• Norway's news in English
 
SPONSORED ARTICLE
The long history of gold trading
Photo: file

The long history of gold trading

The Local · 15 Nov 2011, 10:37

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
Norway prize body to 'empty chair' Snowden
The Norwegian Nobel committee represented Chinese dissident Liu Xiaobo with an empty chair in 2010. Photo: Photo: Heiko Junge/Scanpix

Norway prize body to 'empty chair' Snowden

3 hours ago

Edward Snowden will be represented by an empty chair next week when he is honoured with a freedom of expression prize in Norway, as he fears extradition to the US, organisers said Friday.

Video
 World's largest outdoor mural unveiled in Norway
"Lilith and Olaf" by French street art duo Ella & Pitr. Photo: Screen Grab

World's largest outdoor mural unveiled in Norway

17 hours ago

French artist duo Ella & Pitr, and a small army of volunteers, have created what they claim to be the world's largest mural covering the 21,000 square meter rooftop of an industrial estate.

Snowden warned Norway he faced death in US
Sheremetyevo airport, where Edward Snowden was hiding when he sent his extradition request. Photo: Cha già José

Snowden warned Norway he faced death in US

17 hours ago

NSA whistleblower Edward Snowden warned Norway that he faced a possible death sentence if returned to the United States in the extradition request he made in 2012.

Utøya survivor to sue Norway over citizenship
Mubarak Haji Ahmed's brother Khaled Ahmed Taleb, a local politican, has already been deported. Photo: Jo E. Brenden / NTB Scanpix

Utøya survivor to sue Norway over citizenship

1 day ago

An Utøya survivor who lost a brother in the shooting is suing Norway for withdrawing his citizenship because his parents lied about their nationality, his lawyer said on Friday.

Snowden may get freedom prize at border
The Storskog border station between Norway and Russia. Photo: Cornelius Poppe/NTB scanpix

Snowden may get freedom prize at border

1 day ago

The Norwegian academy which gave Edward Snowden a free speech prize is planning to hold a "symbolic ceremony" for the whistleblower at the country's far-northern border with Russia.

'Norway took my child because of pretty dress'
Airida Pettersen with her son in April. Photo: Facebook

'Norway took my child because of pretty dress'

1 day ago

A Lithuanian mother living in Norway who had her two children taken into care has speculated that social services intervened because of her daughter was dressed too prettily.

US asked Norway to arrest Edward Snowden
NSA whistleblower Edward Snowden. Photo: Laura Poitras/Praxis Films

US asked Norway to arrest Edward Snowden

1 day ago

Norway’s NRK broadcaster has obtained a copy of the formal requests US authorities sent to Norway’s Foreign Ministry and Ministry of Justice asking it to arrest NSA whistleblower Edward Snowden should he enter Norwegian territory.

Norway man attacks police with angle grinder
The Norwegian police car showing the damage done by the man's frenzied attack. Photo: Norwegian Police

Norway man attacks police with angle grinder

2 days ago

A man has been jailed in Norway for going berserk at a police car with an angle grinder after he was stopped for suspected criminal offences.

Syrians cross Norway's Arctic border on bicyles
The Storskog border station between Norway and Russia. Photo: Cornelius Poppe/NTB scanpix

Syrians cross Norway's Arctic border on bicyles

2 days ago

More than 100 Syrian refugees have crossed the Arctic border into Norway from Russia on bicycles, exploiting a loophole in the country's border regulations.

Norway gives €5m to Greece for refugees
Norwegian Prime Minister Erna Solberg arrives at a press conference on Wednesday. Photo: Cornelius Poppe / NTB scanpix

Norway gives €5m to Greece for refugees

2 days ago

Norway has given Greece €5m in emergency funding to help it provide for a sudden influx of refugees at a time when it is facing its own protracted economic crisis.

RECEIVE OUR NEWSLETTER AND ALERTS

National
Norway man built secret child's room in cellar
Education
Norway starts school for Vikings
Sport
Sepp Blatter should win Nobel Peace Prize: Putin
National
The oddest TripAdvisor comments about Norway
National
Experts baffled by freak downpour in Norway
National
Dude, where's my house? Avalanche smashes Norway farmhouse
Culture
VIDEO: Norway artist's naked tree stunt goes awry
Health
Norway scientists find secret behind gluten intolerance
National
VIDEO: Have you seen this jet ski blunder at a Malmö hotel opening?
National
Oslo is the crystal meth capital of Europe
Sport
VIDEO: Man in Norway catches fish too big for boat
International
'Snowden could come to Norway to collect prize'
Technology
Oslo builds world's first bumblebee highway
Culture
World’s biggest elk statue arrives in Oslo
Norway's men soon to be among Europe's fattest
National
Muslims form 'ring of peace' at synagogue
Business & Money
Schumacher's Norway retreat sold for $3m
National
King Harald visits Antarctic namesake
Culture
Norwegians streak the streets of Berlin
Culture
Norway couple find love on word game app
International
Norwegian chef wins world's top food prize
Politics
Solberg: The fight for freedom isn't won
National
Gaza doc named Norway's person of year
National
Norway extends Russian military freeze
National
Kjell Inge Røkke tops Norway's Rich List
International
Surprise! Norway priciest for home comforts
National
Norway terror attacks to become TV drama
International
Malala: Youngest ever Nobel Peace Laureate
National
Norway celebrates 25 years of Sami politics
Business & Money
CurrencyFair: Why it pays when making overseas transfers
International
Norway best country for older people
National
Muslim centre wanted on site of Munch Museum
International
Norway to send military staff in fight against IS
National
Father warns Breivik 'more extreme than ever'
National
Four-year-old Norway girl sleepwalks 4km
Travel
Cruise line offers Northern Lights promise
National
10-tonne shark found dead off Norway coast
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

2,101
jobs available
!-- /1774138/no.mobile.3.320x50 -->