The
day price of gold is driven by supply and demand. Because most of the
gold ever mined still exists and is potentially able to come on to the
market for the right price, unlike most other commodities, the hoarding
and disposal plays a much bigger role in affecting the price. At the
end of 2006, it was estimated that all the gold ever mined totaled
158,000 tons. Given the huge quantity of stored gold, compared to the
annual production, the price of gold is mainly affected by changes in
sentiment, rather than changes in annual production. In times of
national crisis, people fear that their assets may be seized and that
the currency may become worthless. They see gold as a solid asset, which
will always buy food or transportation. Thus in times of great
uncertainty,particularly when war is feared, the demand for gold
rises.When dollars were ully convertible into gold, both were regarded
as money. However, most people preferred to carry around paper
banknotes rather than the somewhat heavier and less divisible gold
coins. If people feared their bank would fail, a bank run might have
been the result. This is what happened in the USA during the Great
Depression of the 1930s, leading President Roosevelt to impose a
national emergency and to outlaw the ownership of gold by US citizens.
If the return on bonds, equities
and real estate is not adequately compensating for risk and inflation
then the demand for gold and other alternative investments such as
commodities increases. An example of this is the period of Stagflation
that occurred during the 1970s and which led to an economic bubble
forming in precious metals.
The price of gold is quoted in USD per troy ounce.
Since May 2004 it has been
conducted by telephone. The chairman begins with a 'trying' price. The
five fixing members' representatives relay the price to their dealing
rooms. And these are in contact with other dealers. The market members
then declare how much gold they are prepared to buy or sell at that
price. The dealers, who are in contact with their clients, may change
their order or add to it or cancel it at any time; the position
declared by the dealers is the net position outstanding among all their
clients. (If one is buying two tonnes and another is selling one
tonne, then he declares himself a buyer of one tonne.) If more gold is
required than is offered, then the price will be adjusted upwards (and
vice versa) until equilibrium is reached. At this point the gold price
is fixed. On very rare occasions the price will be fixed when there
is disequilibrium, at the discretion of the chairman of the fix.
A tradition of the London Gold
Fixing was that participants could raise a small Union Flag on their
desk to pause proceedings. Under the telephone fixing system,
participants can register a pause by saying the word "flag", and the
chair ends the meeting with the phrase "There are no flags, and we're
fixed".
Gold is the most popular
precious metal in which people invest. It is a safe-haven against any
economic, political, social or currency-based crises, such as:
investment market declines, currency failure, inflation, war and social
unrest.
Gold is unlike a bond. Gold pays
no interest. But, Gold cannot become worthless like a bond can. The
values of both rise and fall in free market trading.
Gold is also not a stock.Gold
has no employees, no unions, pays no health insurance, has no overpaid
CEO, no need to borrow money from a bank, and is recession-proof. Gold
simply sits there in your vault quietly doing its job. You can see why
for the average stock broker or financial adviser, Gold remains a total
mystery.
Sadly for their clients, stock
brokers seldom recommend investing in Gold or Silver. Despite the
remarkable year-over-year gains they continue to ignore the gains being
generated during the current bull market.
Stocks and Bonds prosper in
strong economic times and bear higher risks in bad times. By contrast,
Gold ignores recessions and does well when these and other traditional
investments fail.
The first fixing took place on
September 12, 1919 amongst the five principal gold bullion traders and
refiners of the day. The price of gold then was four pounds 18
shillings and ninepence per troy ounce. Due to government controls and
war emergencies, the London Gold Fixing was suspended between 1939 and
1954. Prices of gold are fixed in United States dollars (USD), Pound
sterling (GBP) and European Euros (EUR).
Historically, the Fixing took
place twice daily at the City offices of N M Rothschild & Sons in
St Swithin's Lane, but since May 5 2004 it takes place by telephone.
In April 2004, N M Rothschild & Sons announced that it planned to
withdraw from gold trading and from the London Gold Fixing. Barclays
Bank took its place from 7 June 2004, and the chairmanship of the
meeting, formerly held permanently by Rothschilds, now rotates
annually. On January 21 1980 the Gold Fixing reached the price of $850,
a figure which was not overtaken until January 3 2008. This is when
a new record of $865.35 per troy ounce was set in the morning Fixing.
However, with inflation, the 1980 high would be equal to a price of
$2398.21 in 2007 dollars. So, the 1980 record still holds in real
terms.
While gold is traded in markets
throughout the world, the market is essentially homogenous since the
gold price is always in dollars and the gold traded is "loco London"
(gold deliverable in London and meeting London trading standards). The
London PM fix is normally considered the main reference price for the
day and is the price most often used in contracts.
Maximum Profits Investing in Gold In uncertain times, like we find
ourselves in today, precious metals will act more like a currency-
preserving wealth and resisting deflation forces. There have always been
unique periods in American history in which Gold and Silver suddenly
act if they were the most scarce commodity on the planet!
During those decades, the
investment demand for precious metals exceeds the supply, prices are
bid up, and the profits can be dramatic. Let's take for example the
last bull market for pecious metals in the 1970s. the price of Gold
multiplied by 24 times while Silver multiplied over 30 times. With
gains on that scale, Gold and Silver are hard to resist as pure profit
plays.
Gold Survives & Prospers in
Bad Times In fact, in recent years, the price of Gold and Silver have
more than quadrupled. Impressive indeed! Yet, those gains are far from
the 24-30 times of the past leaving us with the opinion that there are
still substantial gains still ahead in this bull market.
By contrast, Stocks, Bonds, and
Real Estate all depend on the U.S. and World economy to be strong and
growing. Right now, it's not. The U.S. is barely struggling out of a
severe two year recession, the mortgage crisis still continues, the
Government still owns huge chunks of the nation's banks, runs the
entire mortgage industry, manages the world's largest insurer, and
barely saved General Motors.
The Gold Fixing, or the London
Gold Fixing or Gold Fix, is the procedure by which the price of gold is
set on the London market by the five members of the London Gold Pool.
It is designed to fix a price for settling contracts between members of
the London bullion market, but, informally, the Gold Fixing provides a
recognized rate that is used as a benchmark for pricing the majority
of gold products throughout the world's markets.
The gold price fix takes place twice daily at 10.30am and 3pm, London time.
hile gold is traded in markets
throughout the world, the market is essentially homogenous since the
gold price is always in dollars and the gold traded is "loco London"
(gold deliverable in London and meeting London trading standards). The
London PM fix is normally considered the main reference price for the
day and is the price most often used in contracts.The price of gold is
quoted in USD per troy ounce.
A tradition of the London Gold
Fixing was that participants could raise a small Union Flag on their
desk to pause proceedings. Under the telephone fixing system,
participants can register a pause by saying the word "flag", and the
chair ends the meeting with the phrase "There are no flags, and we're
fixed".
Since May 2004 it has been
conducted by telephone. The chairman begins with a trying price. The
five fixing members' representatives relay the price to their dealing
rooms. And these are in contact with other dealers. The market members
then declare how much gold they are prepared to buy or sell at that
price. The dealers, who are in contact with their clients, may change
their order or add to it or cancel it at any time; the position
declared by the dealers is the net position outstanding among all their
clients. (If one is buying two tonnes and another is selling one
tonne, then he declares himself a buyer of one tonne.) If more gold is
required than is offered, then the price will be adjusted upwards (and
vice versa) until equilibrium is reached. At this point the gold price
is fixed. On very rare occasions the price will be fixed when there is
disequilibrium, at the discretion of the chairman of the fix.
Throughout history gold has
often been used as money and, instead of quoting the gold price, all
other commodities were measured in gold. After World War II a gold
standard was established following the 1946 Bretton Woods conference,
fixing the gold price at $35 per troy ounce.
At this point in our nation's
history, investors face an uncertain future. Liberal spending this year
has multiplied the budget deficits far beyond what we declared was
"out-of-control Bush Republican spending."
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