• Norway's news in English
 
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
Prostitute beats off taxman in Oslo court
Oslo District Court. Photo: Mahlun

Prostitute beats off taxman in Oslo court

A prostitute won a landmark victory against police in an Oslo court on Wednesday, when it ruled that police were wrong to claim taxes for the money she had made selling sex in the Norwegian capital. READ  

Solberg: the fight for freedom isn't won
Solberg addresses the press conference. Photo: Terje Pedersen/NTB scanpix

Solberg: the fight for freedom isn't won

Norway’s Prime Minister Erna Solberg placed her focus on the international security situation at her traditional six-monthly press conference on Wednesday, and condemned Tuesday’s Taliban attack on a school in Pakistan. READ  

Rwandan man guilty of genocide: Norway court
Prosecutor Marit Bakkevig Photo: Håkon Mosvold Larsen / Scanpix

Rwandan man guilty of genocide: Norway court

A Norwegian court has convicted a Rwandan man of involvement in the killings of 2,000 people during the 1994 genocide in the central African country. READ  

Future Norway envoy withdraws candidacy
George Tsunis speaking to the US senate earlier this year. Source: Screen Grab

Future Norway envoy withdraws candidacy

A much-maligned businessman nominated by US President Barack Obama to be ambassador to Norway has withdrawn his candidacy, saying: "It is over." READ  

Norwegian farmed salmon is safe: report
Norway is the world's biggest producer of farmed salmon. Photo: Terje Maroy/Scanpix/AFP

Norwegian farmed salmon is safe: report

Farmed Norwegian salmon - repeatedly criticized for its supposed effects on health - can be safely eaten even by pregnant women, a new report by experts said on Monday. READ  

Norwegian chief cashes in with share sale
Bjørn Kjos presents Norwegian's third-quarter results in October. Photo: Terje Bendiksby / NTB

Norwegian chief cashes in with share sale

The founder Norwegian, Bjørn Kjos, is planning to sell shares equivalent to 2 percent of the fast-growing budget airline, it was announced on Monday. READ  

Norway seeks answers over mobile bugging
Kjell Ingolf Ropstad, deputy chairman of the parliamentary justice committee, is looking for answers. Photo: Vidar Ruud/NTB scanpix

Norway seeks answers over mobile bugging

Norway's government is under pressure from MPs after revelations this weekend that suspicious mobile base stations sited around Oslo were used to spy on people’s mobile phone use. READ  

Norway extends Russian military freeze
Flags photo: Shutterstock

Norway extends Russian military freeze

Norway announced on Friday it is extending a freeze in military cooperation with Russia until the end of 2015 because of its neighbour's role in the Ukrainian crisis. READ  

Revealed: spy equipment in central Oslo
Leader of the Christian Democrats, Knut Arild Hareide, talks on his mobile on his way to Norway's parliament last month. Photo: Vidar Ruud / NTB scanpix

Revealed: spy equipment in central Oslo

Spy equipment that can be used to eavesdrop on the mobile phones of politicians and ordinary Norwegians has been discovered in several places in the Oslo area, including close to the country’s parliament, newspaper Aftenposten has revealed. READ  

Norway scraps subsidies to seal hunters

Norway scraps subsidies to seal hunters

UPDATED: Norway's parliament has voted to scrap a controversial subsidy for seal hunting, potentially spelling the end of the much-criticized activity, a lawmaker told AFP on Friday. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
National
Why has The Local got a new logo?
Health
Norwegian Ebola victim free of virus
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
Society
Norwegian 'child bride' to marry in Oslo
Society
The fickle five: Meet the Nobel commitee
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
Society
Queen Sonja of Norway's nephew jailed
National
Ex-Norway PM set to become head of Nobel
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'
Society
Norway's Princess of the Paranormal under fire
National
Four-year-old Norway girl sleepwalks 4km
National
Photo: Baby cliff edge shocker in Norway
Travel
Cruise line offers Northern Lights promise
National
10-tonne shark found dead off Norway coast
Culture
Britney to visit Norway for lingerie launch
International
'If Snowden wins Nobel Prize, arrest him!': MP
Culture
VIDEO: Swim ace does 'Pool Rubik's Challenge'
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
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

288
jobs available
The Local Spain is hiring!
The Local is seeking a new editor for our site in Spain to join our growing team of internationally-minded, driven, ambitious and clued-up journalists.
Details and how to apply