Gold is one of the most attractive commodities for investment purposes. In addition, gold is also used as a standard finance or economics, and foreign reserves are the primary means of payment in some countries. Investors generally buy gold to hedge or safe haven against the several crises, including economic, political, social or currency-based crises.
Physical gold demand has increased quite significantly from year to year. In fact, world gold reserves are limited. Therefore, in some developed countries have provided alternative investments such as gold derivative products with attractive margins as collateral transaction amount ( margin trading ). Why is the margin ?. This is because of the price factor, where the price of gold as well as other commodities may fluctuate.
A. History of Gold Trading
In the commodities market the term " Loco " means " in ". Derived from the Latin word meaning a place Locus. Loco London represents the base of trade and settling international gold and silver in London. Implementation of this market under the auspices of the London Bullion Market Association ( LBMA ), but not stock.
Physical gold market ( spot gold ) is the world's largest and Zurich London, but London is the most prominent. London grew to dominate the gold market when gold became major currencies. Significant discovery in the Ural ( Russia ) has increased its global gold production in the 18th century.
Mid-19th century to be the moment for Britain to dominate world trade and finance, as a source of capital for the mining of gold, and the gold standard of local currency, the British Pound. So that London became the center of world gold trading and settlement.
Trading Over - the- Counter ( OTC )
London gold market is a market Over - The - Counter which means trading is done directly between the two parties involved, and not through a third party that governs the trade, such as exchanges.
OTC market lasts for 24 hours a day and has no formal structure and no central meeting place. Most of the trading is done by telephone or electronic dealing system.
In today's global financial markets, trading gold in London held almost all the time around the world. Quoted bid and ask prices on a continuous basis in the financial market information systems that can be accessed, such as Reuters. In addition to London, other major trading center for gold London including New York, Zurich, Tokyo, Sydney and Hong Kong, where the Hong Kong became the center of commerce in Asia.
Why invest in gold ( OTC Spot )
1 . Prices are usually quoted and traded against the U.S. dollar;
2 . Loco London Market can serve multiple purposes such as hedging transactions, investment and speculation;
3 . On the OTC market, investors can maintain their position over time as they want without any maturity;
4 . Receive interest when selling gold or silver Loco - London on the last interest rate;
5 . Transactions leverage on the margin;
6 . Diversified investment portfolio.
B. World Gold Market
1 . Loco London Gold Market
In London, gold and silver are traded by members of the London Bullion Market Association ( LBMA ), supervised by the Bank of England. Most of its members are international banks or bullion dealers and a number of giant refiner.
Gold trading in the London market has a long history of over three centuries, and the Gold Fixing ( Gold price fixing ) is only formed after World War I in 1919. Fixing System is derived from the London silver market and a concept for investors around the world to buy and sell gold at a single quoted price.
The Fixing is done 2 times that day at 10:30 am ( 16:30 pm ) and 15:00 pm ( 21:00 pm ) in London involving Fixing Member 5 as follows :
- Scotia - Mocatta, Mocatta & Goldsmid successor and became part of Bank of Scotia
- Barclays Capital, replace NM Rothschild & Sons Limited
- Deutsche Bank Sharps Pixley owner
- HSBC, owner of Samuel Montagu & Co.
- Société Générale, replacing Johnson Matthey and CSFB ( Credit Suisse First Boston )
2 . U.S. Gold Market
In 1975, America New York Commodity Exchange started trading COMEX gold forward , became a central forward gold world trade. Now, the New York gold futures market in London replaces market status in regulating the price of gold. The reason why this is happening ? Because the New York market have an advantage in the transaction method, aggregate supply, marked price and transaction time.
3 . Hong Kong Gold Market
The gold market in Hong Kong is also known as the gold market Loco ( Local ) London. Now the market has about 70 active participants transacting, most banks, investment companies and local gold traders to hedge against their positions in the futures market. Loco London gold market is quoted in U.S. dollars per troy ounce 99.99 % pure gold and with delivery in London.
Chinese Gold and Silver Exchange Society operates one of the largest gold markets in the world. Gold traded through these agencies have a purity of 99 %, the unit weight of the tael and quoted in Hong Kong dollars. It cost almost follow the other major gold market in London, Zurich and New York. Turnover on the exchange as many as 4.3 million taels in 2001.
C. Analysis of Gold Price
In everyday reality, the price of gold is not only dependent on the situation of demand and supply, or supply and demand. The price of gold is also affected by the overall economic situation.
Here are some of the economic situation that often affect the price of gold :
1 . Changes in exchange rate
The weakening of the U.S. dollar is usually pushed up gold prices. This is because investors choose to sell their own dollars and then buy gold that is considered capable of protecting the value of their assets. For example, in mid-October 2009, the exchange rate of the dollar against other currencies continued to decline, while the price of gold continues to rise up to the level of $ 1,070 per troy ounce gold price which is the highest in history.
2 . Situation of world politics
The rise in gold prices in late 2002 and early 2003 occurred as a result of an attack on Iraq would be done by an ally who commanded the U.S.. Market participants to switch investments from the money market and the stock market to gold investment demand for gold jumped so sharply.
3 . Supply and demand
One example of things that can affect the supply and demand ( supply and demand ) of gold is like the incident in the mid-1980s. At that time, forward sales by mining companies always blamed for the rise in gold prices. In terms of business, the actual behavior of the mining company makes sense. By doing forward sales when gold prices rose, they can secure the mine output prices at a fairly attractive price.
As another example, the case in mid-1998 in which the price of gold continued to decline. At that time, central banks in Europe said it would reduce its gold reserves in respect of plans to implement the euro currency. Gold prices plunged around 290 dollars per troy ounce.
4 . The global economic situation
Approximately 80 percent of the total supply of gold used jewelry industry. Consumption of jewelry is a great influence on the demand side.
When the economy improves, demand for jewelery tends to rise. However, from the statistical data visible jewelery demand is more sensitive to fluctuations in the price of gold compared to the increase of economic conditions.
The fall of the level of need for jewelry during the recession in 1982-1983 mainly due to rising gold prices simultaneously. The fall of the level of need jewelry in a recession early 90's more in line with the above, at the time the gold price to go down.
Uncertain economic situation could lead to high inflation. Gold is used as a hedging tool against inflation. This benefit has been felt for a long time investor. With gold, investors got a perfect protection against declining purchasing power. When the years 1978-1980 the price of gold is booming; while inflation in the U.S. rose from 4 percent to 14 percent, the price of gold rose three (3 ) times.
5 . Interest rates
When interest rates rise, there is a great effort to keep the money on deposit than gold which does not earn interest ( non-interest - bearing ). This will lead to pressure on the gold price. Conversely, when interest rates fall, the price of gold will tend to rise.
In theory, if the short-term interest rates rise, the price of gold down. In Indonesia, this theory does not always work.
In 1998, due to the exchange rate fell sharply against the U.S. dollar, the government raised interest rates significantly. The hope, restrain the rate of increase in the U.S. dollar exchange rate. As a result, despite rising interest rates, gold prices also rose.
D. Derivative Contracts Loco London Gold ( SPA )
Now Loco London gold derivative contracts as derivative transaction object through the Alternative Trading System ( SPA ), based on the head of the Commodity Futures Trading Regulatory Agency ( Bappebti ) 72/BAPPEBTI/Per/9/2009 numbered. In addition to gold, the other two products are derivatives contracts between foreign currency (foreign currencies cross ) and index.
* ) Adapted from several sources