Gold Trading: Investing in Gold Futures
Almost every exchange of any note around the globe has some type of gold investment, whether in stocks or futures or some other instrument based on a component of the gold market
Two of the most important gold trading centers are in London and New York. The London gold market is one of the oldest in the world and is the largest market for physical gold. Since September 12, 1919, the London gold fix has been the gold price standard used in contract arrangements around the world. Today, the gold fixings take place at 10:30 a.m. and 3 p.m., providing the official gold price used by producers, consumers and central banks.
The major gold futures exchange for U.S. traders is the Comex division of the New York Mercantile Exchange (NYMEX), which began trading gold futures on Dec. 31, 1974, on the first day U.S. citizens were allowed to own gold after a ban of more than 40 years. Other important gold markets are located in Tokyo, Sydney, Hong Kong, Shanghei, Singapore, Dubai and Zurich. So at any time of the day or night a current gold price is being established somewhere.
Gold Trading Prices & Rates
- The size of the NYMEX gold futures contract is 100 troy ounces.
- Contract months are February, April, June, August, October and December.
- Gold futures prices are quoted in U.S. dollars per ounce ($1 equals $100 per contract), with a minimum price fluctuation of 10 cents ($10 per contract).
- Another venue for trading gold futures is NYSE Euronext, which purchased the metals complex including mini- and full-size gold futures contracts that were traded at the Chicago Board of Trade prior to the CBOTs merger into CME Group.
- Another medium to invest in gold is the StreetTracks Gold Shares exchange-traded fund introduced in 2004. Sponsored by a subsidiary of the World Gold Council, the shares are designed to track the price of gold and trade like a continuously offered security.
Gold Market Analysis
South Africa is the world's largest producer of gold, accounting for about 16 percent of annual world gold production, followed by the United States (12 percent), Australia (11 percent) and China (7 percent). In the United States, Nevada is the top gold producing state, followed by Alaska and California.
According to the National Mining Association, mined gold supply is dwarfed by the growing global gold demand. The best estimates indicate that the global market buys almost 5,000 metric tons of gold each year. Global gold demand exceeds global gold supply by approximately 60 percent annually, creating an ongoing structural shortage situation.
Although gold is consumed for various purposes, it is claimed that virtually all of the gold mined throughout history still exists today in one form or another. Gold jewelry, for example, is considered to be a store of value and an important way to hold gold. Whenever gold prices get high enough, gold recovery from scrap or from relatively minor uses such as electronic equipment keeps gold supplies from disappearing.
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Gold Trading Tips
While prices for many physical commodities tend to revolve around supply-demand data, gold needs to be treated more like a financial market that responds to fear and anxiety. Gold prices typically move higher in times of crisis and panic. A stock market crash, an unexpected war or terror attacks can lead to a buying frenzy in gold because traders view it as a safe haven and preferable to own instead of paper assets.
Gold prices usually move higher during periods of high inflation, which tend to bring on higher interest rates. Gold futures prices also have an inverse relationship with the price of the U.S. dollar, because gold and other key commodities like oil are priced in dollars. If the value of the dollar declines over time, the price of gold should rise.
Gold Trading Information
Because of its role in world markets and economies, gold is the subject of many financial articles and presentations by the media, and many of the news events reported by the financial press have a bearing on the price of gold. Numerous newsletters and internet web sites advocate investments in gold and hard assets or investments in penny stock gold mining companies.
Gold Trading Supply and Demand
In addition to data and information available from the exchanges and from government sources, a number of organizations offer materials related to gold production, consumption and other statistics and other resources that may interest the gold trader
Two of them are:
- The National Mining Association, based in Washington, D.C., is a national trade organization of 325 corporations that represents the interests of all aspects of the mining industry including coal, metal and industrial mineral producers, mineral processors, equipment manufacturers, bulk transporters, etc. (www.nma.org)
- The World Gold Council, founded in 1987, is an organization formed and funded by the world's leading gold mining companies operating on six continents with the aim of stimulating and maximizing the demand for, and holding of, gold. It offers a number of resources on gold supply/demand and why, how and where to invest in gold.
Gold Trading History
Gold trading has existed for centuries and has been a keystone for economies throughout history, continuing to have global financial impacts today. Gold has not only been a means of exchange but also is regarded as a store of value and an excellent hedge against inflation.
In addition to being a monetary commodity, gold has a number of uses in jewelry, dentistry, etc. and is also an important industrial commodity because it is an excellent conductor of electricity and is extremely resistant to corrosion, making it critically important in electronics and other high-tech applications.
Gold is one of those markets that provide a wide range of viable investment vehicles for almost any type of investor. In addition to the physical gold itself in the form of gold bullion or gold coins, investors can express their opinions about the outlook for gold prices in gold futures and options, stocks of companies involved in metals and mining including the gold mining penny stocks and gold exchange-traded funds.