Trading Gold at Markets World

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Contents

How to Trade Gold (GLD, GDX) in 4 Steps

Whether it’s behaving like a bull or a bear, the gold market offers high liquidity and excellent opportunities to profit in nearly all environments due to its unique position within the world’s economic and political systems. While many folks choose to own the metal outright, speculating through the futures, equity and options markets offer incredible leverage with measured risk.

Market participants often fail to take full advantage of gold price fluctuations because they haven’t learned the unique characteristics of world gold markets or the hidden pitfalls that can rob profits. In addition, not all investment vehicles are created equally: Some gold instruments are more likely to produce consistent bottom-line results than others.

Trading the yellow metal isn’t hard to learn, but the activity requires skill sets unique to this commodity. Novices should tread lightly, but seasoned investors will benefit by incorporating these four strategic steps into their daily trading routines. Meanwhile, experimenting until the intricacies of these complex markets become second-hand.

1. What Moves Gold

As one of the oldest currencies on the planet, gold has embedded itself deeply into the psyche of the financial world.   Nearly everyone has an opinion about the yellow metal, but gold itself reacts only to a limited number of price catalysts. Each of these forces splits down the middle in a polarity that impacts sentiment, volume and trend intensity:

  • Inflation and deflation
  • Greed and fear
  • Supply and demand

Market players face elevated risk when they trade gold in reaction to one of these polarities, when in fact it’s another one controlling price action. For example, say a selloff hits world financial markets, and gold takes off in a strong rally. Many traders assume that fear is moving the yellow metal and jump in, believing the emotional crowd will blindly carry price higher. However, inflation may have actually triggered the stock’s decline, attracting a more technical crowd that will sell against the gold rally aggressively.

Combinations of these forces are always in play in world markets, establishing long-term themes that track equally long uptrends and downtrends. For example, the Federal Reserve (FOMC) economic stimulus begun in 2008, initially had little effect on gold because market players were focused on high fear levels coming out of the 2008 economic collapse.     However, this quantitative easing encouraged deflation, setting up the gold market and other commodity groups for a major reversal.   

That turnaround didn’t happen immediately because a reflation bid was underway, with depressed financial and commodity-based assets spiraling back toward historical means. Gold finally topped out and turned lower in 2020 after reflation was completed and central banks intensified their quantitative easing policies.   VIX eased to lower levels at the same time, signaling that fear was no longer a significant market mover. 

2. Understand the Crowd

Gold attracts numerous crowds with diverse and often opposing interests. Gold bugs stand at the top of the heap, collecting physical bullion and allocating an outsized portion of family assets to gold equities, options, and futures. These are long-term players, rarely dissuaded by downtrends, who eventually shake out less ideological players. In addition, retail participants comprise nearly the entire population of gold bugs, with few funds devoted entirely to the long side of the precious metal.

Gold bugs add enormous liquidity while keeping a floor under futures and gold stocks because they provide a continuous supply of buying interest at lower prices. They also serve the contrary purpose of providing efficient entry for short sellers, especially in emotional markets when one of the three primary forces polarizes in favor of strong buying pressure.

In addition, gold attracts enormous hedging activity by institutional investors who buy and sell in combination with currencies and bonds in bilateral strategies known as “risk-on” and risk-off.” Funds create baskets of instruments matching growth (risk-on) and safety (risk-off), trading these combinations through lightning-fast algorithms. They are especially popular in highly conflicted markets in which public participation is lower than normal.

3. Read the Long-Term Chart

Take time to learn the gold chart inside and out, starting with a long-term history that goes back at least 100 years. In addition to carving out trends that persisted for decades, the metal has also trickled lower for incredibly long periods, denying profits to gold bugs. From a strategic standpoint, this analysis identifies price levels that need to be watched if and when the yellow metal returns to test them.

Gold’s recent history shows little movement until the 1970s, when following the removal of the gold standard for the dollar, it took off in a long uptrend, underpinned by rising inflation due to skyrocketing crude oil prices.   After topping out at $2,076 an ounce in February 1980, it turned lower near $700 in the mid-1980s, in reaction to restrictive Federal Reserve monetary policy.   

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The subsequent downtrend lasted into the late 1990s when gold entered the historic uptrend that culminated in the February 2020 top of $1,916 an ounce. A steady decline since that time has relinquished around 700 points in four years; although in the first quarter of 2020 it surged 17% for its biggest quarterly gain in three decades, as of March 2020, it’s trading at $1,618 per ounce. 

4. Choose Your Venue

Liquidity follows gold trends, increasing when it’s moving sharply higher or lower and decreasing during relatively quiet periods. This oscillation impacts the futures markets to a greater degree than it does equity markets, due to much lower average participation rates.     New products offered by Chicago’s CME Group in recent years haven’t improved this equation substantially.

CME offers three primary gold futures, the 100-oz. a contract, a 50-oz. mini contract and a 10-oz. a micro contract, added in October 2020.       While the largest contract’s volume was over 67.6 million in 2020, the smaller contracts were not as widely traded; 87,450 for the mini and .05 million for the micro.       This thin participation doesn’t impact long-dated futures held for months, but strongly impacts trade execution in short-term positions, forcing higher costs through slippage.

The SPDR Gold Trust Shares (GLD) shows the greatest participation in all types of market environments, with exceptionally tight spreads that can drop to one penny. Average daily volume stood at 14.54 million shares per day in March 2020 2020, offering easy access at any time of day.   CBOE options on GLD offer another liquid alternative, with active participation keeping spreads at low levels. 

The VanEck Vectors Gold Miners ETF (GDX) grinds through greater daily percentage movement than GLD but carries a higher risk because correlation with the yellow metal can vary greatly from day to day.   Large mining companies hedge aggressively against price fluctuations, lowering the impact of spot and futures prices, while operations may hold significant assets in other natural resources, including silver and iron.

Bottom Line

Trade the gold market profitably in four steps. First, learn how three polarities impact the majority of gold buying and selling decisions. Second, familiarize yourself with the diverse crowds that focus on gold trading, hedging, and ownership. Third, take time to analyze the long and short-term gold charts, with an eye on key price levels that may come into play.

Finally, choose your venue for risk-taking, focused on high liquidity and easy trade execution.

Major global trading hubs

The landscape for wholesale gold trading is quite complex and constantly evolving. The three most important gold trading centres are the London OTC market, the US futures market and the Shanghai Gold Exchange (SGE). These markets comprise more than 90% of global trading volumes and are complemented by smaller secondary market centres around the world (both OTC and exchange-traded).

Daily notional gold volumes in US-dollar billions

*Based on 2020 average daily volumes.
†Loco London OTC daily volumes are estimates based on clearing statistics published by the LBMA: http://www.lbma.org.uk/clearing-statistics. These figures are net transactions. To estimate gross volumes we use two multipliers: 5 for a low estimated volume (based on market inight) and 10 for a high estimated volume (based on a turnover survey published by the LBMA in 2020.)
‡Includes physical and futures contracts.
^Includes: Dubai Gold & Commodities Exchange, ICE Futures, US Metals, Borsa Istanbul, Bursa Malaysia, Moscow Exchange – RTSX, Tokyo Commodity Exchange.
**Based on combined worlwide daily volumes. A list of all physical gold-backed ETFs (and similar products) included in this calculation is available on: https://www.gold.org/data/gold-etf-holdings
World Gold Council, LBMA, SGE, Bloomberg

Overview of market centres

The London OTC market

The London OTC market has historically been the centre of the gold trade and today comprises approximately 70% of global notional trading volume per our estimates. The London market attracts participants from all around the world and sets the twice daily global reference benchmark for gold, the LBMA Gold Price. Uniquely the market in London trades 400 ounce bars ‘Good Delivery’ bars which are stored in the member vaults of the London Precious Metals Clearing Limited (LPMCL) and the Bank of England. London’s unique vaulting infrastructure with its strictly enforced chain of custody, as well as the sizeable stocks of gold that reside within it, contribute to London often being referred to as the ‘terminal market’. The London market also enjoys a time zone advantage, bridging Asian and US trading hours, and benefits from its status as a leading global financial services hub.

Notwithstanding the London market’s pre-eminence, it has been losing relative share of global trading volumes. In 2020 banks operating in the market stopped submitting forward offered rates (GOFO rates) which were used to establish the market’s forward curve, one of several symptoms of a market that has become increasingly fragmented. The World Gold Council’s initiative to partner with a consortium of leading financial players and the London Metal Exchange to introduce LMEprecious is a direct response to these pressures. This suite of exchange-traded contracts seeks to modernise and introduce efficiencies to the heart of the gold trading market.

The US futures market (COMEX)

Despite London’s leading role in the physical market, the COMEX derivatives exchange operated by CME Group has become an increasingly important venue in driving price discovery. Trading activity on COMEX is primarily concentrated on the ‘active month’ (nearest dated) contract which acts as a proxy for the spot price. Only a small number of contracts physically settle into delivery of bars into COMEX vaults but the market is nonetheless tightly linked to physical markets through a very active Exchange for Physical (EFP) market. Notably, a steadily increasing share of COMEX volume is transacted during Asian market hours reflecting the exchange’s success of tapping into Asian market growth.

The Chinese market (SGE & SHFE)

The largest purely physical spot exchange in the world is the Shanghai Gold Exchange. Established in 2002 under close oversight of the People’s Bank of China, SGE has enjoyed a rapid rise to prominence that has mirrored China’s growing importance in the gold market. In 2020 SGE introduced the Shanghai Gold Price benchmark to cement China’s role as a price-setter, to help the internationalisation of the RMB and to broaden international participation in the Chinese market. It should be noted that SGE’s spot and deferred contracts are complemented by very active futures trading on the Shanghai Futures Market (SHFE), although the two exchanges are not directly linked.

Secondary market centres

Other important markets include Dubai, India, Japan, Singapore and Hong Kong. There are exchanges in all these markets offering a range of spot trading facilities or listed contracts but these have not attracted the liquidity seen on the market’s primary venues. Nonetheless, these markets play an important role to varying degrees in serving local demand or acting as regional trading hubs. For example, Hong Kong has long acted as a gateway to the Chinese market and Singapore is establishing itself as an important focal point for trading in the ASEAN region.

Gold Price Today

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Gold Price in US Dollars

Apr 06, 2020 08:24 NY Time

Gold Spot Price Gold Price Today Change
Gold price per ounce 1,641.40 +19.60
Gold price per gram 52.77 +0.63
Gold price per kilo 52,772.24 +630.15
Gold price in pennyweight 82.07 +0.98
Gold price in tola 615.53 +7.35
Gold price in tael (HK) 1,994.76 +23.82

Gold Chart

Gold Fixes

Gold Historical Performance

Period Change ($) Change (%)
30 Days -32.80 -1.96%
6 Months 136.30 9.06%
1 Year 348.90 27.02%
5 Years 426.30 35.12%
Since 2000 1,352.50 469.94%

Gold Ratios

Commodities Ratios
Silver 111.76
Platinum 2.24
Palladium 0.81
XAU 19.46
HUI 8.19

Gold Price Guide

WHAT MAKES GOLD A PRECIOUS METAL?

This is a classification of specific metals that are considered rare and have a higher economic value compared to other metals. There are five main precious metals openly traded on various exchanges, gold is the biggest market. Gold is sometimes referred to as monetary metals as it has historical uses as a currency and is seen as a store of value. While relatively small, gold does also have an industrial component because it is less reactive, a good conductor, highly malleable and doesn’t corrode.

WHAT IS SPOT GOLD?

The spot gold price refers to the price of gold for immediate delivery. Transactions for bullion coins are almost always priced using the spot price as a basis. The spot gold market is trading very close to 24 hours a day as there is almost always a location somewhere in the world that is actively taking orders for gold transactions. New York, London, Sydney, Hong Kong, Tokyo, and Zurich are where most of the trading activity takes place. Whenever bullion dealers in any of these cities are active, we indicate this on our website with the message “Spot Market is Open”. For the high and low values, we are showing the lowest bid and the highest ask of the day.

GOLD PRICE – FUTURES MARKET

The gold futures market is one of a number of commodity futures, wherein contracts are entered into, agreeing to buy or sell gold at a certain price at a specified future date. Gold futures are used both as a way for gold producers and market makers to hedge their products against fluctuations in the market, and as a way for speculators to make money off of those same movements in the market.

A precious metals futures contract is a legally binding agreement for delivery of a metal in the future at an agreed-upon price. The contracts are standardized by a futures exchange as to quantity, quality, time and place of delivery. Only the price is variable.

Hedgers use these contracts as a way to manage their price risk on an expected purchase or sale of the physical metal. They also provide speculators with an opportunity to participate in the markets by lodging exchange required margin.

There are two different positions that can be taken: A long (buy) position is an obligation to accept delivery of the physical metal, while a short (sell) position is the obligation to make delivery. The great majority of futures contracts are offset prior to the delivery date. For example, this occurs when an investor with a long position sells that position prior to delivery notice.

SPOT GOLD PRICE VS GOLD FUTURES PRICE

There is usually a difference between the spot price of gold and the future price. The future price, which we also display on this page, is used for futures contracts and represents the price to be paid on the date of a delivery of gold in the future. In normal markets, the futures price for gold is higher than the spot. The difference is determined by the number of days to the delivery contract date, prevailing interest rates, and the strength of the market demand for immediate physical delivery. The difference between the spot price and the future price, when expressed as an annual percentage rate is known as the “forward rate”.

CHANGE (CHANGE IN GOLD PRICE FROM PREVIOUS CLOSE)

This is the change in the price of the metal from the previous close, which is not necessarily the previous day. Weekdays from 6:00 PM NY time until midnight the previous close is from the current day. Here’s why: The time the gold market stops trading in New York on weekdays is for a 60 min period, from 5:00 PM New York time until 6:00 PM. We use the last quote at 5:00 PM as the close of that given day. Change is always the difference between the current price and the price at 5:00pm. For example: Gold last traded at $1,200 at 5:00 PM on January 17. If it is January 17 at 6:30 PM and the price is $1,202, we will show a change of +2.00. If it is January 18 at 5:00 PM and gold is quoted at $1,225 then we would show a change of +25.00 at that time.

GOLD FUTURES CHANGE (CHANGE FROM PREVIOUS CLOSE)

This is the change in the price of the metal from the price at the end of the previous trading session. Currently, the weekday closing time is 2:00 PM Eastern Time.

30 DAY CHG (30-DAY CHANGE)

This is the change in the price of the metal from 30 days ago as opposed from the previous close.

1 YEAR CHG (1-YEAR CHANGE)

This is the change in the price of the metal from a year ago today, as opposed from the previous close.

HOW IS THE LIVE SPOT GOLD PRICE CALCULATED?

Every precious metals market has a corresponding benchmark price that is set on a daily basis. These benchmarks are used mostly for commercial contracts and producer agreements. These benchmarks are calculated partly from trading activity in the spot market.

The spot price is determined from trading activity on Over-The-Counter (OTC) decentralized markets. An OTC is not a formal exchange and prices are negotiated directly between participants with most of the transaction taking place electronically. Although these aren’t regulated, financial institutions play an important role, acting as market makers, providing a bid and ask price in the spot market.

I’VE HEARD THAT GOLD TRADED 24/7 – IS THAT TRUE? IS THERE AN OPEN AND A CLOSE?

Gold, actually trades 23 hours a day Sunday through Friday. Most OTC markets overlap each other; there is a one-hour period between 5 p.m. and 6 p.m. eastern time where no market is actively trading. However, despite this one hour close, because spot is traded on OTC markets, there are no official opening or closing prices.

For larger transactions, most precious metals traders will use a benchmark price that is taken at specific periods during the trading day.

WHAT IS THE BID PRICE FOR GOLD?

The bid price is the highest price someone is willing to pay for an ounce of gold.

WHAT IS THE ASK PRICE FOR GOLD?

The ask price is the lowest price someone is willing to sell an ounce of gold.

WHAT DOES THE SPREAD MEAN FOR THE GOLD PRICE PER OUNCE TODAY?

The spread is the price difference between the bid and the ask price. Both gold and silver are fairly liquid markets so traders can expect to see a fairly narrow spread in these markets; however, other precious metals may have wider spreads, reflecting a more illiquid marketplace.

IS THERE A GOLD BENCHMARK?

Because there is no official closing or opening price for gold or silver, market participants rely on benchmark prices, set during different times of the day by different organizations. These benchmarks are also referred to as fixings.

The London Bullion Market Association (LBMA) is the leading organization that is responsible for maintaining benchmarks for all precious metals. The LBMA Gold Price, the LBMA Silver Price, and the LBMA PGM Price are the widely accepted benchmarks in the precious metals space. Kitco.com also provides a variety of benchmark prices for gold and silver.

The benchmark price is determined twice daily in an electronic auction between participating banks with the LBMA, which is administered by ICE Benchmark Administration.

GOLD FIXES

For almost 100 years, the main gold benchmark price was set by the London Gold Fix. The price was determined in a closed physical auction among bullion banks. A price is determined after most buy orders matched most sell orders.

These auctions would take place twice daily, once in the morning and once in the afternoon in London, England.

However, the London Gold Fix shut down in 2020 and the responsibility for maintaining the process fell to the LBMA, which created the LBMA Gold Price on March 2020. The association shifted the price matching mechanism from a physical auction to an open electronic auction among its members.

The benchmark is still set twice a day at 10:30 a.m. and then at 3 p.m. London time.

There are thirteen participating banks, including the Bank of China, Bank of Communications, China Construction Bank, Goldman Sachs International, HSBC Bank USA NA, ICBC Standard Bank, JP Morgan, Morgan Stanley, SociГ©tГ© GГ©nГ©rale, Standard Chartered, The Bank of Nova Scotia – ScotiaMocatta, The Toronto Dominion Bank and UBS.

SHANGHAI FIX

Launched in 2020, the benchmark price mechanism in China is known as the Shanghai Gold Benchmark price. The price setting follows the same process as the London Gold Price in that the price is set twice daily. However, it is denominated in yuan (or renminbi) rather than U.S. dollars. The price is also derived from a 1-kg contract. The benchmark is listed on the Shanghai Gold Exchange.

ARE THE GOLD PRICES PER OUNCE THE SAME AROUND THE GLOBE?

One troy ounce of gold is the same around the world and for larger transaction are usually priced in U.S. dollars as that is the most active market; however, the value of an ounce of gold can be higher or lower based on the value of a nation’s currency. Traditionally, currencies that are stronger than the U.S. dollar have a lower value gold, price where currencies that are lower than the U.S. dollar have a higher prices. While gold is mostly quoted in ounces per U.S. dollar, OTC markets in other countries also offer other weight options.

The Kitco Gold Index (KGX) is an exclusive feature that calculates the relative worth of one ounce of gold by removing the impact of the value of the U.S. dollar index. The Kitco Gold Index is the price of gold measured not in terms of U.S. Dollars, but rather in terms of the same weighted basket of currencies that determine the US Dollar IndexВ®.

WHAT IS OZ, GRAM, KILO, TOLA, (ETC.)?

Gold and most precious metals prices are quoted in troy ounces; however, countries that have adopted the metric system price gold in grams, kilograms and tonnes.

Grams = 0.032151 troy ounces

Kg = 32.150747 troy ounces

Tonnes = 32,150,7466 troy ounces

Tael = 1.203370 troy ounces

Tola = 0.374878 troy ounce

Though not as popular as kilograms and grams, Tael is a weight measurement in China. The tola is a weight measurement in South Asia.

WHAT IS THE DIFFERENCE BETWEEN AN OUNCE AND A TROY OUNCE WHEN LOOKING AT A GOLD CHART?

A troy ounce is used specifically in the weighing and pricing of precious metals and its use dates back to the Roman Empire when currencies were valued in weight. The process was carried over to the British Empire where one pound sterling was worth one troy pound of silver. The U.S. Mint adopted the troy ounce system in 1828.

A troy ounce is about slightly heavier than an imperial ounce by about 10%. An imperial ounce equals 28.35 grams, while a troy ounce is equal to 31.1 grams.

WHY IS GOLD MOSTLY QUOTED IN U.S. DOLLARS?

While you can buy gold in any currency in the world, it is important to realize that ultimately everything is based on the value of the U.S. dollar. Given that the U.S. is the world’s biggest economy and one of the most stable, the dollar has become a reserve currency, meaning that it is held in significant quantities by other governments and major institutions. Reserve currencies are used to settle international transactions. Since the start of the 20th century, the U.S. dollar has been the dominant reserve currency around the world.

WHY ARE SILVER AND GOLD PRICES SO DIFFERENT?

The reason gold and silver prices vary widely boils down to one simple fact: rarity. The less supply there is of a metal, the higher the price. Therefore, gold prices tend to be much higher than silver prices because it is much harder to get. The reason supply is much larger for silver is because it is an easier metal to mine and it is often mined as a by-product to other metals mining. The average occurrence of gold in igneous rock is 0.004 parts per million. Silver shows up at a rate of 0.07 parts per million.

WHAT IS THE PRICE OF THE GOLD AND SILVER RATIO?

The gold-to-silver ratio shows you how many ounces of silver it would take to buy an ounce of gold. If the ratio is at 60 to 1, this means it would take 60 ounces of silver to buy one ounce of gold.

Investors use the ratio to determine whether one of the metals is under or overvalued and thus if it is a good time to buy or sell a particular metal.

When the ratio is high, it is widely thought that silver is the favored metal. When the ratio is low, the opposite is true and usually signals it is a good time to buy gold.

GOLD MINING

Gold mining refers to the process of mining gold from the ground. There are several methods to extract gold from the ground including placer mining, panning, sluicing, dredging, hard rock mining and by-product mining. Although it is hard to pinpoint the exact date of when gold mining originated, some findings indicate it could date back to at least 7000 years ago.

Right now, Barrick Gold, Goldcorp, Newmont Mining, Newcrest Mining and AngloGold Ashanti are among the world largest gold mining companies by market cap.

The world’s dominant gold producers include South Africa, Australia, China, Russia, the United States, Canada, Peru and more.

WHAT IS THE WORLD GOLD COUNCIL?

Founded in 1987, the World Gold Council (also known as the WGC) is the market development organization for the gold industry responsible for stimulating demand, developing innovative uses for gold and taking new products to the market. Based in the U.K., the WGC’s members include major gold mining companies. There are currently 17 members including Agnico Eagle, Barrick Gold, Goldcorp, China Gold, Kinross, Franco Nevada, Silver Wheaton, Yamana Gold and more.

WHAT IS THE LBMA?

Based in London, the London Bullion Market Association (LBMA) is an international trade association, which represents the precious metals markets including gold, silver, platinum and palladium. It is not an exchange. Its current members include 140 companies made up of refiners, fabricator, traders, etc. The LBMA is responsible for setting the benchmark prices for gold and silver as well as for the PGMs. For the refining industry, the LBMA is also responsible for publishing the Good Delivery List, which is widely recognized as the benchmark standard for the quality of gold and silver bars around the world.

WHAT IS GLD?

SPDR Gold Shares – widely known as GLD – is the world’s largest gold-backed exchange-traded fund. Managed and marketed by State Street Global Advisors, it is valued at over $40 billion as of July 2020. It was launched in November 2004 and was originally listed on the New York Stock Exchange under the name streetTRACKS Gold Shares. Its name was changed to SPDR Gold Shares in May 2008 and has been trading on the NYSE Arca since December 2007. It also trades on the Hong Kong Stock Exchange, Singapore Stock Exchange and the Tokyo Stock Exchange.

HOW DO CENTRAL BANKS INFLUENCE THE PRICE OF GOLD?

A central bank is a national bank that implements monetary policies and issues currency for its respective country. It also provides financial and banking services for its country’s government and commercial banking system. This means a central bank can affect the amount of money supply in its country to help stimulate the economy if needed. The Federal Reserve is the United States’ central bank while Europe has the European Central Bank (ECB). Other central banks include the Bank of Japan, the Bank of England, People’s Bank of China, Deutsche Bundesbank in Germany, to name a few. Central banks are also responsible for managing its country’s reserves, including its foreign-exchange reserves, which consists of foreign banknotes, foreign bank deposits, foreign treasury bills, short and long-term foreign government securities, gold reserves, special drawing rights and International Monetary Fund reserve positions.

WHAT MOVES THE GOLD MARKET?

While gold is one of the top commodity markets, only behind crude oil, its price action doesn’t reflect traditional supply and demand fundamentals. The price of most commodities is usually determined by inventory levels and expected demand. Prices rise when inventories are low and demand is high; however, gold prices are impacted more by interest rates and currency fluctuations. Many analysts note that because of gold’s intrinsic value, it is seen more as a currency than a commodity, one of the reasons why gold is referred to as monetary metals. Gold is highly inversely correlated to the U.S. dollar and bond yields. When the U.S. dollar goes down along with interest rates, gold rallies. Gold is more driven by sentiment then traditional fundamentals.

HOW DO INTEREST RATES MOVE THE PRICE OF GOLD?

In simplest terms, interest rates represent the cost of borrowing money. The lower the interest rate, the cheaper it is to borrow money in that country’s currency. Rates have an impact on economic growth. Interest rates are a vital tool for central bankers in monetary policy decisions. A central bank can lower interest rates in order to stimulate the economy by allowing more people to borrow money and thus increase investment and consumption. Low interest rates weaken a nation’s currency and push down bond yields, both are positive factors for gold prices.

WHAT IS QUANTITATIVE EASING?

Quantitative easing is a monetary policy tool used by central bankers in response to the 2008 financial crisis. The tool was first used in Japan but became a widely used term – punned QE – after former Federal Reserve chair Ben Bernanke introduced the concept in the U.S. in response to the fall of major investment bank Lehman Brothers. Bernanke purchased bad debt off other major commercial banks in order to prevent them from defaulting, while simultaneously increasing the money supply. Since then, other central banks have implemented this tool including the European Central Bank and the Bank of Japan.

QE has risks including increasing inflation if too much money is created to purchase assets, or can fail if the money provided by central bankers to commercial banks doesn’t trickle down to businesses or the average consumer.

WHAT IS A SAFE-HAVEN ASSET?

Since ancient Egypt, gold has been thought of as a store of wealth. Historically, despite its volatility, gold traditionally performs well during periods of financial turbulence or economic weakness. To help stabilize an economy, a central bank will loosen its monetary policy or the government will introduce fiscal initiative, these measures can impact a nation’s currency and ultimately increase domestic gold demand. Investors buy gold when they lose confidence in their currency.

WHEN WAS GOLD FIRST USED AS A CURRENCY?

Gold has a long history of being a monetary metal and store of value. Archeologists have found evidence that gold coins were first struck on the order of King Croesus of Lydia – a part of present day Turkey, around 550 BC. The lumps of metal were known as “electrum.”

Every major mint produces their own gold bullion coins and are extremely popular for investors who want to hold physical metal. While only government mints can produce gold coins with a monetary face value; however, the face value is well below a coin’s intrinsic value. Along with government mints there are a variety of private mints that produce similar products referred to as gold rounds.

Of all government mints only the South African’s Krugerrand gold coin does not have a face value and its value is completely based on the global gold price.

Here are the top five gold coins currently available.

  • South African Krugerrand
  • American Eagle
  • Canadian Maple Leaf
  • Vienna Philharmonic Coins
  • British Britannia Coin

WHEN IS THE GOLD PRICE THE STRONGEST?

It can be difficult to predict the next major rally in gold as it is strongly driven by sentiment. Gold does well in period of high uncertainty, a shifting inflationary environment and during periods of currency debasement; however, historically, there have been high and low seasonal period in the gold market. Historically, September is gold’s strongest month. Many western jeweler start to build their gold inventories during this time to prepare for the holiday season. The next strongest month is January, which traditionally sees strong buying among Eastern nations ahead of the Lunar New Year. The worst month has historically been March, April and then June.

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