Clearing Price

Clearing prices exist in all types of markets and for all types or product or service. The clearing price for gold (we're using gold as an example here, but the term can be used for assets in the broadest terms, including goods, services and investment products) is the price at which gold can be sold and the market can be said to be "cleared".

These assets can be goods or services or investment products. At the micro level of economic activity, where assets can be taken individually, it is impossible to conclude a sales transaction without reaching a clearing price (a price that will clear that asset from the market). At the macro level of economic activity it is of course possible that the clearing price cannot be reached and goods or assets will remain unsold.

In economic activity, sellers try to get the highest price possible for the assets they wish to sell whilst buyers attempt to gain ownership of those assets at the lowest possible value. Through the bid / offer process which is basically a sales negotiation, a price is reached which is acceptable to both parties and a trade can then take place. The price at which this trade takes place is known as the market clearing price as this is the price at which the specific assets are cleared (or removed) from the market. In case of the gold market, it would be called the gold clearing price.

A market clearing price in economic theory is also known as the equilibrium price as it is at this price that supply and demand are in equilibrium as the quantity of goods demanded will be equal to the quantity of goods which have been supplied at that specific price. The new classical economic school holds the simplified view that markets will always tend to move towards equilibrium.