

G

Gold-Silver Ratio

The number of silver ounces needed to buy one gold ounce. Historically averages 60-70:1. Traders use it as a relative-value signal. See live ratio.

Good Delivery

LBMA standard for gold bars: 350-430 troy ounces, minimum 99.5% purity, from an accredited refiner. The global standard for wholesale gold trading.

H

Hallmark

An official mark stamped on precious metals certifying purity and origin. Different countries have different hallmarking standards (BIS in India, UK Assay Office, etc.).

Hedge

A position taken to reduce risk of adverse price movements. Gold miners sell futures to lock in prices; jewelers buy futures to secure supply costs.

I

Ingot

A block of metal cast in a standard shape and weight. Gold ingots range from 1 gram to 400 troy ounces (12.4 kg).

K

Krugerrand

South African gold coin containing exactly 1 troy ounce of gold (22K / 91.67% purity, with copper alloy for durability). The world's most widely held gold coin.

L

LBMA

London Bullion Market Association. Sets the global gold and silver price benchmarks and accredits refiners. The London market trades unallocated gold accounts.

Leverage

Using borrowed capital to increase position size. Commodity futures offer 5-20x leverage (margin of 5-20% of contract value). Amplifies both gains and losses.

Liquidity

How easily a commodity can be bought or sold without affecting the price. Gold is the most liquid precious metal; palladium is the least.

M

Margin

The deposit required to open a futures position. Initial margin is the opening deposit; maintenance margin is the minimum balance before a margin call.

MCX

Multi Commodity Exchange of India. The largest commodity exchange in India, trading gold, silver, crude oil, natural gas, and agricultural commodities.

Moving Average (SMA/EMA)

A trend indicator that smooths price data. Simple Moving Average (SMA) gives equal weight to all periods; Exponential Moving Average (EMA) weights recent prices more heavily.

N

NYMEX

New York Mercantile Exchange. The world's largest physical commodity futures exchange. Trades crude oil (CL), natural gas (NG), and precious metals via its COMEX division.

O

OHLC

Open, High, Low, Close. The four key data points for each trading period, used in candlestick charts. AURUM stores hourly OHLC data for all commodities.

Open Interest

The total number of outstanding futures contracts. Rising open interest with rising prices suggests a strong trend; falling open interest suggests a weakening trend.

P

Premium

The amount above the spot price paid for physical metal. Includes fabrication, distribution, and dealer margin. Premiums spike during supply shortages.

Price Discovery

The process by which markets determine the price of a commodity through supply and demand. COMEX futures and LBMA auctions are gold's primary price discovery mechanisms.

R

Refinery

A facility that purifies raw metal to investment grade. LBMA-accredited refineries include Valcambi, PAMP, Heraeus, and the Royal Canadian Mint.

Rollover

Closing an expiring futures contract and opening a new one for a later delivery date. Rollover costs depend on the contango/backwardation spread.

S

Spot Price

The current market price for immediate delivery of a commodity. Updated in real time during market hours. See live gold spot price.

Spread

The difference between two related prices: bid-ask spread, dealer spread, or the price difference between two related commodities.

Safe Haven

An asset expected to retain or increase value during market turmoil. Gold is the archetypal safe haven, often rising when equities fall.

T

Tola

A traditional Indian unit of gold weight. 1 tola = 11.6638 grams = 0.375 troy ounces. Gold prices in India are often quoted per 10 grams or per tola.

Troy Ounce

The standard unit for precious metals. 1 troy ounce = 31.1035 grams. Heavier than a standard (avoirdupois) ounce (28.35g). All international gold prices are per troy ounce.

V

Volatility

The degree of price variation over time. Measured by standard deviation or ATR. Gold's typical daily volatility is 0.5-1.5%; silver is 1-3%.

Vault

Secure storage for physical precious metals. Major vaults include the Bank of England, HSBC London, and JPMorgan New York. Allocated storage means specific bars assigned to you.

W

WTI (West Texas Intermediate)

The benchmark crude oil grade traded on NYMEX. Light, sweet crude from the Permian Basin. The US oil price reference, alongside Brent crude for global markets.

Y

Yield

The return on an investment. Physical gold has zero yield (no dividends or interest), which is why rising interest rates tend to make gold less attractive relative to bonds.