Written by Pooja Thakkar
Gold is a rare metallic element with a chemical symbol, Au. The word is
short for the Latin word for gold, 'Aurum', meaning 'Glowing Dawn'. It
has several properties that have made it very useful to mankind over the
years.
Why is Gold Special?
Gold is a unique asset based on few basic characteristics. First, it is
primarily a monetary asset, and partly a commodity. As much as two
thirds of gold’s total accumulated holdings relate to monetary asset
holdings which include the central bank reserves, private investments,
and high-caratage jewelry bought primarily in developing countries as a
vehicle for savings. Less than one third of gold’s total accumulated
holdings can be considered a commodity, the jewelry bought in Western
markets for adornment, and gold used in the industry.
Some analysts like to think of gold as a “currency without a country’.
It is an internationally recognized asset that is not dependent upon any
government’s promise to pay. This is an important feature when
comparing gold to conventional diversifiers like T-bills or bonds, which
unlike gold, do have counter-party risk.
The other reasons that makes it a special commodity
Timeless and Timely Investment: It is an important and
secure asset that can be tapped at any time and this is attracting
considerable attention from financial professionals and sophisticated
investors worldwide.
Gold is an effective diversifier: Gold is an ideal
diversifier, because the economic forces that determine the price of
gold are different from, the forces that influence most financial
assets.
Gold is the ideal gift: Gold is available in a wide range of sizes and denominations, you don’t need to be wealthy to give the gift of gold.
Gold is highly liquid: Gold can be readily bought or
sold 24 hours a day, in large denominations and at narrow spreads. This
cannot be said of most other investments, including stocks of the
world’s largest corporations.
Political Influence
The deteriorating conditions in the Middle East, the US occupation of
Iraq, the nuclear ambitions of North Korea and the growing conflict
between the US and China due to China's refusal to allow its currency to
appreciate against the US dollar headline the geopolitical issues, A
fearful public in this scenario has a tendency to gravitate towards
gold.
And it is seen in a much more positive light in countries beginning to
come to the forefront on the world scene. Prominent developing countries
such as China, India and Russia have been accumulating gold.
How does the Gold commodity trading work?
When you buy a Gold Futures contract, you need to take care of three things.
1. Buy the amount of gold specified in the contract.
2. Buy it at the price specified in the contract.
3. Buy it on the expiry of the contract.
2. Buy it at the price specified in the contract.
3. Buy it on the expiry of the contract.
You can sell the Gold Futures any time before expiry of the contract.
Gold and other commodity futures prices are quoted on the commodity
exchanges in exactly the same way in which stock prices or stock futures
prices are quoted on a daily basis in the stock markets.
Why you need to do commodity trading?
Compared to stocks, commodity trading is much cheaper, because
brokerage is low and margins are much lower than in stock futures.
If you are a hard-core trader who does not really care what you trade,
then commodity futures could be another asset class that you would be
interested in.
The advantages in this line is that there are no balance sheets, no
complicated financial statements----all you have to do is follow the
supply and demand position of the commodities you trade in very closely.
But if you are a rookie, it would be wise to avoid commodity trading. A
better move would be to initially trade in stock futures before opting
for commodity futures.
World Markets
Today's gold market is a round-the-clock business, played out largely
on dealers' trading screens. The core of the business, however, remains
in the key markets of London, as the great clearing house, New York as
the home of futures trading, Zurich as a physical turntable, Istanbul,
Dubai, Singapore and Hong Kong as doorways to important consuming
regions and Tokyo where the Commodity Exchange (TOCOM) sets the mood of
Japan. Even Paris still has a small market, a reminder of the days when
the French were great hoarders, while Mumbai has increasing importance
under India's liberalised gold regime that permits official imports
through local markets.
World Currency Debasement:
The US dollar is fundamentally & technically very weak and should
fall dramatically. We are in the early stages of a massive global
currency debasement, which will see tangibles, and most particularly
gold, rise significantly in price.
The other countries will seek an alternative to paper currencies and
financial assets and this will create an enormous investment demand for
gold. To facilitate this demand, a number of new vehicles like Central
Gold Trust and gold Exchange Traded Funds (Elf's) are being created.
International Gold Exchanges
The major exchanges for gold forward trading are the COMEX division of
the New York Mercantile Exchange, Chicago Board of Trade, Hong Kong Gold
and Silver Exchange, Bolsa de Mercadorias et Futuros in Sao Paulo and
the Tokyo Commodities Exchange.
