Selling (Going Short) Gold Futures to Profit from a Fall in Gold Prices

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Contents

When Do Price Indicators Signal an Investor That It Is Best Time to Sell Gold from a Long Perspective?

I’ve been gold prospecting for 10 years, mainly in the Bradshaw Mountains, Yavapai, Arizona where I found over 8 grams of placer.

For a gold investor it is critical to know when to sell gold in order to preserve profit and end up on the positive side of investment gains. The gold trade is extremely popular due to its increased predictability compared to other investment vehicles. The reason the gold market can be predicted to some degree is the various ways that one can use it in order to tell when the gold market is topping. When one knows when the market is topping then they know when the best time to sell is. As with any investment you want to buy low and sell high. Gold trading for currency gives investors this ability on a regular basis and that is why it is such a profitable form of trading if done correctly.

Gold Market Indicators & Influences

– Real Interest Rates

Interest rates have been a historic indicator of gold prices. Historically, when interest rates have increased the price of gold has decreased. Interest rates are indicative of the state of the economy and stock market. Rising interest rates indicate a hot market. A gradual increase in rates is used to prevent inflation. Fixed income instruments then become attractive against gold. Therefore, one can infer that increased interest rates will likely drive down the price of gold. However, this is not always the case and interest rates should not be used as a sole indicator/predictor of future gold prices. This trend in gold price does not always follow it’s historic pattern, but it is fair to say it usually does.

Inflation can be used in conjunction with interest rates to give a clearer outlook on what the future may hold for gold prices. When inflation increases, the price of gold also increases. This is referred to as a direct relationship. There is a direct relationship between what gold trades for and inflation. It is important to understand that inflation is the increase in money supply, or easy money. Many investors are unaware of this important aspect. The real key to look for though is a decrease in inflation rates. This may be a huge sign that the gold market has topped and it is time to sell.

Real interest rates are believed by many to be a better indicator of the behavior of gold prices than inflation and interest rates. The real interest rate is calculated by taking the normal interest rate and subtracting the rate of inflation. For example, if the stated government interest rate on 30 year Treasury bonds is 4% and inflation is running at 2.5%, the real interest rate is 1.5%. Essentially this is just a way to put a numerical value on the correlation/relationship between the inflation rate and interest rate. It is also sometimes referred to as the true interest rate. When the real interest rate is a positive number, gold is expected to perform poorly. When the real interest rate is a negative number gold is expected to perform well. Positive real interest rates after a period of substantial gains is a huge indicator that the gold market is topping and it probably signals a great time to sell.

Currency comparisons between the value of another country’s currency versus the price of gold can be great indicators of a topping gold market as well. The value of another countries currency is related to and influences the price of gold. Therefore, you can use the currency value of other countries to make educated predictions on the future behavior of gold prices which may signal a good selling or holding opportunity.

The Australian dollar is a currency that has a big impact or correlation on the prices of gold. Australia is the world’s third largest producer of gold. By comparing the price of the Australian dollar vs the price of gold you can make some inferences on whether or not the gold market is topping. When the Australian dollar increases in value so does the price of gold. Therefore, a decrease in the Australian dollar can be a signal that it is time to sell. The relationship between the Australian dollar and gold prices is direct.

The Canadian loon is another currency that can give clues to the future behavior of gold prices. When the Canadian loon goes down, so does the price of gold. Therefore, if the value of the loon starts declining you can infer that there is a good likelihood that the price of gold will shortly follow in this downward pattern. Canada has one of the largest gold industries in the world and their influence can definitely be felt on the global markets.

The Federal Reserve has an influence on the price of gold as well. When the Federal Reserve announces that they will be accommodating – zero percent interest rates- or central banks are actively buying gold, you can expect the price of gold to instantly go up. This creates a greater demand for gold which will make it more valuable.

When gold increases in retail sale value you can expect the price of gold currency will increase on the global markets. However, there is a seemingly contradictory point with respect to retail sales. Some people believe that when retail “investments” become in great favor with the professional stockbroker community (gold backed CDs, fixed income instruments that guarantee payoff in gold, etc), it is time to consider selling gold. This is a contrarian view, namely that if everyone including brokers think an investment is good, it might be time for a big correction down. This may be something to consider, but only after all the other indicators have been checked.

The Fed’s comments should be heavily factored in your decisions with gold currency trading. Their decisions directly impact the global markets. Factoring in their comments with interest rates, inflation, real interest rates, the Australian dollar, and the Canadian loon should help you make an accurate assumption on the gold market topping.

Since there exists no gold exchange standard in the world today due to the fact that no currencies currently can be exchanged for gold, many people have been re-entertaining the idea of a convertible currency. Tying paper currency to the value of gold by allowing it to be exchanged for gold can lead to more confidence in a currency, and, it allows citizens who are afraid of inflation to exchange for the king of precious metals. Gold holds its value despite what governments might due to fiat (or non precious metal backed) currencies. Places where gold can be bought and sold are also referred to as gold exchanges.

To emphasize the importance of the gold price today, in 2020 the Republican Presidential Platform is encouraging the formation of a gold committee to review the possibility of returning to a gold standard (or even a partial gold standard). Selling gold in the market today can be very rewarding, but due to the relatively fast moves gold can take, it is not a subject to be taken lightly.

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This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

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Comments

John R Wilsdon

13 months ago from Superior, Arizona

You are quite right. However, the current situation can turn rapidly, especially if inflation raises its ugly head. Thanks for the comment.

Umesh Chandra Bhatt

13 months ago from Kharghar, Navi Mumbai, India

Historically gold prices used to increase steadily with time but during the last 10-12 years, the gold prices are almost stagnant and do not appear lucrative from long time perspective.

This is a bad sign for the investors.

John R Wilsdon

7 years ago from Superior, Arizona

Thank you for commenting. These days with the volatility of the precious metals market, it’s good to know a few basics. Thanks again.

John R Wilsdon

7 years ago from Superior, Arizona

This article was intended for a person using a fundamental approach. Trading Forex using Fibonacci numbers, RSI, MACD,oscillators, etc. is highly technical and requires quite a bit of study. I agree with what you had to say about different ways to approach selling gold. I also think that virtual cash on many Forex sites is a good way to practice before starting the fast game. I have traded Forex, and my personal preference if a reader is inclined is to use Oamba. They have the lowest rates for pips, they allow you to put up any amount of money for a trade (no minimums), there accounting is great, and they are one of the soundest companies financially. I have no monetary interest in Oamba at all, and haven’t traded Forex in 2 years.

f_hruz

8 years ago from Toronto, Ontario, Canada

How you should be trading gold, or anything else for that matter, depends on your trading strategy.

If you buy your investments for cash, you can trade your position based on fundamental data, but if you take a leveraged long or short position by using margin, as in the case of future trading, you better use a technical trading system based on price forecasting, trend following and trailing stop loss orders or your losses may wipe you out before you even know what happened.

Leveraged trading strategies can be highly profitable when entry and exit points are well defined, and losses are kept small in relationship to profitable trades.

If you like to try some of these strategies with real-time data in an account funded with $25,000 virtual cash, just go to . http://as100.webs.com/500/ – it’s free!

ladysonoma

My favorite hour to trade fx is about now. Right about London Open. Oh well. think I’ll go to bed instead. lol.

John R Wilsdon

8 years ago from Superior, Arizona

Actually, the value of the dollar is a good indicator. The biggest rise in gold price has been since the dollar fell in 2008. But lately the dollar has strengthened against other currencies while gold fell a bit – it still remains a safe haven given the situation in the rest of the world. I would say the dollar is a good indicator if you think a trend is in store. Thanks for your comment.

John R Wilsdon

8 years ago from Superior, Arizona

I think you are probably right. Recently we have had a small pullback, but with an economy like Europe in such sad shape and no end to easing, I think it is safe to say gold still has legs. Thanks for the comment.

The Cory Column

8 years ago from Bay Area, California

Very well articulated

Theeyeballkid

Very informative hub, this sets out very clearly what the main drivers for the price of gold. I still think the gold bull market has a way to go yet. Its hard to see how fiat currencies will strengthen vs gold when politicans and central bankers only solution to the debt crisis seems to be to print more money.

ladysonoma

Interesting. I thought you just sell gold when the dollar starts to go up again. I never knew of looking at interest as an indicator, other than just for short selling. Shows what little common people, like myself, know.

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Gold Price Today

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Gold Price in US Dollars

Apr 07, 2020 13:50 NY Time

Gold Spot Price Gold Price Today Change
Gold price per ounce 1,646.90 -13.80
Gold price per gram 52.95 -0.44
Gold price per kilo 52,949.06 -443.68
Gold price in pennyweight 82.34 -0.69
Gold price in tola 617.59 -5.18
Gold price in tael (HK) 2,001.44 -16.77

Gold Chart

Gold Fixes

Gold Historical Performance

Period Change ($) Change (%)
30 Days -25.10 -1.50%
6 Months 154.90 10.37%
1 Year 356.60 27.61%
5 Years 440.30 36.46%
Since 2000 1,360.20 472.62%

Gold Ratios

Commodities Ratios
Silver 110.21
Platinum 2.22
Palladium 0.79
XAU 18.33
HUI 7.80

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.

Finance English practice: Unit 34 — Futures

  • Complete the sentences below. Use the key words if necessary.
    • Commodity futures

    are agreements to sell an asset at a fixed price on a fixed date in the future. are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are known as .

    Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to against future changes in the price. If they both agree to hedge, the seller (e.g. an orange grower) is protected from a fall in price and the buyer (e.g. an orange juiced manufacturer) is protected from a rise in price.

    Futures are contracts — contracts which are for fixed quantities (such as one ton of copper or 100 ounces of gold) and fixed time periods (normally three, six or nine months) — that are traded on a special exchange.

    Forwards are individual, contracts between two parties, traded — directly, between, two companies of financial institutions, rather than through an exchange. The futures price for a commodity is normally higher than its — the price that would be paid for immediate delivery. Sometimes, however, short-term demand pushes the spot price above the future price. This is called .

    Futures and forwards are also used by speculators — people who hope to profit from price changes.

    More recently, have been developed. These are standardized contracts, traded on exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks and stock market indexes — continuously vary — so financial futures are used to fix a value for a specified future date (e.g. sell euros for dollars at a rate of €1 for $1.20 on June 30).

    and are contracts that specify the price at which a certain currency will be bought or sold on a specified date.

    are agreements between banks and investors and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.

    fix a price for a stock and fix a value for an index (e.g. the Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or shares themselves.

    Like futures for physical commodities, financial futures can be used both to hedge and to speculate. Obviously the buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, because there could be huge changes in rates and prices during the period of the contract. Futures trading is a , because the amount of money gained by one party will be the same as the sum lost by the other.

  • British English or American English?
    • aliminium
      • British English
      • American English

    • aluminum
      • American English
      • British English

  • Match the definitions with the words below.
    • 1. the price for the immediate purchase and delivery of a commodity — . . .

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