• 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.

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)

Today's headlines
Flights from Norway to get cheaper in 2015
One of Norwegian's new Dreamliners arriving from New York at Stockholm Arlanda airport - Johan Nilsson / NTB Scanpix

Flights from Norway to get cheaper in 2015

Norway is set to buck the European trend of rising air prices with fares expected to drop next year according to a new report. READ  

Norway to trial football 'vanishing' spray
The foam spray helps football referees mark free-kicks to encourage fair play during games. Photo: Referee spraying vanishing spray Shutterstock

Norway to trial football 'vanishing' spray

The Football Association of Norway has announced on Friday the much talked about "vanishing" spray, used in the Brazil World Cup, will be in play during the Norwegian Championship semi-finals this month. READ  

Norwegian weather girl breaks world record
Presenter Eli Kari Gjengedal during her mammoth 33 hour feat. Photo: Torstein Bøe / NTB scanpix

Norwegian weather girl breaks world record

Eli Kari Gjengedal set a new world record for continuous weather presenting on a Norwegian television channel on Thursday. READ  

Euro markets buoyant after Scotland 'No' vote
Scotland voted 'no' to independence. Photo: Waving Scotland and United Kingdom Flag Shutterstock

Euro markets buoyant after Scotland 'No' vote

The campaign for Scottish Independence, which was largely centred on economic viability, helped the European money markets have an upturn on Friday as the majority of Scotland voted 'no' in its referendum. READ  

Danish man posing as sex 'Monster' in Norway
A sex attacker from Denmark is posing online as an employee from Monster energy drinks. Photo:Davide Minazzi, Flickr

Danish man posing as sex 'Monster' in Norway

A man, previously jailed for sex offences in Denmark, is now in Norway trying to lure young girls by promising them fake jobs with the energy drink "Monster". READ  

Norway to send military staff in fight against IS
Minister of Foreign Affairs Børge Brende and Minister of Defence Ine Marie Eriksen Søreide at a press conference in connection with US's request for help in the war against IS. Photo: Terje Pedersen /

Norway to send military staff in fight against IS

Norway will send military personnel to help the US-led coalition defeat the terrorist group IS, the government confirmed on Thursday. READ  

Ole Gunnar Solskjær quits as Cardiff City boss
Ole Gunnar Solskjær quit as Cardiff City boss after a run of poor results. Photo: David Rawcliffe/Propaganda / NTB scanpix

Ole Gunnar Solskjær quits as Cardiff City boss

Norway's Ole Gunnar Solskjær has stepped down as Cardiff City manager after less than nine months in the job and a poor start to this year's season, the club announced on Thursday. READ  

Father warns Breivik 'more extreme than ever'
Jens Breivik at the press conference for the launch of his new book "Min skyld?". Photo: Torstein Bøe / NTB scanpix

Father warns Breivik 'more extreme than ever'

Jens Breivik, the father of mass killer Anders Behring Breivik, revealed on Thursday his son is becoming more and more extreme in prison and fears he may never see him again. READ  

Solberg in stalemate over Russian chess match
Prime Minister Erna Solberg under pressure to miss the Sochi chess tournament. Photo: Jon Olav Nesvold / NTB scanpix

Solberg in stalemate over Russian chess match

Prime Minister Erna Solberg has declined attending the Chess World Championship in Sochi this November, it was announced on Wednesday. READ  

Syrian to head Norway's Worker Youth League
Syrian-born Mani Hussaini will soon be inaugurated as leader of Workers Youth League in Norway. Photo: Jon Olav Nesvold / NTB scanpix

Syrian to head Norway's Worker Youth League

A Syrian-born immigrant is to become the next leader of Norway's Workers' Youth League, in an ironic twist for Anders Behring Breivik, the far-right nationalist who shot dead scores of the movement's members in 2011. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
National
Norwegian man in 7,000 litre 'Ice Truck Challenge'
Society
Norwegian brewery pulls 'fart-smelling' beer
Sport
Ødegaard: Norway's youngest player ever
Features
Meet Norway's raining kings of fashion
National
Miracle cat survives 20 gunshots in Norway
National
Second death within hours at Chess Olympics
National
Norway and Sweden mark 200 years of peace
Culture
Interview: Helene Meldahl, selfie artist
Society
Now serving ... Norway's smallest bar
Travel
Floating Northern Lights hotel planned in Norway
National
Circus camel escapes again
National
Swiss bus driver charged with careless driving in fatal Norway crash
Society
Brit's charity tractor trek heads for Norway
National
Norway lifts Segway ban
Culture
GALLERY: Ten great songs about Norway
Society
Høie promises to reform sex change law
Education
Norway fjord invaded by monster jellyfish
Culture
VIDEO: Norwegian anti-Facebook film goes viral
Culture
Norway pop duo hits number 4 on US charts
Sport
Norway fan wins big on Suarez bite bet
National
Solberg 'most chatty' leader on Twitter
Culture
British Airways takes 'Slow TV' to the skies
International
Top Norway lawyers back Snowden Nobel
Latest news from The Local in Austria

More news from Austria at thelocal.at

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 Denmark

More news from Denmark at thelocal.dk

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

337
jobs available