0

What I mean by this question is when I buy gold, which currency is the price of the gold based on?

So assuming I am from China and I wish to buy gold through goldmoney.com, they allow me to choose the currency I wish to transact in. However, I wish to know how they get the price of gold in terms of RMB. Do they first get the price of gold in the US markets and they quote me the price in RMB using current exchange rates?

The reason I'm asking is because there has to be a single price of gold in the whole world right? otherwise arbitrage opportunities arise. If so, where does this "initial price" stem from before the price can be quoted into different currencies?

P.S. I am not asking how to derive by the price of gold (costs of mining a gold) or whatnot in case anyone misunderstands. I am asking which country is the price of the gold based off if that makes sense. Please feel free to let me know I am totally misunderstanding the whole situation and enlighten me! Thanks a lot in advance.

  • All commodities are traded internationally and priced in $$$$, which is the lingua franca of the financial markets. – DumbCoder Apr 13 '17 at 13:15
  • Thank you for the quick response! would gladly upvote you if I knew how to but its my first time using this platform so I'm still fumbling around :). On a side note, why would countries around the world not try to price them using their own currencies? For e.g. Polyus Gold, a gold mining company from Russia, would have to sell their minings for USD. Why would they not want to price them in Ruble and avoid the exchange risk altogether? – MH.Q Apr 13 '17 at 13:38
  • There's no international law saying you can ONLY trade commodities in dollars, but, the dollar-denominated market is where the price is set, and other markets price dollars in your preferred currency, which is how your local gold price is set.That's possible, the price in Rubles (or RMB, in your question) will be basically the same as if it had been priced in dollars and then converted to the relevant currency. – Beanluc Apr 13 '17 at 16:08
  • There are arbitrage opportunities, but very small, so you would have to move millions into and out of gold quickly to make any significant gain, and then you take the full risk of currency exchange rates changing while you do it. If you had that kind of money, there are better ways to make money from it. – Aganju Apr 13 '17 at 16:50
0

There's no international law saying you can ONLY trade commodities in dollars, but, the dollar-denominated market is where the price is set, and other markets price dollars in your preferred currency, which is how your local gold price is set.

So the price in RMB will (disregarding certain inefficiencies and transaction fees) be basically the same as if your trade had been first priced in dollars and then converted to the relevant currency.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.