There are three key dates recorded on Perth Mint precious metal buy and sell transactions: Trade, Value and Delivery.
Trade Date is the date on which the deal is executed, that is, the metal price and other terms are agreed. Trade Date is often abbreviated to “T”. The gold or silver price is fixed on this date and once agreed, the client and the Perth Mint are both committed to that price and the transaction will not be reversed or refunded.
Value Date is the date on which the transaction settles, that is, cash and metal are exchanged and when the buyer gains ownership/title to the metal. Sometimes it is referred to as Settlement Date.
The precious metals markets, like foreign exchange markets, work on a standard of settling transactions two business days from the trade date. You will see this referred to as “T+2” or “spot”. Therefore, when you see references to the “spot price” of gold it means agreeing to the price to buy or sell gold today with settlement of cash and metal to occur in two business days.
It is possible to arrange for settlement on the trade date (unusual) or in one business day – referred to as T+1 or TOM (short for tomorrow). Settlement of transactions later than T+2 are also possible and these are referred to as “forwards”. A “forward” metal price will differ to the “spot” metal price as it takes into account the cost of funding the delayed settlement (that is, the cash value of the trade is adjusted for the time value/interest rates of money and the metal).
The calculation of value date needs to take into account any public holidays that apply to the countries where both of the currencies in the transaction will settle. For example, the purchase of loco gold London in US dollars would need to consider both US and UK holidays.
Foreign exchange market convention requires one business day between the trade date and the value date for US dollars and for all other currencies (including gold and silver) there must be two business days between the trade date and the value date.
An example of how this works can be found at the London Bullion Market Association precious metal value dates webpage. Consider these two examples:
- Trade date of Monday 31st December 2012. Normally a Monday trade would settle two days later on a Wednesday, but with a New Year’s Day holiday on Tuesday the 1st of January, the revised value date is Thursday 3rd of January as the metal side of the trade requires two business days.
- Trade date of Thursday 14th February 2013. Normally settlement would be on Monday the 18th, but that is US President’s Day holiday so the value date is moved to the next day Tuesday the 19th.
- Trade date of Friday 15th February 2013. Settlement will occur on Tuesday the 19th, even though US President’s Day holiday is on Monday the 18th. The “one business day minimum for US dollars” rule means that the Tuesday value date fulfils that requirement and for the metal side of the trade there is no UK public holidays so the “two day minimum for all other currencies” rule is satisfied.
Note that in the case of an Australian dollar gold transaction, the value date would need to take into account Australian and UK holidays and apply a two business days rule to both.
Delivery (or Stock) Date is a Perth Mint specific term indicating the date on which physical metal is delivered/shipped to the client.
Normally in wholesale market transactions the delivery date of the physical (or paper) metal equals the value date. There is a risk with this that the customer fails to send its cash (or metal) on the value date, leaving the Perth Mint short. We manage this by setting a maximum (credit) limit of how much we are prepared to risk, based on the credit rating and trustworthiness of the other party.
In the case of individuals or companies without credit ratings, the Perth Mint cannot take such a risk, so it needs to verify that it has received the cash (or metal) on the value date before sending the metal (or cash) to the customer. As a result, the delivery of the metal (or cash) occurs on a different date to the value date when the cash (or metal) was received.