• Norway edition
 
SPONSORED ARTICLE
The long history of gold trading
Photo: file

The long history of gold trading

Published: 14 Nov 2011 19:25 GMT+01:00
Updated: 15 Nov 2011 10:37 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.

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.no)

Don't miss...X
Left Right
Today's headlines
Norway teen has lived in cave for a year
da Beate Løken in her cave. Photo: Screen Grab Romerikes Blad TV

Norway teen has lived in cave for a year

A 19-year-old girl from the most fjord-filled region of Western Norway has been living a cave for almost a year with little but a high-grade sleeping bag to get her through the gruelling Norwegian winter. READ () »

Plumber stabbed workmate after gay jibe
Court psychiatrist Terje Tørrissen ruled the plumber was not psychotic. Photo: Håkon Mosvsvold Larsen / Scanpix NTB

Plumber stabbed workmate after gay jibe

A plumber in Norway has been sentenced to compulsory mental care after he drew a knife on his colleague and stabbed him ten times in the head and torso after the man called him a "grumpy little gay". READ () »

Hikers to wear green hats if 'open to romance'
Nils Øverås, secretary general of the Norwegian Trekking Association and Hanna Melhus, head of the organization's youth wing, posing for the April Fools message. Photo: Norwegian Trekking Association

Hikers to wear green hats if 'open to romance'

An April Fools joke in which the Norwegian Trekking Association declared that all single people hiking over the Easter break should wear a green hat if they're open to romance triggered such a huge reaction that the association has decided to institute it for real. READ () »

Excavator operator gets $2,000 after outcry
John Erik Tveitdal shows off the money he found in the safe he broke open. Photo: Norsk Gjenvinning Group

Excavator operator gets $2,000 after outcry

The businessman who mistakenly dumped an old safe containing 117,000 kroner ($19,200) at a recycling centre has given a 12,000 kroner reward to the excavator operator who cracked it open and found the money. READ () »

'They loved nature: that's why they were there'
Helicopter comes with three of the four missing men found in the landslide area in Sunndalsfjella. Photo: Berit Roald / Scanpix NTB

'They loved nature: that's why they were there'

Henning Nilsen, 37, from Trondheim, has told Adressa.no of his grief at losing two of his best friends in the avalanche in the Sunndalsfjella mountains on Monday. READ () »

Three boys arrested for taping girl to  railing
Russ in Oslo in 2012. None of these people were involved in taping a girl to a bar. PHOTO: Berit Keilen / NTB SCANPIX

Three boys arrested for taping girl to railing

Police have arrested three out-of-contol Norwegian high-school students after they taped a 17-year-old girl to a railing in a park in Sandnes, south of Bergen, and pelted her with eggs and flour. READ () »

Union could take 1,300 Norwegian staff on strike
One of Norwegian's new Dreamliners arriving from New York at Stockholm Arlanda airport - Johan Nilsson / NTB Scanpix

Union could take 1,300 Norwegian staff on strike

Norway's Parat Union has threatened to take more than 1,300 Norwegian Airlines employees out on strike if the airline does not agree to a joint collective bargaining agreement for the cabin crew by April 30. READ () »

Police free Norwegians jailed for wolf hunt

Police free Norwegians jailed for wolf hunt

The three Norwegians jailed last week pending trial for taking part in an illegal wolf hunt were released on Wednesday, allowing them to spend Easter with their families. READ () »

Video
Norway's Solli gets the weirdest yellow card ever
Jan Gunnar Solli when playing for the New York Bulls. Photo: Joscarfas/Wikimedia Commons

Norway's Solli gets the weirdest yellow card ever

Norwegian footballer Jan Gunnar Solli displayed some unorthodox ball play on Monday evening, catching a pass by lifting up his football shirt and slipping the ball inside. Sadly, the referee didn't see the funny side and promptly served Solli with a yellow card, READ () »

Norway PM backs gay church weddings
Prime Minister Erna Solberg in Parliament in Oslo on Wednesday morning. Photo: Lise Åserud / NTB Scanpix

Norway PM backs gay church weddings

Norway's Prime Minister has declared her support for gay church weddings, although she argues the decision on whether to allow them is up to the Church of Norway. READ () »

RECEIVE OUR NEWSLETTER AND ALERTS
Society
VIDEO: Norway police's chilled way with drunk wows US
Education
VIDEO: Norway skydiver dodges meteorite
National
Oslo shortlisted for Green Capital 2016
International
Work to start on world's tallest wooden house
Culture
NRK boss: Slow TV 'difficult to joke with'
International
Stoltenberg named as next Nato boss
Society
'Silly walk' sign enrages roads agency
Norwegian tattoos McDonald's bill on arm
Sport
Norwegian man 'forgets' luxury boat for two years
Society
VIDEO: Oslo transformed into miniature city
International
GALLERY: Nato troops' Arctic 'selfies'
International
Feature: Why Jens Stoltenberg is a natural choice for Nato
Advertisement:
International
Norwegian troops get unisex dorms
Travel & Tourism
Trolltunga 'most stunning place for a selfie'
Society
Caffeine-fuelled game binge puts boy in coma
Culture
VIDEO: Norway's 'reality TV with wild birds'
Culture
VIDEO: Bouncer wins Norway Eurovision spot
Culture
VIDEO: Norway fans in awesome Sherlock skit
National
Two new Oslo eateries win Michelin stars
International
Masked Russians seized our gear: Norway journos
National
Lingo cops beat sweet maker in jelly-baby battle
International
US court gives Norway Bieber fraudster 11 years
Society
VIDEO: 7-year-old channels Billie Holiday
Latest news from The Local in Switzerland

More news from Switzerland at thelocal.ch

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 Sweden

More news from Sweden at thelocal.se

326
jobs available