Hedging Against Falling Gold Prices using Gold Futures

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Gold Futures Quotes Globex

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About Gold

Gold futures are hedging tools for commercial producers and users of gold. They also provide global gold price discovery and opportunities for portfolio diversification. In addition, they:

  • Offer ongoing trading opportunities, since gold prices respond quickly to political and economic events
  • Serve as an alternative to investing in gold bullion, coins, and mining stocks

Things to know about the contracts:

  • Physically delivered
  • Block-trade eligible
  • American-style options
  • Can be traded off-exchange for clearing only through CME ClearPort

Price of Gold Per Ounce Live & Historical Charts

Gold Price Today

Gold Spot Price Spot Change
Gold Price per Ounce $1,716.05 40.45
Gold Price per Gram $55.17 1.30
Gold Price per Kilo $55,172.29 1,300.50

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Check the price of gold with Money Metals Exchange’s interactive live and historical chart. The chart below allows you to check gold spot prices dating back 20 years up to the current date.

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The Mystery and Wonder of Gold Prices

Gold prices are constantly changing, which keeps investors checking the price of this precious metal every morning. Despite this level of speculation, gold continues to be the most popular investment precious metal. For centuries, gold has been a mysterious symbol of value and wealth. Learn more about gold prices and what makes this precious metal coveted by so many people around the world today.

A Brief History of Gold

Dating back as far as 600 BC, gold has been used as money and to preserve wealth. Today, mints produce gold bars and bullion coins for dealers to sell to buyers. The first coins with gold were struck in Asia Minor.

However, gold was used during the period of Grecian history before and during the time of Homer’s life. During the thirteenth and fourteenth centuries, European nations starting minting gold coins rather than their earlier preference of using silver for coinage.

The gold standard for money was used throughout the years of industrial economies in the nineteenth century. Gold certificates and bills were added to this circulating stock of money based on the value of gold. After World War II, the gold standard was replaced by convertible currencies with fixed exchange rates based on the Bretton Woods system.

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Starting in 1971, the USA refused to redeem its dollars in gold because excessive government debt and money printing had caused the gold price per ounce in the free market to rise way above the fixed redemption price of gold. Since the dollar was backed by gold up to that point and had gained the status as the most important reserve currency, most other countries around the world had already abandoned their own gold standards and instead pegged their currencies to the dollar.

The financial turmoil and debt problems in recent years have reinvigorated the debate about returning to a gold standard, particularly as gold prices have risen sharply.

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Gold Price: The Pure Beauty and Value of Gold

As an alloy, gold content is measured in carats. Pure gold is 24k. Gold is always considered the most desirable precious metal, even as the prices of certain platinum group metals have been higher. The perception of gold brings to mind wealth and comfort, beyond that associated with stocks, equities and money. Buying gold is a way to diversify risks, as the stock market can be unpredictable. The safest, most reliable play on gold prices is to own physical gold. However, investors also use contracts, futures, and derivatives to build financial portfolios exposed to gold prices.

“The safest, most reliable play on gold prices is to own physical gold.”

The globalist International Monetary Fund (IMF) in Washington, D.C, maintains statistics of national assets reported by countries around the globe. This includes gold holdings. The price of gold is reported per ounce. An investor refers to a 24-hour spot gold price chart. The price per ounce is reported in real-time as 24-hour trading ensues worldwide. Before investors decide to buy gold from a dealer, it is wise to refer to trading charts for AM and PM values – or better yet, reference live global spot prices – to ensure accurate pricing. While is can be impossible to predict the value of future markets, live reports help buyers make a prudent purchase. The use of an online calculator can also be helpful.

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Gold Price and Investment Demand

Commodities are basic goods that can be interchanged with other commodities of the same type in commerce. Gold is not specifically a currency or a commodity. Since it has the features of both, it is best described as “commodity money.” Trading happens on the spot market in addition to the future market used for commodities. Gold is not reliant on a single central bank or government. For this reason, precious metal investments are used to hedge against inflation and financial turmoil.

What is the Gold Spot Price and How is it Determined?

Traders determine the spot price of gold on futures exchanges. Metals contracts change hands in London and Shanghai when U.S. markets are closed. But the largest and most influential market for metals prices is the U.S. COMEX exchange. The quote for immediate settlement at any given time is effectively the spot price.

Spot (paper) prices can sometimes diverge from real-world pricing in the markets for physical precious metals. For example, during periods of extreme stress in markets it may be impossible to obtain physical metal anywhere near the quoted spot price. Premiums on retail bullion products may surge as a consequence. When the physical market diverges from the paper market, wholesale over the counter prices may be more realistic than spot prices.

Why Does the Gold Price Fluctuate?

Excessive money printing tends to drive gold prices up, as there are more currency units chasing basically the same number of gold ounces. On the other hand, the price of gold does not tend to perform as well as compared to other assets when governments are behaving responsibly and living within their means. Geopolitical conflict, mine supply, and demand for gold in jewelry also have a bearing on gold prices.

An investor will seek to make a profit, but there is always a risk of loss with any investment. The most successful investors seek updated information daily, each week, and every month before they start to trade, sell, or purchase gold. The published dollar amount rates will constantly change, so buyers will expect to gain and lose along the way. Before investing, check indexes such as the NASDAQ for the latest rates based on the USD. Review the end of the day Commodity Future Price Quotes for Gold (COMEX) and determine the bottom line using online calculators. Rely on facts rather than the opinions of a writer at a blog website, tweets from a social media account you follow or commentary at the office. A random comment may not be valid while facts and figures are verifiable. Rather than making a quick response to a conversation, take the time to do your own research.

What Causes the Price of Gold to Go Up?

A hundred years ago, gold sold for just $20 per ounce. In recent years gold has traded between $1,200 and $1,900 per ounce. That’s a huge move up in nominal terms over the past century. Yet in real terms gold prices today aren’t much different from what they were when they were last quoted at $20 an ounce.

It’s not that gold has become so much more expensive. It’s that the currency in which gold prices are quoted has depreciated so much. (The U.S. dollar has lost nearly 97% of its value since the Federal Reserve was created in 1913.)

Over time, gold’s value in terms of purchasing power stays relatively constant. Of course, there are major cycles wherein gold can gain or lose value dramatically due to supply and demand issues, speculation, or manipulation. But as long as the dollar keeps losing value, gold – the ultimate money – can be expected to ultimately reflect that depreciation by carrying a steadily higher price tag.

What Was the Highest Price of Gold per Ounce Ever?

Gold prices hit an all-time high of $1,900/oz. in August 2020. However, that nominal high wasn’t actually a new high in real terms. The January 1980 peak of $850/oz still hasn’t been surpassed when adjusted for inflation.

According to the government’s own inflation calculator, $850 in 1980 dollars translates to $2,475 in 2020 dollars…and $2,708 in 2020 dollars.

These are low-end inflation adjustments based on a heavily massaged Consumer Price Index. In recent years the CPI has tended to understate real-world inflation, according to many independent economists. So gold could run significantly higher even than the CPI-adjusted figures before making a true new high in real terms.

Gold Price Per Gram

How many grams are in an ounce of gold?

One troy ounce of gold is equivalent to 31.1 grams. Although gold prices are most commonly quoted in ounces, gold bullion is also bought and sold by the gram. Grams can be a more convenient unit for pricing when trading gold in small quantities or using gold for everyday barter transactions.

Better bullion dealers sell gold bullion products by the gram. For example, Pamp Suisse and other well-regarded mints produce 1 gram gold bars. Also, the Royal Canadian Mint produces packs of 1 gram gold Maple Leaf coins.

What is the Dow to Gold Ratio?

The Dow:gold ratio measures how highly valued the stock market is compared to gold. The Dow:gold ratio tends to move lower during both deflationary depressions (as in the 1930s) and inflationary panics (as in the late 1970s). At the bottom of the Great Depression, Dow:gold reached a 1:1 ratio. That same 1:1 ratio was briefly reached again in January 1980 when both gold prices and the Dow Jones Industrials sported an 850 handle.

In 2020 and 2020, the Dow:gold multiple has ranged from 16 to 20. During the next financial crisis, that ratio is likely to collapse in favor of gold. Some gold bugs believe a return to 1:1 parity will happen again.

A 10,000 Dow and $10,000 gold, for example, may seem far fetched today. But during a true panic in markets, one or the other price extremes – or both, simultaneously – could be realized.

Ways to Purchase Gold

Gold products as an investment are typically purchased in the following three forms:

  • Gold Bullion Coins
  • Gold Bullion Bars
  • Gold Bullion Rounds

The weight of gold is measured by troy ounce. Gold can be purchased by the gram, in ounces, or even by the kilo in the form of a gold brick. Since sizes vary from an oz to kilos, direct physical possession of gold is not required. Often this gold is stored in a safe, with a dealer, or at the bank or another facility. Other options include gold certificates, exchange-traded products, gold bullion price derivatives, and gold accounts.

For example, contributing to a gold or precious metals IRA is another way to invest get and exposure to the gold price and the physical metal itself. The IRA custodian allows more diverse investments. The IRA holds physical bars or bullion as well as paper assets. Gold self-directed accounts can also include other types of retirement accounts. Precious metals that can be held in these IRA accounts include gold, silver, palladium, and platinum. It is required these metals held inside of an IRA are in the form approved by the IRS for this purpose.

Types of Gold Bullion?

The three main types of gold bullion are bars, rounds, and coins. Each type come in a variety of sizes. Bars may range from a single gram to 100 ounces each. Rounds and coins are commonly sold in 1 ounce and fractional sizes.

The main difference between a round and a coin is that the former is produced by a private mint while the latter is produced by a government mint. A government-minted gold coin typically has a legal tender face value attached to it (which is considerably less than its intrinsic metal value).

Specialty products such as jewelry and collector’s items are generally not considered to be bullion. Bullion investors should avoid collectible (numismatic) coins that carry high premiums over spot prices.

Is Gold Bullion Traceable by the Government

In almost all cases, no – dealers do not have to report the transaction to the IRS or other federal agencies.

There is one extremely rare exception. For a disclosure requirement to be triggered, BOTH of the following conditions have to be met:

  1. The transaction is (or related transactions are) larger than $10,000 in size.
  2. Payment is made using actual cash (i.e. Federal Reserve notes) or with two or more cash instruments (defined as money orders, cashier’s checks, or traveler’s checks) which total more than $10,000.

Personal checks, debits, bank wires, and credit card payments are NOT considered cash or cash instruments. Therefore, purchases using them do not trigger disclosure by a dealer regardless of the amount.

How to Invest in Gold

From beginners to educated investors, it is easy to invest in gold. Before signing a contract or purchasing any gold product, prices should be calculated and clearly quoted. Verify all costs and fees before you commit to buy anything. Ask questions and remember that time is of the essence. While you should never feel pressured, the price of gold rises changes every minute so expect to be asked to make a commitment to lock in your price.

Whether you have hundreds or thousands to spend, this savvy financial asset is accessible to everyone. Call Money Metals Exchange for a free expert consultation today. The process is discreet, secure, and beginner-friendly. Investing in gold is a cost-effective, simple way to create a safe-haven for your assets. Money Metal Exchange is with you every step of the way as you discover the mystery and wonder of owning gold. Contact us today to find out more about investing in gold and other precious metals!

Storing Physical Gold Safely

It’s good to take a two-pronged approach. First, store some of your gold at home in a well-concealed safe for immediate access in case of emergency. Store the remainder of your gold in a secure, insured bullion storage facility. Insist on segregated gold storage to avoid co-mingling your bullion with that held by other customers.

Safe-deposit boxes at banks are generally not suitable for bullion storage. Some banks have policies that explicitly prohibit gold bullion. Plus, your gold would be at risk in the event the bank goes under or gets raided by government agents. You don’t want your gold tied into the banking system, even indirectly.

Three Reasons to Invest in Gold According to Research

Why Is Gold So Valuable?

Investors buy gold as for one of three reasons: a hedge, a safe haven, or a direct investment. Which of these is the best reason? Research says that gold is the best hedge against a stock market crash.

Gold as a Hedge

Hedges are investments that offset losses in another asset class. Many investors buy gold to hedge against the decline of a currency, usually the U.S. dollar. As a currency falls, it creates higher prices in imports and inflation. As a result, gold is also a defense against inflation.

For example, the price of gold more than doubled between 2002 and 2007, from $347.20 to $833.75 an ounce. That’s because the dollar’s value as measured against the euro fell 40% during that same period.

In 2008, despite the financial crisis, some investors continued to hedge against a dollar decline caused by two new factors. One was the quantitative easing program launched in December 2008. In that program, the Federal Reserve exchanged credit for bank Treasurys. The Fed simply created the credit out of thin air. Investors were concerned this increase in the money supply would create inflation.

The other was record-level deficit spending that drove the debt-to-GDP ratio above the critical 77% level. That expansionary fiscal policy could create inflation. The increase in the nation’s debt could also cause the dollar to decline.

Research done by Trinity College found that gold is the best hedge against a potential stock market crash.

For 15 days after a crash, gold prices increased dramatically. Frightened investors panicked, sold their stocks and bought gold. After that, gold prices lost value against rebounding stock prices. Investors moved money back into stocks to take advantage of their lower prices. Those who held onto gold past the 15 days began losing money.

Gold as a Safe Haven

A safe haven protects investors against a possible catastrophe. That’s why many investors bought gold during the financial crisis. Gold prices continued to skyrocket in response to the eurozone crisis. Investors were also concerned about the impact of Obamacare and the Dodd-Frank Wall Street Reform Act. The 2020 debt ceiling crisis was another worrying event.

Many others sought protection against a possible U.S. economic collapse. As a result of this extreme economic uncertainty, gold prices more than doubled again. Prices went from $869.75 in 2008 to a record high of $1,895 on September 5, 2020.

Gold as a Direct Investment

Many investors wanted to profit from these tremendous increases in the price of gold. They bought it as a direct investment to take advantage of future price increase.

Others continue to buy gold because they see it as a finite valuable substance with many industrial uses. They believe that supply constraints will eventually force up the value of this metal.

Last but not least, gold is held by many governments and wealthy individuals. For the governments, much of it is legacy gold that’s been kept in storage for decades. The U.S. Treasury has stored gold at Fort Knox, Kentucky, since 1937. Selling the gold now would raise anxieties and possibly disrupt markets.

The Federal Reserve does not own gold. It does keep gold owned by the U.S. Treasury in its vault.

What It Means to You

Gold should not be bought alone as an investment. Gold itself is speculative and can have high peaks and low valleys. That makes it too risky for the average individual investor. Over the long run, the value of gold doesn’t beat inflation.

But gold is an integral part of a diversified portfolio. It should be included with other commodities such as oil, mining, and investments in other hard assets.

What Makes Gold Special

Why should gold be the commodity that has this unique characteristic? It has a long history as the first form of money. It then became the base for the gold standard which set the value for all money. For this reason, gold confers familiarity. It creates a feeling of safety as a source of money that will always have value, no matter what.

Gold’s characteristics also explain why it’s uncorrelated with other assets. These include stocks, bonds, and oil. Gold’s price doesn’t rise when other asset classes do. It doesn’t even have an inverse relationship like stocks and bonds do with each other.

Instead, it is a reflection of many other investor sentiments. That makes another reason to have gold as part of a well-diversified portfolio in today’s globalized world where most asset classes end up being highly correlated. (Source: “Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold,” The Financial Review, 2020 pp. 217–229)

Disclosure: The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Gold Price Today

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Gold Price in US Dollars

Apr 09, 2020 12:40 NY Time

Gold Spot Price Gold Price Today Change
Gold price per ounce 1,693.30 +46.80
Gold price per gram 54.44 +1.50
Gold price per kilo 54,440.86 +1,504.65
Gold price in pennyweight 84.66 +2.34
Gold price in tola 634.99 +17.55
Gold price in tael (HK) 2,057.83 +56.88

Gold Chart

Gold Fixes

Gold Historical Performance

Period Change ($) Change (%)
30 Days 44.30 2.69%
6 Months 188.20 12.50%
1 Year 389.50 29.88%
5 Years 499.70 41.87%
Since 2000 1,405.40 488.33%

Gold Ratios

Commodities Ratios
Silver 109.70
Platinum 2.27
Palladium 0.82
XAU 17.47
HUI 7.40

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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