Gold is one of the most attractive commodities for investment purposes . In addition , gold is also used as a standard finance or economics , and foreign reserves are the primary means of payment in some countries . Investors generally buy gold to hedge or safe haven against the several crises , including economic , political , social or currency -based crises .
Physical gold demand has increased quite significantly from year to year . In fact, world gold reserves are limited . Therefore , in some developed countries have provided alternative investments such as gold derivative products with attractive margins as collateral transaction amount ( margin trading ) . Why is the margin ? . This is because of the price factor , where the price of gold as well as other commodities may fluctuate .
A. History of Gold Trading
In the commodities market the term " Loco " means " in " . Derived from the Latin word meaning a place Locus . Loco London represents the base of trade and settling international gold and silver in London . Implementation of this market under the auspices of the London Bullion Market Association ( LBMA ) , but not stock .
Physical gold market (spot gold ) is the world's largest and Zurich London , but London is the most prominent . London grew to dominate the gold market when gold became major currencies . Significant discovery in the Ural ( Russia ) has increased its global gold production in the 18th century .
Mid-19th century to be the moment for Britain to dominate world trade and finance , as a source of capital for the mining of gold , and the gold standard of local currency , the British Pound . So that London became the center of world gold trading and settlement .
Trading Over - the- Counter ( OTC )
London gold market is a market Over - The - Counter which means trading is done directly between the two parties involved , and not through a third party that governs the trade , such as exchanges .
OTC market lasts for 24 hours a day and has no formal structure and no central meeting place . Most of the trading is done by telephone or electronic dealing system .
In today's global financial markets , trading gold in London held almost all the time around the world . Quoted bid and ask prices on a continuous basis in the financial market information systems that can be accessed , such as Reuters . In addition to London , other major trading center for gold London including New York , Zurich , Tokyo , Sydney and Hong Kong , where the Hong Kong became the center of commerce in Asia .
Why invest in gold ( OTC Spot )
1 . Prices are usually quoted and traded against the U.S. dollar ;
2 . Loco London Market can serve multiple purposes such as hedging transactions , investment and speculation ;
3 . On the OTC market , investors can maintain their position over time as they want without any maturity;
4 . Receive interest when selling gold or silver Loco - London on the last interest rate ;
5 . Transactions leverage on the margin ;
6 . Diversified investment portfolio .
B. World Gold Market
1 . Loco London Gold Market
In London , gold and silver are traded by members of the London Bullion Market Association ( LBMA ) , supervised by the Bank of England . Most of its members are international banks or bullion dealers and a number of giant refiner .
Gold trading in the London market has a long history of over three centuries , and the Gold Fixing ( Gold price fixing ) is only formed after World War I in 1919 . Fixing System is derived from the London silver market and a concept for investors around the world to buy and sell gold at a single quoted price .
The Fixing is done 2 times that day at 10:30 am ( 16:30 pm ) and 15:00 pm ( 21:00 pm ) in London involving Fixing Member 5 as follows :
- Scotia - Mocatta , Mocatta & Goldsmid successor and became part of Bank of Scotia
- Barclays Capital , replace NM Rothschild & Sons Limited
- Deutsche Bank Sharps Pixley owner
- HSBC , owner of Samuel Montagu & Co. .
- Société Générale , replacing Johnson Matthey and CSFB ( Credit Suisse First Boston )
2 . U.S. Gold Market
In 1975, America New York Commodity Exchange started trading COMEX gold forward , became a central forward gold world trade . Now, the New York gold futures market in London replaces market status in regulating the price of gold . The reason why this is happening ? Because the New York market have an advantage in the transaction method , aggregate supply , marked price and transaction time .
3 . Hong Kong Gold Market
The gold market in Hong Kong is also known as the gold market Loco ( Local ) London . Now the market has about 70 active participants transacting , most banks , investment companies and local gold traders to hedge against their positions in the futures market . Loco London gold market is quoted in U.S. dollars per troy ounce 99.99 % pure gold and with delivery in London .
Chinese Gold and Silver Exchange Society operates one of the largest gold markets in the world . Gold traded through these agencies have a purity of 99 % , the unit weight of the tael and quoted in Hong Kong dollars . It cost almost follow the other major gold market in London , Zurich and New York . Turnover on the exchange as many as 4.3 million taels in 2001.
C. Analysis of Gold Price
In everyday reality , the price of gold is not only dependent on the situation of demand and supply , or supply and demand . The price of gold is also affected by the overall economic situation .
Here are some of the economic situation that often affect the price of gold :
1 . Changes in exchange rate
The weakening of the U.S. dollar is usually pushed up gold prices . This is because investors choose to sell their own dollars and then buy gold that is considered capable of protecting the value of their assets . For example , in mid- October 2009 , the exchange rate of the dollar against other currencies continued to decline , while the price of gold continues to rise up to the level of $ 1,070 per troy ounce gold price which is the highest in history .
2 . Situation of world politics
The rise in gold prices in late 2002 and early 2003 occurred as a result of an attack on Iraq would be done by an ally who commanded the U.S. . Market participants to switch investments from the money market and the stock market to gold investment demand for gold jumped so sharply .
3 . Supply and demand
One example of things that can affect the supply and demand ( supply and demand ) of gold is like the incident in the mid-1980s . At that time , forward sales by mining companies always blamed for the rise in gold prices . In terms of business , the actual behavior of the mining company makes sense . By doing forward sales when gold prices rose , they can secure the mine output prices at a fairly attractive price .
As another example , the case in mid-1998 in which the price of gold continued to decline . At that time , central banks in Europe said it would reduce its gold reserves in respect of plans to implement the euro currency . Gold prices plunged around 290 dollars per troy ounce .
4 . The global economic situation
Approximately 80 percent of the total supply of gold used jewelry industry . Consumption of jewelry is a great influence on the demand side .
When the economy improves, demand for jewelery tends to rise . However , from the statistical data visible jewelery demand is more sensitive to fluctuations in the price of gold compared to the increase of economic conditions .
The fall of the level of need for jewelry during the recession in 1982-1983 mainly due to rising gold prices simultaneously . The fall of the level of need jewelry in a recession early 90's more in line with the above , at the time the gold price to go down .
Uncertain economic situation could lead to high inflation . Gold is used as a hedging tool against inflation . This benefit has been felt for a long time investor . With gold , investors got a perfect protection against declining purchasing power . When the years 1978-1980 the price of gold is booming ; while inflation in the U.S. rose from 4 percent to 14 percent , the price of gold rose three (3 ) times .
5 . Interest rates
When interest rates rise , there is a great effort to keep the money on deposit than gold which does not earn interest ( non-interest - bearing ) . This will lead to pressure on the gold price . Conversely , when interest rates fall , the price of gold will tend to rise .
In theory , if the short-term interest rates rise , the price of gold down . In Indonesia, this theory does not always work .
In 1998 , due to the exchange rate fell sharply against the U.S. dollar , the government raised interest rates significantly. The hope , restrain the rate of increase in the U.S. dollar exchange rate . As a result , despite rising interest rates , gold prices also rose .
D. Derivative Contracts Loco London Gold ( SPA )
Now Loco London gold derivative contracts as derivative transaction object through the Alternative Trading System ( SPA ) , based on the head of the Commodity Futures Trading Regulatory Agency ( Bappebti ) 72/BAPPEBTI/Per/9/2009 numbered . In addition to gold , the other two products are derivatives contracts between foreign currency (foreign currencies cross ) and index .
* ) Adapted from several sources