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(community.competitors, customer,law,loss, prices, profit,taxes,wages)
1. Focus only on making a big ___
2.pay employees low ___
3.charge high ___
4.never break the ___
5.avoid paying ___ to the government
6.believe the ___ is always right
7.invest in the local ___
8. Put your ___ out of business
9. Be prepared to make a ___ for at least the first year.
1. Focus only on making a big profit
2.pay employees low wages
3.charge high prices
4.never break the law
5.avoid paying taxes to the government
6.believe the customer is always right
7.invest in the local community
8. Put your competitors out of business
9. Be prepared to make a loss for at least the first year
Part 3: Long or Short ? Order Types And Calculating Profits & Losses
Going long, Going short, Order types, and Calculating Profit & Loss
• Buying and selling
The basic idea of trading the markets is to buy low and sell high or sell high and buy low. I know that probably sounds a little weird to you because you are probably thinking “how can I sell something that I don’t own?” Well, in the Forex market when you sell a currency pair you are actually buying the quote currency (the second currency in the pair) and selling the base currency (the first currency in the pair).
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In the case of a non-Forex example though, selling short seems a little confusing, like if you were to sell a stock or commodity. The basic idea here is that your broker lends you the stock or commodity to sell and then you must buy it back later to close the transaction. Essentially, since there is no physical delivery it is possible to sell a security with your broker since you will ‘give’ it back to them at a later date, hopefully at a lower price.
• Long vs. Short
Another great thing about the Forex market is that you have more of a potential to profit in both rising and falling markets due to the fact that there is no market bias like the bullish bias of stocks. Anyone who has traded for a while knows that the fastest money is made in falling markets, so if you learn to trade both bull and bear markets you will have plenty of opportunities to profit.
LONG – When we go long it means we are buying the market and so we want the market to rise so that we can then sell back our position at a higher price than we bought for. This means we are buying the first currency in the pair and selling the second. So, if we buy the EURUSD and the euro strengthens relative to the U.S. dollar, we will be in a profitable trade.
SHORT – When we go short it means we are selling the market and so we want the market to fall so that we can then buy back our position at a lower price than we sold it for. This means we are selling the first currency in the pair and buying the second. So, if we sell the GBPUSD and the British pound weakens relative to the U.S. dollar, we will be in a profitable trade.
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• Order types
Now it’s time to cover order types. When you execute a trade in the Forex market it is called an ‘order’, there are different order types and they can vary between brokers. All brokers provide some basic order types, there are other ‘special’ order types that are not offered by all brokers though, and we will cover them all below:
Market order – A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.
Limit Entry order – A limit entry order is placed to either buy below the current market price or sell above the current market price. This is a bit tricky to understand at first so let me explain:
If the EURUSD is currently trading at 1.3200 and you want to go sell the market if it reaches 1.3250, you can place a limit sell order and then when / if the market touches 1.3250 it will fill you short. Thus, the limit sell order is placed ABOVE current market price. If you want to buy the EURUSD at 1.3050 and the market is trading at 1.3100, you would place your limit buy order at 1.3050 and then if the market hits that level it will fill you long. Thus the limit buy order is placed BELOW current market price.
Stop Entry order – A stop-entry order is placed to buy above the current market price or sell below it. For example, if you want to trade long but you want to enter on a breakout of a resistance area, you would place your buy stop just above the resistance and you would get filled as price moves up into your stop entry order. The opposite holds true for a sell-stop entry if you want to sell the market.
Stop Loss order – A stop-loss order is an order that is connected to a trade for the purpose of preventing further losses if the price moves beyond a level that you specify. The stop-loss is perhaps the most important order in Forex trading since it gives you the ability to control your risk and limit losses. This order remains in effect until the position is liquidated or you modify or cancel the stop-loss order.
Trailing Stop – The trailing stop-loss order is an order that is connected to a trade like the standard stop-loss, but a trailing stop-loss moves or ‘trails’ the current market price as your trade moves in your favor. You can typically set your trailing stop-loss to trail at a certain distance from current market price, it will not start moving until or unless the price moves greater than the distance you specify. For example, if you set a 50 pip trailing stop on the EURUSD, the stop will not move up until your position is in your favor by 51 pips, and then the stop will only move again if the market moves 51 pips above where your trailing stop is, so this way you can lock in profit as the market moves in your favor while still giving the trade room to grow and breath. Trailing stops are best used in strong trending markets.
Good till Cancelled order (GTC) – A good till cancelled order is exactly what it says…good until you cancel it. If you place a GTC order it will not expire until you manually cancel it. Be careful with these because you don’t want to set a GTC and then forget about it only to have the market fill you a month later in a potentially unfavorable position.
Good for the Day order (GFD) – A good for day order remains active in the market until the end of the trading day, in Forex the trading day ends at 5:00pm EST or New York time. The exact time a GFD expires might vary from broker to broker, so always check with your broker.
One Cancels the Other order (OCO) – A one cancels the other order is essentially two sets of orders; it can consist of two entry orders, two stop loss orders, or two entry and two stop-loss orders. Essentially, when one order is executed the other is cancelled. So, if you want to buy OR sell the EURUSD because you are anticipating a breakout from consolidation but you don’t know which way the market will break, you can place a buy entry and stop-loss above the consolidation and a sell entry with stop-loss below the consolidation. If the buy entry gets filled for example, the sell entry and its connected stop loss will both be cancelled instantly. A very handy order to use when you are not sure which direction the market will move but are anticipating a large move.
One Triggers the Other order (OTO) – This order is the opposite of an OCO order, because instead of cancelling an order upon filling one, it will trigger another order upon filling one.
• Lot size / Contract size
In Forex, positions are quoted in terms of ‘lots’. The common nomenclature is ‘standard lot’, ‘mini lot’, ‘micro lot’, and ‘nano lot’; we can see examples of each of these in the chart below and the number of units they each represent:
• How to calculate pip value
You probably already know that currencies are measured in pips, and one pip is the smallest increment of price movement that a currency can move. To make money from these small increments of price movement, you need to trade larger amounts of a particular currency in order to see any significant gain (or loss). This is where leverage comes into play; if you don’t understand leverage totally please go read Part 1 of the course where we discuss it.
So we need to know now how lot size affects the value of one pip. Let’s work through a couple examples:
We will assume we are using standard lots, which control 100,000 units per lot. Let’s see how this affects pip value.
1) EUR/JPY at an exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip
2) USD/CHF at an exchange rate of 0.9190 (.0001 / .9190) x 100,000 = $10.88 per pip
In currency pairs where the U.S. dollar is the quote currency, one standard lot will always equal $10 per pip, one mini-lot will equal $1 per pip, one micro-lost will equal .10 cents per pip, and a nano-lot is one penny per pip.
• How to calculate profit and loss
Now, let’s move on to calculating profit and loss:
Let’s use a pair without the U.S. dollar as the quote currency since these are the trickier ones:
1) The rate for the USD/CHF is currently quoted at 0.9191 / 0.9195. Let’s say we are looking to sell the USD/CHF, this means we will be working with the ‘bid’ price of 0.9191, or the rate at which the market is prepared to buy from you.
2) You then sell 1 standard lot (100,000 units) at 0.9191
3) A couple of days later the price moves to 0.9091 / 0.9095 and you decide to take your profit of 96 pips, but what dollar amount is that??
4) The new quote price for the USD/CHF is 0.9091 / 0.9095. Since you are now closing the trade you are working with the ‘ask’ price since you are going to buy the currency pair to offset the sell order you previously initiated. So, since the ‘ask’ price is now 0.9095, this is the price the market is willing to sell the currency pair to you, or the price that you can buy it back at (since you initially sold it).
5) The difference between the price you sold at (0.9191) and the price you want to buy back at (0.9095) is 0.0096, or 96 pips.
6) Using the formula from above, we now have (.0001 / 0.9095) x 100,000 = $10.99 per pip x 96 pips = $1055.04
For currency pairs where the U.S. dollar is the quote currency, calculating profit or loss is pretty simple really. You simply take the number of pips you gained or lost and multiple that by the dollar per pip you are trading, here’s an example:
Let’s say you trade the EURUSD and you buy it at 1.3200 but the price moves down and hits your stop at 1.3100….you just lost 100 pips.
If you are trading 1 standard lot you would have lost $1,000 because 1 standard lot of pairs with the U.S. dollars as the quote currency = $10 per pip, and $10 per pip x 100 pips = $1,000
If you had traded 1 mini-lot you would have lost $100 since 1 mini-lot of USD quote pairs is equal to $1 per pip and $1 x 100 pips = $100
Always remember: when you enter or exit a trade you have to deal with the spread of the bid/ask price. Thus, when you buy a currency you will use the ask price and when you sell a currency you use the bid price.
Long and Short Positions
Long and Short Positions
In the trading of assets, an investor Equity Trader An equity trader is someone who participates in the buying and selling of company shares on the equity market. Similar to someone who would invest in the debt capital markets, an equity trader invests in the equity capital markets and exchanges their money for company stocks instead of bonds. Bank careers are high-paying can take two types of positions: long and short. An investor can either buy an asset (going long), or sell it (going short). Long and short positions are further complicated by the two types of options Stock Option A stock option is a contract between two parties which gives the buyer the right to buy or sell underlying stocks at a predetermined price and within a specified time period. A seller of the stock option is called an option writer, where the seller is paid a premium from the contract purchased by the stock option buyer. , the call and put. An investor may enter into a long put, a long call, a short put, or a short call. Furthermore, an investor can combine long and short positions into complex trading and hedging strategies.
In a long (buy) position, the investor is hoping for the price to rise. An investor in a long position will profit from a rise in price. The typical stock purchase Stock Acquisition In a stock acquisition, the individual shareholder(s) sell their interest in the company to a buyer. With a stock sale, the buyer is assuming ownership of both assets and liabilities – including potential liabilities from past actions of the business. The buyer is merely stepping into the shoes of the previous owner is a long stock asset purchase.
A long call position is one where an investor purchases a call option. Thus, a long call also benefits from a rise in the underlying assets price.
A long put position involves the purchase of a put option. The logic behind the “long” aspect of the put follows the same logic of the long call. A put option rises in value when the underlying asset drops in value. A long put rises in value with a drop in the underlying asset.
Long Position Profits
In a long asset purchase, the potential downside/loss is the purchase price. The upside is unlimited.
In long calls and puts, the potential downsides are more complicated. These are explored further in our options case study Options Case Study – Long Call This options case study demonstrates the complex interactions of options. Both put and call options have different payouts. To study the complex nature and interactions between options and the underlying asset, we present an options case study. .
A short position is the exact opposite of a long position. The investor hopes for and benefits from a drop in the price of the security. Executing or entering a short position is a bit more complicated than purchasing the asset.
In the case of a short stock position, the investor hopes to profit from a drop in the stock price. This is done by borrowing X number of shares Stock What is a stock? An individual who owns stock in a company is called a shareholder and is eligible to claim part of the company’s residual assets and earnings (should the company ever be dissolved). The terms “stock”, “shares”, and “equity” are used interchangeably. of the company from a stockbroker, and then selling the stock at the current market price. The investor then has an open position for X number of shares with the broker, that has to be closed in the future. If the price drops, the investor can purchase X amount of stock shares for less than the total price they sold the same number of shares for earlier. The excess cash Cash Equivalents Cash and cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, Bankers Acceptances, Treasury bills, commercial paper, and other money market instruments. is her profit.
The concept of short selling is often difficult for many investors to grasp, but it’s actually a relatively simple process. Let’s look at an example that will hopefully help clarify things for you. Assume that stock “A” is currently $50 per share. For one reason or another, you expect the stock price to decline, and so you decide to sell short to profit from the anticipated fall in price. Your short sale would work as follows:
– You put up a margin deposit as collateral for your brokerage firm to loan you 100 shares of the stock, which they already own.
– When you receive the 100 shares loaned to you by your broker, you sell them at the current market price of $50 per share. Now you no longer have any shares of the stock, but you do have the $5,000 in your account that you received from the buyer of your 100 shares ($50 x 100 = $5,000). You are said to be “short” the stock because you owe your broker 100 shares. (Think of it as if you said to someone, “I’m 100 shares short of what I need to pay back my broker.”)
– Now assume that, as you anticipated, the stock’s price begins to fall. A few weeks later, the price of the stock has dropped all the way down to $30 a share. You don’t expect it to go much, if any, lower than that, so you decide to close out your short sale.
– You now buy 100 shares of the stock for $3,000 ($30 x 100 = $3,000). You give those 100 shares of stock to your broker to pay him back for, replace, the 100 shares he loaned you. Having paid back the 100 share loan, you are no longer “short” the stock.
– You have made a $2,000 profit on your short sell trade. You received $5,000 when you sold the 100 shares your broker loaned you, but you were later able to buy 100 shares to pay him back with for only $3,000. Thus, your profit is figured as follows: $5,000 (received) – $3,000 (paid) = $2,000 (profit).
Short stock positions are typically only given to accredited investors, as it requires a great deal of trust between the investor and broker to lend shares to execute the short sale. In fact, even if the short is executed, the investor is usually required to place a margin deposit or collateral with the broker in exchange for the loaned shares.
Other Short Positions
Short call positions are entered into when the investor sells, or “writes”, a call option. A short call position is the counter-party to a long call. The writer will profit from the short call position if the value of the call drops, or the value of the underlying drops.
Short put positions are entered into when the investor writes a put option. The writer will profit from the position if the value of the put drops, or when the value of the underlying exceeds the strike price of the option.
Short positions for other assets can be executed through a derivative known as swaps. A credit default swap, for example, is a contract where the issuer will pay out a sum to the buyer if an underlying asset fails or defaults.
The Bottom Line
There is a wide variety of long and short positions that traders may adopt. A knowledgeable investor will have grasped the many advantages and disadvantages of each individual type of long and short positions before attempting to incorporate using them in his or her trading strategy.
Gold Price Today
MARKET IS OPEN (Will close in 1 hr. 1 min.)
- US Dollar
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Gold Price in US Dollars
Apr 09, 2020 16:00 NY Time
|Gold Spot Price||Gold Price Today||Change|
|Gold price per ounce||1,683.30||+36.80|
|Gold price per gram||54.12||+1.18|
|Gold price per kilo||54,119.35||+1,183.15|
|Gold price in pennyweight||84.16||+1.84|
|Gold price in tola||631.24||+13.80|
|Gold price in tael (HK)||2,045.68||+44.72|
Gold Historical Performance
|Period||Change ($)||Change (%)|
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 doesnвЂ™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 вЂњSpot Market is OpenвЂќ. 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 вЂњforward rateвЂќ.
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. HereвЂ™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 arenвЂ™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 вЂ“ 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.
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.
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 nationвЂ™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 worldвЂ™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 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 worldвЂ™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 WGCвЂ™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 вЂ“ widely known as GLD вЂ“ is the worldвЂ™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 countryвЂ™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 StatesвЂ™ central bank while Europe has the European Central Bank (ECB). Other central banks include the Bank of Japan, the Bank of England, PeopleвЂ™s Bank of China, Deutsche Bundesbank in Germany, to name a few. Central banks are also responsible for managing its countryвЂ™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 doesnвЂ™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 goldвЂ™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 countryвЂ™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 nationвЂ™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 вЂ“ punned QE вЂ“ 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 doesnвЂ™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 nationвЂ™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 вЂ“ a part of present day Turkey, around 550 BC. The lumps of metal were known as вЂњelectrum.вЂќ
WHAT ARE THE MOST POPULAR GOLD COINS?
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 coinвЂ™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 AfricanвЂ™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 goldвЂ™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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