• Switzerland edition
 
SPONSORED ARTICLE
The history of gold trading

The history of gold trading

Published: 14 Nov 2011 18:34 GMT+01:00
Updated: 14 Nov 2011 18:34 GMT+01:00

Throughout history, gold has been highly valued for coinage, jewellery and the arts. Gold is considered a unique store of value and the symbol of power, strength and wealth. Since April 2001 it has more than quintupled in value, writes Nicolas Shamtanis, Dealing Room Manager at easy-forex.com.

The poet Virgil describes man's underlying lust for gold when he wrote “Auri Sacra Fames” (the accursed thirst for gold). In the 19th century, gold mining expanded around the world with the 1848 California gold rush which helped the settlement of the American West. In 1869, South Africa became a major source of the world’s gold after the discovery of the Witwatersrand basin and the Canadian Yukon gold rush followed in 1896. 

Approximately 65% of all the gold in the world has been mined since 1950 and the finite supply of gold adds to its rarity and attraction.  But how did it all begin?

Various forms of livestock, in particular cattle, and grains were the earliest forms used to settle trades and payment for good goods and services. Cattle are hard to carry in your pocket and grains spoil so an alternative currency was needed. 

In 560 BC, the Greek state of Lydia in Asia Minor introduced the first gold coins. The use of gold coins as currency spread quickly throughout the Mediterranean and Middle East regions. The Romans mined gold extensively and Venice introduced the gold “Ducat” which became the most popular coin in the world for the next 500 years. In 19th century America, a movement to use silver coins and adopt a bimetallic monetary system emerged.  The US Congress did not authorise the printing of paper money until 1861.

For most of the early 20th century, Americans were forbidden to buy or trade gold. In 1946, the Bretton Woods agreement fixed the price of gold at $35 an ounce, creating a gold standard and the US dollar (USD) became backed by gold.  A gold standard is defined as a monetary system in which the standard economic unit of account is a fixed mass of gold. 

The Bretton Woods agreement of fixed exchange rates was implemented to combat deflationary pressures, economic dislocations and currency instability which emerged after World War I and II. Soon after the agreement was signed, the USD became the world’s reserve currency. 

In the following years, there were significant strains on the system of fixed exchange rates as the US balance of payments with the rest of the world grew dramatically. Foreign central banks exercised their gold convertibility rights causing a sharp decline in US gold reserves. 

In 1971, the Bretton Woods system was abandoned when there was no longer enough gold to cover all the paper money in circulation. The USD became a “fiat” currency backed by nothing more than the health of the US economy and the promise of the US government. A fiat currency’s value is based on the issuing authority's promise to pay; not an intrinsic value or extrinsic backing. In 1974, the ban on US ownership of gold bars was lifted and US citizens were allowed to trade gold.

The end of the gold standard ushered in the current system of floating exchange rates. In 1972, the Chicago Mercantile Exchange (CME) launched futures trading in seven currencies and in 1974 the first gold futures contract was traded on the COMEX exchange in New York. The 1980’s experienced a sharp expansion of over-the-counter trading in currencies and gold and the beginning of online trading.

Recently, we have seen gold prices surging to an all-time high as nations, institutions and investors seek safe haven and are using gold as a hedge against inflation and protection against losses in other assets like stocks and bonds and commodities. Investors buying gold are sometimes called “gold bugs.” Gold bugs are also described as a person opposed to the use of fiat currency and are supportive of a return to the gold standard. 

Unlike a fiat currency, money backed by gold cannot be created arbitrarily by government action. The supply of gold is finite and printing of paper limitless. The term gold bug is thought to have been derived from an Edgar Allen Poe poem the “Gold -bug.” In the poem, two adventurers decipher a secret message that leads to a buried treasure.

Since April 2001, the price of gold has more quintupled in value and hit all-time high of $1913.50 in August 2011. The price movement in gold has been quite volatile with prices rising and falling quickly. Investors have shown high levels of interest in trading gold. 

Like foreign currency (forex), trading with gold rates does not require the "physical" purchase or sale of the real material. If you buy forex gold for the price of 1850.97USD, you do not have an ounce of gold that you can hold in your pocket, but you rather have the obligation to buy gold (XAU) at $1850.97. When you close your forex deal, you sell the gold and close your obligation. If you sell it for the price of $1853.00, you have made a profit of $2.03 for every ounce (unit) of gold in your contract.

Rising gold prices can also affect other currencies. Higher gold prices can be especially important to the currencies of major gold-producing countries. Australia, Canada and South Africa are all large producers of gold, so if you believe the price of gold will continue to rise, you can establish trades in the Australian dollar (AUD), the Canadian dollar (CAD) or the South African Rand (ZAR) because those currencies may become stronger. 


It may be wise to keep an eye on gold prices when the international political or economic situation is changing, such as during times when global inflation is rising. If the gold price starts to increase, you might expect it to go higher in the next periods of trading. 

 

Article sponsored by www.easy-forex.com.

Related links:

The Local (news@thelocal.ch)

Don't miss...X
Left Right
Today's headlines
Kerry bound for Geneva talks on Ukraine crisis
US Secretary of State John Kerry in Geneva last year. Photo: Pool/AFP

Kerry bound for Geneva talks on Ukraine crisis

US Secretary of State John Kerry left on Wednesday for Geneva for high-stakes talks on Ukraine, armed with the threat of more sanctions against Moscow if diplomacy fails, as tensions on the ground escalated sharply. READ () »

Credit Suisse investment bank woes hurt profits
Credit Suisse offices in Zurich. Photo: Credit Suisse

Credit Suisse investment bank woes hurt profits

Swiss banking giant Credit Suisse said on Wednesday that its first quarter net profit took a heavy hit as its investment bank reeled from slumping trading in bonds. READ () »

Ski champion announces same-sex marriage
Sylviane Berthod (right in each of the photos) and her partner. Photos: Facebook

Ski champion announces same-sex marriage

Former Swiss alpine ski champion Sylviane Berthod has announced her engagement to marry another woman in a public way — on her Facebook page. READ () »

UK blocks Swiss deal with EU on Croatia
EU headquarters in Brussels. Photo: Dominique Faget/AFP

UK blocks Swiss deal with EU on Croatia

The UK has scuppered, at least temporarily, an agreement in principle between Bern and Brussels over the free movement of people between Switzerland and Croatia, the Swiss broadcaster RTS says. READ () »

US regulator seeks more Credit Suisse documents
Photo: AFP

US regulator seeks more Credit Suisse documents

A New York regulator probing Credit Suisse's role in enabling tax evasion has demanded a trove of additional documents from the bank, a person familiar with the situation said Tuesday. READ () »

Ex-footballer Makélélé faces Swiss tax probe
Claude Makélélé in his coaching role last year at Paris Saint Germain. Photo: Wikimedia Commons

Ex-footballer Makélélé faces Swiss tax probe

Former France midfielder Claude Makélélé is facing a tax probe at home and in Switzerland, a filing showed Tuesday, as reports suggested it could relate to his investments in a Geneva football team. READ () »

Specialist says Swiss eat too much salty cheese
Photo: Switzerland Cheese Marketing

Specialist says Swiss eat too much salty cheese

The Swiss are known for their great love of cheese but a doctor from Lausanne is warning that they need to reduce their consumption of gruyère, emmental and other varieties because of the health risks. READ () »

Ukraine nixes 'internal affairs' talk in Geneva
Photo: UNOG

Ukraine nixes 'internal affairs' talk in Geneva

Ukraine on Tuesday ruled out any discussion of its "internal affairs" at talks this week with Russia, the US and EU, amid spiralling tensions between Kiev and pro-Moscow militants. READ () »

El Nino weather event seen likely: WMO
WMO headquarters in Geneva. Photo (detail): Mark Parsons

El Nino weather event seen likely: WMO

An "El Nino" climate phenomenon in the Pacific Ocean is likely this year, bringing droughts and heavy rainfall to the rest of the world, the Geneva-based UN weather agency warned on Tuesday. READ () »

Strong franc hits Nestlé's first quarter sales
Paul Bulcke: maintains 'organic growth' will improve. Photo: AFP

Strong franc hits Nestlé's first quarter sales

Nestlé, the world's leading food industry group, saw its sales slide 5.1 percent in the first quarter from the same period in 2013, the Swiss-based company said on Tuesday, blaming the effect of exchange rates and strength of the franc. READ () »

RECEIVE OUR NEWSLETTER AND ALERTS
Features
Former industrial zone transforms into Zurich’s trendiest spot
Tech
Swiss Solar Impulse team shows off new fuel-free aircraft
International
Suspect in Liechtenstein bank CEO murder case 'likely dead'
Sponsored Article
Caveman comedy comes to Zurich in English
Society
Innovative building provides refuge for hypersensitive tenants
Tech
VIDEO: Teenage boy sends Swiss army knife into stratosphere
International
Switzerland ranks second in world for social progress: report
National
Pharrell Williams set to perform in first Montreux jazzfest concert
Sport
American wingsuit flyer dies after Bernese Oberland accident
Business & Money
H&M plans hefty Swiss minimum wage for employees by 2015
International
Caterpillar accused by US senator of dodging taxes through 'Swiss plan'
International
Geneva man in Facebook page fight with Italian carmaker Ferrari
Advertisement:
International
Schumacher’s wife pays for 'medical suite' at Swiss family mansion
International
Aborted Swiss airlines take-off injures four at London airport
International
Swiss refuse asylum request from topless protest group founder
Business & Money
British expat former banker to head Swiss finance regulator FINMA
National
Swiss honey contains harmful plastic: TV consumer affairs report
Business & Money
Luxury watchmaker Patek Philippe threatens Geneva exit over taxes
Business & Money
World's largest watch fair opens in Basel amid uncertain times
International
'Fergie' credits hikes around Verbier mountains for recent weight loss
Etoiles de Montagne
Sponsored Article
How to summer holiday up a Swiss mountain
Swissbenefits
Sponsored Article
How to avoid Switzerland’s tax haven trap
International
Switzerland's residents are the happiest in the OECD: report
International
Swiss voters support bid to establish lofty minimum wage: poll
National
Switzerland's largest cities set to back regulated 'cannabis clubs'
Business & Money
Franc surges against other currencies on rising Ukraine concerns
Latest news from The Local in Germany

More news from Germany at thelocal.de

Latest news from The Local in Spain

More news from Spain at thelocal.es

Latest news from The Local in France

More news from France at thelocal.fr

Latest news from The Local in Italy

More news from Italy at thelocal.it

Latest news from The Local in Norway

More news from Norway at thelocal.no

Latest news from The Local in Sweden

More news from Sweden at thelocal.se

2,083
jobs available