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Gold Fix 2001 by Andrea Fox

Gold as an investment and how the market affects gold price.

Investing in Gold

Gold is the most popular precious

metal in which people invest. It is a safe-haven agaainst any economic,

political, social or currency-based crises, such as: investment market

declines, currency failure, inflation, war and social unrest.

Influence on gold price:
The day price of gold is driven

by supply and demand. Because most of the gold ever mined still exists and is

potentially able to come on to the market for the right price, unlike most

other commodities, the hoarding and disposal plays a much bigger role in

affecting the price. At the end of 2006, it was estimated that all thegold ever mined totaled 158,000 tons.
Given the huge quantity of stored gold, compared to the annual production,

the price of gold is mainly affected by changes in sentiment, rather than

changes in annual production.
In times of national crisis, people fear that their assets may be seized and

that the currency may become worthless. They see gold as a solid asset which will always buy food or

transportation. Thus in times of great uncertainty, particularly when war is

feared, the demand for gold rises.
When dollars were fully convertible into gold, both were regarded as money.

However, most people preferred to carry around paper banknotes rather than

the somewhat heavier and less divisible gold coins. If people feared their

bank would fail, a bank run might have been the result. This is what happened

in the USA during the Great Depression of the 1930s, leading President

Roosevelt to impose a national emergency and to outlaw the ownership of gold

by US citizens.
If the return on bonds, equities and real estate is not adequately

compensating for risk and inflation then the demand for gold and other alternative investments such as

commodities increases. An example of this is the period of Stagflation that

occurred during the 1970s and which led to an economic bubble forming in

precious metals.

The system held up until 1971 Nixon Shock, when the US stopped the direct

convertibility of the United States dollar to gold. Since 1968 the usual

benchmark for the price of gold is known as the London Gold Fixing, a twice-

daily (telephone) meeting of representatives from five bullion-trading firms.

Furthermore, there is active gold trading based on the intra-day spot price derived from gold-trading

markets around the world as they open and close throughout the day.
Throughout history gold has often been used as money and, instead of quoting

the gold price , all other

commodities were measured in gold. After World War II a gold standard was

established following the 1946 Bretton Woods conference, fixing the gold price at $35 per troy ounce.

The Gold Fixing, or the London Gold Fixing or Gold Fix, is the procedure by

which the price of gold price of

gold is set on the London market by the five members of the London Gold Pool.

It is designed to fix a price for settling contracts between members of the

London bullion market, but, informally, the Gold Fixing provides a recognized

rate that is used as a benchmark for pricing the majority of gold products

throughout the world's markets.

The gold price fix takes

place twice daily at 10.30am and 3pm, London time.

The first fixing took place on September 12, 1919 amongst the five principal

gold bullion traders and refiners of the day. The price of gold then was four pounds 18 shillings and

ninepence per troy ounce.
Due to government controls and war emergencies, the London Gold Fixing was

suspended between 1939 and 1954.
price of gold are fixed in

United States dollars (USD), Pound sterling (GBP) and European Euros (EUR).
Historically, the Fixing took place twice daily at the City offices of N M

Rothschild & Sons in St Swithin's Lane, but since May 5 2004 it takes place

by telephone. In April 2004, N M Rothschild & Sons announced that it planned

to withdraw from gold trading and from the London Gold Fixing. Barclays Bank

took its place from 7 June 2004, and the chairmanship of the meeting,

formerly held permanently by Rothschilds, now rotates annually.
On January 21 1980 the Gold Fixing reached the price of $850, a figure which

was not overtaken until January 3 2008. This is when a new record of $865.35

per troy ounce was set in the morning Fixing. However, with inflation, the

1980 high would be equal to a price of $2398.21 in 2007 dollars. So, the 1980

record still holds in real terms.
While gold is traded in markets throughout the world, the market is

essentially homogenous since the

gold price is always in dollars and the gold traded is "loco London" (

gold deliverable in London and meeting London trading standards). The London

PM fix is normally considered the main reference price for the day and is the

price most often used in contracts. The price of gold is quoted in USD per troy ounce.
Since May 2004 it has been conducted by telephone. The chairman begins with a

'trying' price. The five fixing members' representatives relay the price to

their dealing rooms. And these are in contact with other dealers. The market

members then declare how much gold they are prepared to buy or sell at that

price. The dealers, who are in contact with their clients, may change their

order or add to it or cancel it at any time; the position declared by the

dealers is the net position outstanding among all their clients. (If one is

buying two tonnes and another is selling one tonne, then he declares himself

a buyer of one tonne.) If more gold

is required than is offered, then the price will be adjusted upwards (and

vice versa) until equilibrium is reached. At this point the gold price is fixed. On very rare occasions the

price will be fixed when there is disequilibrium, at the discretion of the

chairman of the fix.
A tradition of the London Gold Fixing was that participants could raise a

small Union Flag on their desk to pause proceedings. Under the telephone

fixing system, participants can register a pause by saying the word "flag",

and the chair ends the meeting with the phrase "There are no flags, and we're

fixed".

www.goldcoinsgain.com

Article Source: http://www.earticlesonline.com/Article/Gold-Fix-2001/647133

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