Why Gold ETFs Track the Spot Price, Not the Futures Price

There are two gold prices, and they are not the same number. Open any finance site and you will find one quoted as “gold”. Open a futures broker and you will find another. On a typical day they differ by tens of dollars an ounce.

This matters more than it sounds, because the two are used interchangeably by almost every calculator on the internet — including, until recently, some fairly prominent ones. Pick the wrong one and every conversion you produce carries a systematic error.

The spot price is the price to buy physical gold right now, for immediate delivery. It is an over-the-counter market, and the benchmark almost everyone refers to is the LBMA Gold Price — set twice each trading day in London at an auction run by the London Bullion Market Association. This is XAU/USD on a quote screen.

The futures price is the price agreed today for delivery at some future date. The main venue is COMEX in New York, and the headline number you see is usually the front-month contract — the nearest expiry.

The futures price equals the spot price plus the cost of carrying the metal until delivery. That means interest (you could have earned a return on the cash instead), plus storage and insurance. In a normal market with positive interest rates, futures trade above spot — a condition called contango.

It is not small. A reading taken at a single moment:

Roughly 0.85%. In quiet, low-rate conditions the gap narrows toward zero; when rates are high it can widen past 1%. It also compresses as a contract approaches expiry and then jumps back out when the market rolls to the next month.

The basis is not an anomaly. It is the price of time. Whoever holds the futures contract does not have to store metal or tie up cash, so the futures price has to be high enough to compensate the party doing the storing. Three costs go into it:

• Financing. Buying an ounce today means paying for it today. The interest on that cash is the largest component, which is why the basis widens when rates rise.
• Storage. Vault fees, paid to the custodian.
• Insurance. Cover on the metal while it sits there.

When the futures price sits above spot, the market is in contango. For gold this is the normal state of affairs, because interest rates are normally positive.

The reverse — futures below spot — is backwardation, and it is unusual enough to be worth paying attention to when it happens. It means holders of physical metal are being paid to give it up early, which tends to signal a genuine shortage of deliverable bars rather than a change in sentiment. Gold went into backwardation briefly during the 2008 crisis and again in March 2020, when the problem was not demand but logistics: refineries closed and the bars could not physically get to New York.

One more mechanical detail matters for reading a futures quote: as a contract approaches expiry, its price converges down toward spot. Then the market rolls to the next month, and the basis jumps back out to roughly a full month’s carry. If you are watching a futures price without knowing which contract it refers to, some of what looks like movement is just that roll.

GLD, IAU and GLDM all hold allocated gold bars in a vault. They are not rolling futures contracts. The trust’s prospectus states its objective as tracking the price of gold bullion, less expenses, and the benchmark it measures against is the LBMA Gold Price — the spot benchmark.

That makes sense mechanically. If the fund holds bars, its value rises and falls with the value of those bars, and the value of a bar is the spot price. Nothing in the fund is exposed to the futures curve.

This is worth stating plainly because a large number of online converters use the futures price — often because that is what appears when you search for “gold price”.

The spot-versus-futures question is not unique to gold. It splits commodity funds into two families, and the difference between them is the single largest determinant of what a long-term holder actually earns.

Physically-backed funds buy and hold the asset. GLD, IAU, GLDM, SLV and SIVR all hold bars in an allocated vault. Their only ongoing drag is the management fee — 0.18% to 0.50% a year depending on the fund. They track spot, because spot is what their holdings are worth.

Futures-based funds hold contracts instead. USO (crude oil), UNG (natural gas) and CPER (copper) cannot practically hold and store the physical commodity, so they hold futures and roll them forward every month before expiry.

Rolling is where the trouble starts. In a contango market, each roll means selling the expiring contract at a lower price and buying the next one at a higher price. The fund ends up holding the same amount of commodity but has paid the difference in cash. That loss is not a fee anyone quotes, and it does not show up as an expense ratio. It is simply value that leaves the fund.

UNG is the standard cautionary example. Natural gas prices have risen and fallen many times since the fund launched, but the fund has lost value through almost every period because the roll cost compounds against it. A holder can be right about the direction of the commodity and still lose money. This is also why this site does not cover oil, gas or copper ETFs, and why gold and silver ETFs can be converted the way they are here: a physical fund’s share maps to a slowly-declining amount of metal, while a futures fund’s share maps to whatever the current contract happens to be worth after the last roll.

The distinction is not always obvious from the ticker, so check the fund itself:

• Words like “Trust”, “Physical” or “Shares” in the name usually indicate a fund holding metal — iShares Silver Trust, abrdn Physical Silver Shares.
• Words like “Commodity Index”, or a name that pairs a commodity with a strategy, usually indicate a futures fund.
• The decisive test is the prospectus. Look for the phrase “physical” or a named custodian and vault. If instead you find a rolling schedule and a list of permitted contract months, it is futures-based.

For the gold ETFs on this site, every one of them publishes a bar list — the serial numbers and weights of the specific bars it holds. That is a useful thing to know exists, and a quick way to confirm the fund owns metal rather than paper.

A conversion calculator derives its ratio from a reference pair of prices. For gold it is something like:

The output of that division should be a stable physical quantity — the fraction of an ounce each share represents. It drifts only slowly, as the fund’s 0.25% annual fee is paid by selling a little gold.

If you divide by the futuresprice instead, the ratio absorbs the basis — and the basis is not stable. It swings with interest rates and resets as contracts roll. So the ratio you compute stops meaning “ounces per share” and starts meaning “ounces per share, adjusted by an unknown and moving amount.”

The error is roughly the size of the basis. At 0.85%, a calculation that should return $400.00 returns about $403.40. That is not catastrophic, but it is a systematic bias, it moves over time, and it is entirely avoidable.

If a quoted gold price comes with a contract month (like “Dec 26”) or has the ticker GC=F, it is futures. If it is labelled XAU/USDor “spot”, it is the physical price.

One useful sanity check: compute the gold/silver ratio from each. Both metals have both a spot and a futures price, and the ratio is only meaningful when you compare like with like.

The Gold ETF Calculatoruses the spot price from Swissquote’s public quote feed, taking the midpoint of the bid and ask. The same applies to silver on the Silver ETF Calculator.

There is a second reason we sample only while US markets are open, which is covered in the methodology notes on the About page — short version: the ratio drifts if you compare a live metal price against a frozen ETF price.