c



 

 
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From the first discoveries of gold in ancient times, its beauty and the ease with which it could be worked have
inspired craftsmen to use it to create ornaments, not just for adornment, but as potent symbols of wealth and power.
The first pure gold coins were struck by King Croesus of Lydia (present-day Turkey) during his reign between 560
and 547 BC and gold coins have continued as legal tender since that time. More >>
 
 
It is known that the Egyptians mined gold before 2000 BC and the first coin containing gold was struck in the eighth
century BC.
The best estimates available suggest that the total volume of gold mined over history is approximately 158,000
tonnes, of which around 65% has been mined since 1950. Production has been on a downward trend since 2001,
due principally to the reduction in exploration budgets that accompanied the low gold price of the late 1990s and the
consequent fall in the number of major new gold discoveries. Independent analysts believe mine output will remain
relatively flat for the next few years. For a history of gold mining >>




Central banks have been major holders of gold for more than 100 years and are expected to retain large stocks in
future. They currently account for about 20% of above-ground stocks. The process of rebalancing reserve portfolios
to adjust to changing conditions since the demise of the gold standard has led to a reduction in the amount of gold
held by some central banks in the past ten years. This process may continue for some years to come. But the central
banks have affirmed that gold will remain an important reserve asset for the foreseeable future and, importantly, since
1999 have accepted that sales be governed by international agreement.


ðc
   

Central banks, and official international institutions, have been major holders of gold for more than 100 years and are
expected to retain large stocks in future. They currently account for about 20% of above-ground stocks. The process
of rebalancing reserve portfolios to adjust to changing conditions has led to a reduction in the amount of gold held by
some central banks recently and this process may continue for some years to come. But the central banks have
affirmed that gold will remain an important reserve asset for the foreseeable future and it retains an important role in
reserve management. See also Why central banks hold gold for more detail.

Central banks started building up their stocks of gold from the 1880s, during the period of the classical gold standard.
Under that system, for countries on the gold standard, the amount of money in circulation was linked to the country's
gold stock, and paper money was convertible into gold at a fixed price. The development of banking and credit meant
that the amount of money in circulation was greater than the gold stock itself, but everybody had sufficient confidence
in convertibility that there was no danger of this option actually being exercised. That at least was the case during the
height of the gold standard for the UK, the then dominant economic, political and financial power. As other countries
decided to join the gold standard, they also started to accumulate gold so as to be able to maintain convertibility at a
fixed price.

The Bank of England, as the central bank at the centre of the system, commanded such universal confidence that it
actually needed very little gold. In 1870, its reserves were 161 tonnes and by 1913 this had risen to a still moderate
figure of 248 tonnes. Some other countries had by then accumulated much larger stocks: the United States had 2,293
tonnes, Russia 1,233 tonnes, France 1,030 tonnes, Argentina 440 tonnes, Germany 439 tonnes, Austria 378 tonnes
and Italy 356 tonnes. Even Australia had more than the UK, at 310 tonnes. The world's total of official gold reserves is
estimated to have been about 8,100 tonnes in 1913, compared with only 700 tonnes in 1870.

O
    
c
 

The period of economic nationalism between the two world wars saw a rapid concentration of gold in official hands -
up to that point, most gold had always been held privately, circulating as currency among citizens and across borders
in commercial trade transactions. Gold, which had been the foundation of the first genuinely international monetary
system during the period before World War 1, came to be used as a weapon in economic competition and national
rivalries.

In 1933-34, the United States under President Roosevelt devalued the dollar in terms of gold, raising the price from
$20.67 an ounce to $35 an ounce. This new higher price caused holders of gold around the world to sell their
holdings to the United States. US official holdings rose from 6,000 tonnes in 1925 to 18,000 tonnes at the end of
World War II, when it had about 60%of all the official stocks of gold.

At their peak in the 1960s, official gold stocks reached about 38,000 tonnes and probably accounted for about 50% -
or perhaps slightly more - of all above ground stocks. Central banks kept gold because, through the fixed official
dollar price of gold, and dollar convertibility, it was still the foundation of the international monetary system. Although
there was no direct link between gold holdings and national money supplies (as there had been under the classic
gold standard), gold was still the primary "reserve asset". Central banks could convert dollar balances into gold at the
official price. So gold provided the "anchor" to which all currencies of member countries were linked, directly or
indirectly. But gradually, as central banks created more money than was consistent with stable prices, and after
several years of moderate but persistent inflation, the fixed official gold price again became unrealistic, and the
United States, as the pivot of the system, was faced with the choice of deflating, devaluing or abandoning the system.
In August 1971, it abandoned the system, with President Nixon "closing the gold window".

O 
  


The previous twenty years had already seen a big shift in the ownership of official gold holdings. The post-war
recovery of Europe and undervalued exchange rates generated large payments surpluses for Germany, France and
other European countries and widening deficits for the United States - deficits that were financed partly by
transferring gold. Thus US holdings fell from about 20,000 tonnes in 1950 to 9,000 tonnes in 1971. When in that year
President Nixon suspended the convertibility of dollar balances into gold, the world entered the present floating
exchange rate regime, where gold's role is confined to that of being one reserve asset, rather than the centre of the
system. This cleared the way for the dollar to establish itself at the centre of the system and a large part of the world
moved in effect onto a dollar standard. Indeed, under US pressure in 1978 the articles of the IMF were altered so as
to forbid countries to peg their currencies to gold (a kind of anti-gold standard).

In the 1980s and 1990s central banks began re-appraising the role of gold in their external reserves. The movement
to central bank independence and the more commercial attitude of their reserve managers led some of them to put
more emphasis on the current yield on their reserve portfolios. In this environment, gold, as an asset that earns no
interest - apart from a small return available from lending gold for those central banks willing to engage in the lending
market - began to look vulnerable. Some central banks decided to reduce their gold holdings, and the total of official
stocks declined by about 10% between 1980 and 1999. In September 1999, a group of European central banks
agreed, in the first Central Bank Gold Agreement CBGA 1, to limit disposals to 400 tonnes a year for five years, and
also set a ceiling on the volume of gold lent to the market. They also reaffirmed their confidence in the future of gold
as a reserve asset. The agreement reassured the market about the intentions of central banks, since the signatories
included those that had been seen as the most likely major sellers, and the price, which had reached a low of $252
an ounce in July 1999, stabilised. CBGA 1 proved very successful and was renewed CBGA 2 for a further five year
term in 2004.

See the Central bank agreements on gold section for further details of these agreements.

See also the Why central banks hold gold section for an explanation of the motivations behind official sector gold
reserves.


 
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As the ultimate form of payment, gold has sometimes proved the only asset, when used either as cash or as
collateral, acceptable to counterparties. Gold can indeed play a crucial and strategic role in central bank reserve
mobilisation in case of need.

 
 
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c  




 For example, in the 1981 Iranian hostage crisis, Iran refused to accept U.S. dollars in return for releasing the
American hostages it held. So the U.S. transferred 50 tonnes of gold instead. As then Treasury Assistant
Secretary Manuel Johnson went on to say in Congressional testimony in 1983 - and in the light of this recent
experience - "The Treasury, of course, regards the US gold stock as part of our national patrimony and of
value as a precautionary asset." The US government simultaneously took ownership of an equivalent
quantity of Iranian gold that had been frozen at the New York Fed, so there was no net cost to US reserves.

 In 1974 Italy secured a $2 billion loan from the Bundesbank with gold as part of a package (including the
then largest ever IMF loan) to shore up its balance of payments after the 1973 oil price rise.

 Hit by a short-run foreign exchange crisis in 1991, India had to rely on its bullion holdings to survive. First the
government swapped 20 tonnes on the Swiss market and, later, shipped a further 46 tonnes to London as
collateral for a loan from the Bank of Japan. An IMF official at the time noted: "There were discussions over
the weekend about a pool of central banks coming to the rescue and the first question that was asked by
those sponsor banks was whether they were prepared to give their gold as collateral."
  In 1974 Romania was reported as using gold collateral for a loan allowing it to make external debt
repayments and there were reports of similar activities in 1999.

 Finally, gold in the private sector can provide a vital support for public sector purposes. In the aftermath of
the 1997 Asian currency crisis several countries in the region announced plans to mobilise residents' gold
holdings - Malaysia, South Korea and Thailand among them. Only South Korea raised significant amounts
(approximately 270 tonnes) but the avowed intent of all three was to rely on local citizens' patriotism to
surrender gold in return for government bonds or local currency. The gold collected was either placed
directly in reserves, thereby adding to credibility, or sold for dollars which could be used to repay external
debt or in intervention to support their ailing currencies.

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Most central banks place data on their reserve assets, including gold, in the public domain and report them regularly
to the IMF, including reports made under the Standard Data Dissemination Standards. Official holdings are therefore
generally more transparent and easier to track than those of other large holders such as most major private investors.
However, some central banks also hold stocks of gold that are not considered or reported as formal reserves while
some official or quasi-official institutions have gold holdings that are not reported. In addition holdings may not always
be reported in a way that facilitates analysis. The World Gold Council compiles a number of statistical tables based
on official data in the public domain and drawn from a variety of sources.

O
    

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In recent years, all newly-mined gold has gone into jewellery fabrication, industrial uses and private investment and
none of it has been absorbed by the official sector; indeed, as we have seen the official sector has on balance been
supplying gold rather than absorbing new supplies from the mining sector. In future, it is probable that official gold
holdings will continue to decline, at least for a few more years, in physical (absolute) terms, and more steeply as a
proportion of central banks' reserves assets and of total stocks of gold.

However, central banks expect gold to remain an important element in their reserves, for reasons outlined in Why
central banks hold gold. The majority are believed to be content with the present level of their gold holdings. Further,
in recent years a number of central banks that own small quantities of gold are thought to be considering adding to
their holdings although the extent of actual buying is so far collectively considerably less than the extent of selling.

h  c c

For thousands of years, gold has been valued as a global currency,
a commodity, an investment and simply an object of beauty. As
financial markets developed rapidly during the 1980s and 1990s,
gold receded into the background and many investors lost touch
with this asset of last resort. Recent years have seen a striking
increase in investor interest in gold. While a sustained price rally,
underpinned by the fact that demand consistently outstrips supply,
is clearly a positive factor in this resurgence, there are many
reasons why people and institutions around the world are once
again investing in gold. This website provides you with the
background to these reasons and describes the defining
characteristics of the gold market from an investor's point of view.

  

 !"  

 Gold - The supply side.
 The Use of Gold in Industrial Applications.
Gold's extensive appeal and functionality, including its
characteristics as an investment vehicle, are underpinned by the supply and demand dynamics of the gold market.


 
Demand for gold is widely spread around the world. East Asia, the Indian sub-continent and the Middle East
accounted for 70% of world demand in 2008. 55% of demand is attributable to just five countries - India, Italy, Turkey,
USA and China, each market driven by a different set of socio-economic and cultural factors. Rapid demographic and
other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of
demand.
Read about Gold Demand Trends in our detailed briefing note, which also includes commentary on supply.
 


 
Jewellery consistently accounts for over two-thirds of gold demand. In the 12 months to December 2008, this
amounted to around US$61 billion, making jewellery one of the world's largest categories of consumer goods. In
terms of retail value, the USA is the largest market for gold jewellery, whereas India is the largest consumer in
volume terms, accounting for 24% of demand in 2008.
Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic
trends. For more on the role of gold in India >>
It should be noted, however, that the economic crisis and the consequent recessionary pressures that developed
over 2007 and 2008 had a significant negative impact on consumer spending and this, in turn, resulted in the reduced
volume of jewellery sales, particularly in western markets.
Generally, jewellery demand is driven by a combination of affordability and desirability by consumers, and tends to
rise during periods of price stability or gradually rising prices, and declines in periods of price volatility. A steadily
rising price reinforces the inherent value of gold jewellery, which is an intrinsic part of its desirability. Jewellery
consumption in the developing markets was, until fairly recently, expanding quite rapidly following a period of
sustained decline, although recent economic distress may have stalled this growth. But several countries, including
China, still offer clear and considerable potential for future growth in demand.

h   
Because a significant portion of investment demand is transacted in the over-the-counter market, it is not easily
measurable. However, there is no doubt that identifiable investment demand in gold has increased considerably in
recent years. Since 2003 investment has represented the strongest source of growth in demand, with an increase in
the last five years in value terms to the end of 2008 of around 412%. Investment attracted net inflows of
approximately US$32bn in 2008.
There are a wide range of reasons and motivations for people and institutions seeking to invest in gold. And, clearly,
a positive price outlook, underpinned by expectations that the growth in demand for the precious metal will continue
to outstrip that of supply, provides a solid rationale for investment. Of the other key drivers of investment demand,
one common thread can be identified: all are rooted in gold's abilities to insure against uncertainty and instability and
protect against risk.
Gold investment can take many forms, and some investors may choose to combine two or more of these for
flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not
always clear, especially since it is possible to invest in bullion without actually taking physical delivery.
The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are
now a wide variety of investment products to suit both the private and institutional investor. More on how to invest >>

h 

 
Industrial, medical and dental uses account for around 11% of gold demand (an annual average of over 440 tonnes
from 2004 to 2008). Gold's high thermal and electrical conductivity, and its outstanding resistance to corrosion,
explain why over half of all industrial demand arises from its use in electrical components. Gold's use in medical
applications has a long history and today, various biomedical applications make use of its bio-compatibility,
resistance to bacterial colonization and corrosion, and other attributes. Recent research has uncovered a number of
new practical uses for gold, including its use as a catalyst in fuel cells, chemical processing and controlling pollution.
The potential to use nanoparticles of gold in advanced electronics, glazing coatings, and cancer treatments are all
exciting areas of scientific research.
For more on industrial and scientific applications of gold >>
For the latest on the industrial markets and growing uses for gold visit www.utilisegold.com. www.utilisegold.com



 
 
Gold is produced from mines on every continent except Antarctica, where mining is forbidden. Operations range from
the tiny to the enormous and there are several hundred operating gold mines worldwide (excluding mining at the very
small-scale, artisanal and often µunofficial¶ level). Today, the overall level of global mine production is relatively stable,
averaging approximately 2,485 tonnes per year over the last five years. New mines that are being developed are
serving to replace current production, rather than to cause any significant expansion in the global total.
The comparatively long lead times in gold production, with new mines often taking up to 10 years to come on stream,
mean mining output is relatively inelastic and unable to react quickly to a change in price outlook. The incentives
promised by a sustained price rally, as experienced by gold over the last seven years, are not therefore easily or
rapidly translated into increased production.

#
c
$

%
Although gold mine production is relatively inelastic, recycled gold (or scrap) ensures there is a potential source of
easily traded supply when needed, and this helps to stabilise the gold price. The value of gold means that it is
economically viable to recover it from most of its uses; at least, that is, where it is in a form that is capable of being, if
need be, extracted, then melted down, re-refined and reused. Between 2004 and 2008, recycled gold contributed an
average 28% to annual supply flows.

& 

 
Central banks and supranational organisations (such as the International Monetary Fund) currently hold just under
one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 29,600 tonnes, dispersed
across 110 organisations). On average, governments hold around 10% of their official reserves as gold, although the
proportion varies country-by-country.
Although a number of central banks have increased their gold reserves in the past decade, the sector as a whole has
typically been a net seller since 1989, contributing an average of 447 tonnes to annual supply flows between 2004
and 2008. Since 1999, the bulk of these sales have been regulated by the Central Bank Gold
Agreement/CBGAs (which have stabilised sales from 15 of the world's biggest holders of gold). Significantly, gold
sales from official sector sources have been diminishing in recent years. Net central bank sales amounted to just 246
tonnes in 2008.
For more on Central Bank gold holdings >>
For quarterly Reserve Asset statistics >>



 
The process of producing gold can be divided into six main phases: finding the ore body; creating access to the ore
body; removing the ore by mining or breaking the ore body; transporting the broken material from the mining face to
the plants for treatment; processing; and refining. This basic process applies to both underground and surface
operations.
The world's principal gold refineries are based near major mining centres, or at major precious metals processing
centres worldwide. In terms of capacity, the largest is the Rand Refinery in Germiston, South Africa. In terms of
output, the largest is the Johnson Matthey refinery in Salt Lake City, US.
Rather than buying the gold and then selling it onto the market later, the refiner typically takes a fee from the miner.
Once refined, the bullion bars (with a purity of 99.5% or higher) are sold to bullion dealers who, in turn, trade with
jewellery or electronics manufacturers or investors. The role of the bullion market at the heart of the supply-demand
cycle - instead of large bilateral contracts between miner and fabricator - facilitates the free flow of metal and
underpins the free market mechanism.
.


  

  !"  

 Gold - The supply side.
 The Use of Gold in Industrial Applications.
Gold's extensive appeal and functionality, including its characteristics as an investment vehicle, are underpinned by
the supply and demand dynamics of the gold market.


 
Demand for gold is widely spread around the world. East Asia, the Indian sub-continent and the Middle East
accounted for 70% of world demand in 2008. 55% of demand is attributable to just five countries - India, Italy, Turkey,
USA and China, each market driven by a different set of socio-economic and cultural factors. Rapid demographic and
other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of
demand.
Read about Gold Demand Trends in our detailed briefing note, which also includes commentary on supply.
 


 
Jewellery consistently accounts for over two-thirds of gold demand. In the 12 months to December 2008, this
amounted to around US$61 billion, making jewellery one of the world's largest categories of consumer goods. In
terms of retail value, the USA is the largest market for gold jewellery, whereas India is the largest consumer in
volume terms, accounting for 24% of demand in 2008.
Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic
trends. For more on the role of gold in India >>
It should be noted, however, that the economic crisis and the consequent recessionary pressures that developed
over 2007 and 2008 had a significant negative impact on consumer spending and this, in turn, resulted in the reduced
volume of jewellery sales, particularly in western markets.
Generally, jewellery demand is driven by a combination of affordability and desirability by consumers, and tends to
rise during periods of price stability or gradually rising prices, and declines in periods of price volatility. A steadily
rising price reinforces the inherent value of gold jewellery, which is an intrinsic part of its desirability. Jewellery
consumption in the developing markets was, until fairly recently, expanding quite rapidly following a period of
sustained decline, although recent economic distress may have stalled this growth. But several countries, including
China, still offer clear and considerable potential for future growth in demand.

h   
Because a significant portion of investment demand is transacted in the over-the-counter market, it is not easily
measurable. However, there is no doubt that identifiable investment demand in gold has increased considerably in
recent years. Since 2003 investment has represented the strongest source of growth in demand, with an increase in
the last five years in value terms to the end of 2008 of around 412%. Investment attracted net inflows of
approximately US$32bn in 2008.
There are a wide range of reasons and motivations for people and institutions seeking to invest in gold. And, clearly,
a positive price outlook, underpinned by expectations that the growth in demand for the precious metal will continue
to outstrip that of supply, provides a solid rationale for investment. Of the other key drivers of investment demand,
one common thread can be identified: all are rooted in gold's abilities to insure against uncertainty and instability and
protect against risk.
Gold investment can take many forms, and some investors may choose to combine two or more of these for
flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not
always clear, especially since it is possible to invest in bullion without actually taking physical delivery.
The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are
now a wide variety of investment products to suit both the private and institutional investor. More on how to invest >>

h 

 
Industrial, medical and dental uses account for around 11% of gold demand (an annual average of over 440 tonnes
from 2004 to 2008). Gold's high thermal and electrical conductivity, and its outstanding resistance to corrosion,
explain why over half of all industrial demand arises from its use in electrical components. Gold's use in medical
applications has a long history and today, various biomedical applications make use of its bio-compatibility,
resistance to bacterial colonization and corrosion, and other attributes. Recent research has uncovered a number of
new practical uses for gold, including its use as a catalyst in fuel cells, chemical processing and controlling pollution.
The potential to use nanoparticles of gold in advanced electronics, glazing coatings, and cancer treatments are all
exciting areas of scientific research.
For more on industrial and scientific applications of gold >>
For the latest on the industrial markets and growing uses for gold visit www.utilisegold.com. www.utilisegold.com



 
 
Gold is produced from mines on every continent except Antarctica, where mining is forbidden. Operations range from
the tiny to the enormous and there are several hundred operating gold mines worldwide (excluding mining at the very
small-scale, artisanal and often µunofficial¶ level). Today, the overall level of global mine production is relatively stable,
averaging approximately 2,485 tonnes per year over the last five years. New mines that are being developed are
serving to replace current production, rather than to cause any significant expansion in the global total.
The comparatively long lead times in gold production, with new mines often taking up to 10 years to come on stream,
mean mining output is relatively inelastic and unable to react quickly to a change in price outlook. The incentives
promised by a sustained price rally, as experienced by gold over the last seven years, are not therefore easily or
rapidly translated into increased production.

#
c
$

%
Although gold mine production is relatively inelastic, recycled gold (or scrap) ensures there is a potential source of
easily traded supply when needed, and this helps to stabilise the gold price. The value of gold means that it is
economically viable to recover it from most of its uses; at least, that is, where it is in a form that is capable of being, if
need be, extracted, then melted down, re-refined and reused. Between 2004 and 2008, recycled gold contributed an
average 28% to annual supply flows.

& 

 
Central banks and supranational organisations (such as the International Monetary Fund) currently hold just under
one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 29,600 tonnes, dispersed
across 110 organisations). On average, governments hold around 10% of their official reserves as gold, although the
proportion varies country-by-country.
Although a number of central banks have increased their gold reserves in the past decade, the sector as a whole has
typically been a net seller since 1989, contributing an average of 447 tonnes to annual supply flows between 2004
and 2008. Since 1999, the bulk of these sales have been regulated by the Central Bank Gold
Agreement/CBGAs (which have stabilised sales from 15 of the world's biggest holders of gold). Significantly, gold
sales from official sector sources have been diminishing in recent years. Net central bank sales amounted to just 246
tonnes in 2008.
For more on Central Bank gold holdings >>
For quarterly Reserve Asset statistics >>



 
The process of producing gold can be divided into six main phases: finding the ore body; creating access to the ore
body; removing the ore by mining or breaking the ore body; transporting the broken material from the mining face to
the plants for treatment; processing; and refining. This basic process applies to both underground and surface
operations.
The world's principal gold refineries are based near major mining centres, or at major precious metals processing
centres worldwide. In terms of capacity, the largest is the Rand Refinery in Germiston, South Africa. In terms of
output, the largest is the Johnson Matthey refinery in Salt Lake City, US.
Rather than buying the gold and then selling it onto the market later, the refiner typically takes a fee from the miner.
Once refined, the bullion bars (with a purity of 99.5% or higher) are sold to bullion dealers who, in turn, trade with
jewellery or electronics manufacturers or investors. The role of the bullion market at the heart of the supply-demand
cycle - instead of large bilateral contracts between miner and fabricator - facilitates the free flow of metal and
underpins the free market mechanism.
The Gold Bars Worldwide website provides a wealth of additional information regarding the international gold bar
market.

    c
$   
%
There is an increasingly wide range of methods available to investors wanting to buy gold, or gain exposure to gold
price movements. From gold coins to complex structured financial products, the most appropriate way will depend on
the requirements and outlook of the individual investor.
&  





&  





The first gold coins were struck by King Croesus, ruler of Lydia in western Asia Minor
from 560 to 546BC, whose wealth came from the gold from the mines and sands of the River Pactolus. Gold coins
have been legal tender ever since. Bullion coins and small bars offer private investors an attractive way of investing in
relatively small amounts of gold. In many countries - including the whole of the European Union - gold purchased for
investment purposes is exempt from Value Added Tax.

ð

 
Investors can choose from a wide range of gold bullion coins issued by governments across the world (see panel,
below right). These coins are legal tender in their country of issue for their face value, rather than for their gold
content. For investment purposes, the market value of bullion coins is determined by the value of their fine gold
content, plus a premium or mark-up that varies between coins and dealers. The premium tends to be higher for
smaller denominations. Bullion coins range in size from 1/20 ounce to 1000 grams, although the most common
weights (in troy ounces of fine gold content) are 1/20, 1/10, 1/4, 1/2 and 1 ounce. It is important not to confuse bullion
coins with commemorative or numismatic coins, whose value depends on their rarity, design and finish rather than on
their fine gold content. Many dealers sell both.



c


Gold bars can be bought in a variety of weights and sizes, ranging from as little as one gram to 400 troy ounces (the
size of the internationally traded London Good Delivery bar). Small bars are defined as those weighing 1000g or less.
According to industry specialists Gold Bars Worldwide, there are 94 accredited bar manufacturers and brands in 26
countries, producing a total of more than 400 types of standard gold bars between them. They normally contain a
minimum of 99.5% fine gold. The Gold Bars Worldwide website provides a wealth of additional information regarding
the international gold bar market.


 c
c



 
Gold is traded in the form of securities on stock exchanges in Australia, France, Hong Kong, Japan, Mexico,
Singapore, South Africa, Switzerland, Turkey, the United Kingdom and the United States. By design, these forms of
securitised gold investment, all regulated financial products, are generally referred to as Exchange Traded
Commodities or Exchange Traded Funds (ETFs), and are expected to track the gold price almost perfectly. Unlike
derivative products, the securities are 100% backed by physical gold held mainly in allocated form. These securities
have had a major impact on the gold market, representing an annual average of 32% of identifiable investment and
6.5% of total physical demand over the 5 years to 2008. Financial advisors and other investment professionals can
provide further details about these products.

   



Gold futures contracts are firm commitments to make or take delivery of a specified quantity and purity of gold on a
prescribed date at an agreed price. The initial margin - or cash deposit paid to the broker - is only a fraction of the
price of the gold underlying the contract. That means investors can achieve notional ownership of a value of gold
considerably greater than their initial cash outlay. While this leverage can be the key to significant trading profits, it
can also give rise to equally significant losses in the event of an adverse movement in the gold price. Futures prices
are determined by the market's perception of what the carrying costs - including the interest cost of borrowing gold
plus insurance and storage charges - ought to be at any one time. The futures price is usually higher than the spot
price for gold. Futures contracts are traded on regulated commodity exchanges. The largest are the New York
Mercantile Exchange Comex Division (recently rebranded CME Globex, after a merger between Chicago Mercantile
Exchange and NYMEX), the Chicago Board of Trade (part of CME) and the Tokyo Commodity Exchange. Gold
futures are also traded in India and Dubai.
The Commodity Futures Trading Commission provides extensive reports on derivatives trading in the United States.
Tradable commodity indices are based on fully collateralised baskets of long-only commodity futures, all of which
include a small allocation to gold.

  
These give the holder the right, but not the obligation, to buy ('call' option) or sell ('put' option) a specified quantity of
gold at a predetermined price by an agreed date. The cost of such an option depends on the current spot price of
gold, the level of the pre-agreed price (the 'strike price'), interest rates, the anticipated volatility of the gold price and
the period remaining until the agreed date. The higher the strike price, the less expensive a call option and the more
expensive a put option. Like futures contracts, buying gold options can give the holder substantial leverage. Where
the strike price is not achieved, there is no point in exercising the option and the holder's loss is limited to the
premium initially paid for the option. Like shares, both futures and options can be traded through brokers.
'

 
In the past, gold warrants were mostly related to the shares of gold mining companies. Nowadays commonly used by
leading investment banks, they give the buyer the right to buy gold at a specific price on a specific day in the future.
For this right, the buyer pays a premium. Like futures, warrants are generally leveraged to the price of the underlying
asset (in this case, gold), but gearing can also be on a one-for-one basis.


  
Gold bullion banks offer two types of gold accounts - allocated and unallocated:


  
Effectively like keeping gold in a safety deposit box, this is the most secure form of investment in physical gold. The
gold is stored in a vault owned and managed by a recognised bullion dealer or depository. Specific bars (or coins,
where appropriate), which are numbered and identified by hallmark, weight and fineness, are allocated to each
particular investor, who pays the custodian for storage and insurance. The holder of gold in an allocated account has
full ownership of the gold in the account, and the bullion dealer or depository that owns the vault where the gold is
stored may not trade, lease or lend the bars except on the specific instructions of the account holder.
 

  
Investors do not have specific bars allotted to them (unless they take delivery of their gold, which they can usually do
within two working days). Traditionally, one advantage of unallocated accounts has been the lack of any storage and
insurance charges, because the bank reserves the right to lease the gold out. Now that the gold lease rate is negative
in real terms, some banks have begun to introduce charges even on unallocated accounts. Investors are exposed to
the creditworthiness of the bank or dealer providing the service in the same way as they would be with any other kind
of account. As a general rule, bullion banks do not deal in quantities under 1000 ounces - their customers are
institutional investors, private banks acting on behalf of their clients, central banks and gold market participants
wishing to buy or borrow large quantities of gold.
Other opportunities for smaller investors include:


  
There are alternatives for investors wishing to open gold accounts holding less than 1000 ounces. For instance, in
Gold Pool Accounts - where you have a defined, unsegmented interest in a Gold accounts pool of gold - you can
invest as little as one ounce.




  
There are also electronic 'currencies' available - linked to gold bullion in allocated storage - which offer a simple and
cost-effective way of buying and selling gold, and using it as money. Any amount of gold can be purchased, and
these currencies allow gold to be used to send online payments worldwide.

 
 (
 
Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are based on the principle of
putting aside a fixed sum of money every month. What makes GAPs different from ordinary savings plans is that the
fixed sum is invested in gold. A fixed sum of money is- withdrawn automatically from an investor's bank account every
month and is used to buy gold every trading day in that month. The fixed monthly sums can be small, and purchases
are not subject to the premium normally charged on small bars or coins. Because small amounts of gold are bought
over a long period of time, there is less risk of investing a large sum of money at the wrong time. At any time during
the contract term (usually a minimum of a year), or when the account is closed, investors can get their gold in the
form of bullion bars or coins, and sometimes even in the form of jewellery. Should they choose to sell their gold they
can also get cash.




  
Historically, gold certificates were issued by the U.S. Treasury from the civil war until 1933. Denominated in dollars,
these certificates were used as part of the gold standard and could be exchanged for an equal value of gold. These
U.S. Treasury gold certificates have been out of circulation for many years, and they have become collectibles. They
were initially replaced by silver certificates, and later by Federal Reserve notes.
Nowadays, gold certificates offer investors a method of holding gold without taking physical delivery. Issued by
individual banks, particularly in countries like Germany and Switzerland, they confirm an individual's ownership while
the bank holds the metal on the client's behalf. The client thus saves on storage and personal security issues, and
gains liquidity in terms of being able to sell portions of the holdings (if need be) by simply telephoning the custodian.
The Perth Mint also runs a certificate programme that is guaranteed by the government of Western Australia and is
distributed in a number of countries.



  
A number of collective investment vehicles specialise in investing in the shares of gold mining companies. The term
"collective investment vehicles" as used here should be taken to include mutual funds, open-ended investment
companies (OEICs), closed-end funds, unit trusts, and any similar structures. A wide range of such funds exists and
they are domiciled in a number of different countries. These funds are regulated financial products and as such it is
not possible here to provide details on any specific funds.
Funds are likely to differ in their structure - some may invest simply in the shares of gold mining companies, some
may invest in companies that mine minerals other than gold, some may invest in futures as well as mining equities
and some may invest partly in mining equities and partly in the underlying metal (s).
It would be misleading to equate investment in a gold mining equity with direct investment in gold bullion as there are
some significant differences.The appreciation potential of a gold mining company share depends on market
expectations of the future price of gold, the costs of mining it, the likelihood of additional gold discoveries and several
other factors. To a degree, therefore, the success of the investment depends on the future earnings and growth
potential of the company.
Most gold mining equities tend to be more volatile than the gold price. While they are subject to the same risk factors
that influence the prices of most other equities there are additional risks linked to the mining industry in general and to
individual mining companies specifically.






The market for structured products is dominated by institutional investors - or, in the case of forwards, by gold market
professionals - because the minimum investment can be high. The following is a general overview of what these
products are like and how they work.



Like futures, forward contracts are agreements to exchange an underlying asset - in this case, gold - at an agreed
price at some future date. They can therefore be used either to manage risk or for speculative purposes. But there
are important differences between forwards and options traded in the over-the-counter (OTC) gold market on the one
hand, and futures and options traded on one of the exchanges on the other:

> a forward contract (or OTC option) is negotiated directly between counterparties and is therefore tailor-made,
whereas futures contracts are standardised agreements that are traded on an exchange
> although forward contracts offer a greater flexibility and are private agreements, there is a degree of counterparty
risk, whereas futures contracts are guaranteed by the exchange on which they are traded

> because futures contracts can be sold to third parties at any point before maturity, they are more liquid than
forward contracts (whose obligations cannot be transferred).


  

 
Gold-linked bonds are available from the world's largest bullion dealers and investment banks. Their products provide
investors with some combination of:
 exposure to gold price fluctuations
 a yield
 principal protection.
Structured notes tend to allocate part of the sum invested to purchasing put/call options (depending on whether the
product is designed for gold bulls or bears). The balance is invested in traditional fixed income products, such as the
money market, to generate a yield. They can be structured to provide capital protection and a varying degree of
participation in any price appreciations depending on market conditions and investor preferences.

O 
 
 c



  
 
 
)

c 

*    
 
 c
 

A collection of approximately 150 documents, intended as a resource for scholars, journalists, and all those with an
interest in gold's role within the international monetary system.

 
c
)
 


Gold is the world's oldest international currency and has played a role in most countries' currency systems for well
over two thousand years.
Gold's scarcity, the fact that it does not corrode or tarnish, coupled with its malleability so that coins can easily be
shaped and the way in which it has been prized in all civilisations, have made it eminently suitable as a form of
money. The first coin containing gold was thought to have been struck in the eighth century BC and the first pure gold
coin on the orders of King Croesus of Lydia (in what is now Turkey) around 550BC.

Gold coins were then minted by other Mediterranean civilisations and often circulated far outside their countries of
origin. Indeed Roman gold coins were used for long after the fall of Rome itself. During the Middle Ages in Europe
gold and silver formed the basis of the currency systems although gold was too valuable for most day-to-day
transactions.

Over the centuries specie money - made from metals where the value of the coin was essentially based on the value
of the metal itself - was gradually superseded by specie-backed money (starting with bankers' bills of exchange in the
Middle Ages and moving on to state issued token coinage or paper money in the 17th and 18th centuries). These
were tokens that could (at least notionally) be exchanged for gold or silver on demand. Gold, silver or both together
remained the basis of the monetary system. Generally speaking, silver was used for intra-national transactions while
gold was used for inter-national transactions. Britain moved onto a de facto pure gold standard in 1717 - where the
currency was linked to gold at a fixed rate - and onto a de jure standard in 1816 but most countries used a silver or
bimetallic system until around 1870 when the newly emerging Germany moved onto a gold system.

The international gold standard only existed for a comparatively short period - from the 1870s to the outbreak of the
First World War in 1914. Much has been written about it. Views on its success differ but there is broad academic
agreement about certain points. It provided the backdrop to a period of fairly steadily rising economic prosperity and
of generally low and stable inflation. The system survived the shocks of the period well (until the major shock of the
first world war). A crucial advantage of the gold standard was that by offering the near-certainty to foreign investors
that the value of their investment was unlikely to be hurt by the depreciation of the recipient country's currency
relative to their own, it facilitated large flows of international direct investment capital that helped to open up and
develop much of the United States, Canada, Australia and other "emerging markets" of that day. Relative to the size
of the world economy, these flows were as large as or even larger than today's and they were far less volatile.

It was not perfect; there were inevitable lags in the reaction of mine output to price stimuli, there were shocks to the
world supply of gold and fears that the exhaustion of gold stocks would eventually prove deflationary. But it helped to
provide a natural balancing function, in adjusting disequilibria between countries and in holding long-term price levels
generally stable.

Attempts to return to the gold standard after the First World War were badly mismanaged with a return to pre-War
parities in certain countries, despite the intervening inflation, the use of lower parities in others and the blocking of
needed adjustment mechanisms. The fixed dollar-gold parity of US$20.67/troy ounce, which had remained
unchanged through the war years and after, was suspended in 1933 but in 1934 the dollar was re-fixed at a new
parity of US$35/troy ounce.

After the Second World War, the core of the Bretton Woods international monetary system that was established was
that the dollar should be pegged to gold at the $35/troy ounce parity while other currencies should be defined in terms
of the dollar with fixed but adjustable pegs. The Bretton Woods system helped to form what was, at least for western
countries, probably the most successful period of economic history. Growth was high, and inflation, while higher than
in the classical gold standard period, was relatively low and stable. Many developing countries too made rapid
progress during that era. However, as we have noted above, the $35/troy ounce fixed price became unrealistic over
time, partly as a result of existing inflation and a surge in demand for gold as a result of the Vietnam War. The
$35/troy ounce peg was replaced in 1968 by a two-tier system with a free private market, but with gold still
exchanging hands officially at an official rate. When the United States finally abandoned the system in 1971, the last
fixing price before the "gold window" was closed was $42.22/troy ounce, and to this day the United States officially
values its gold holdings at that price.

Since the breakdown of the Bretton Woods system in the early 1970s gold has no longer been been the formal
backbone of the international monetary system and under IMF rules member countries can no longer back their
currencies by it. It nevertheless retains certain monetary functions and is considered by some as "the ultimate form of
payment". Its main formal use is as a reserve asset for central banks. It is widely used as a means of saving in Asia
and the Middle East and at times used in transactions (for example property in Vietnam is often bought using gold).
More recently there have been developments using gold as the basis for private electronic (digital) currency systems.
' 

 
c

Monetary authorities have long held gold in their reserves. Today their stocks amount to some 30,000 tonnes - similar
to their holdings 60 years ago. It is sometimes suggested that maintaining such holdings is inefficient in comparison
to foreign exchange. However, there are good reasons for countries continuing to hold gold as part of their reserves.
These are recognised by central banks themselves although different central banks would emphasise different
factors.

Diversification
Economic security
Physical security
Unexpected needs
Confidence
Income
Insurance
How much gold to hold?

 
   

In any asset portfolio, it rarely makes sense to have all your eggs in one basket. Obviously the price of gold can
fluctuate - but so too do the exchange and interest rates of currencies held in reserves. A strategy of reserve
diversification will normally provide a less volatile return than one based on a single asset.

Gold has good diversification properties in a currency portfolio. These stem from the fact that its value is determined
by supply and demand in the world gold markets, whereas currencies and government securities depend on
government promises and the variations in central banks¶ monetary policies. The price of gold therefore behaves in a
completely different way from the prices of currencies or the exchange rates between currencies.

  


Gold is a unique asset in that it is no one else's liability. Its status cannot therefore be undermined by inflation in a
reserve currency country. Nor is there any risk of the liability being repudiated.

Gold has maintained its value in terms of real purchasing power in the long run and is thus particularly suited to form
part of central banks' reserves. In contrast, paper currencies always lose value in the long run and often in the short
term as well.

( 



Countries have in the past imposed exchange controls or, at the worst, total asset freezes. Reserves held in the form
of foreign securities are vulnerable to such measures. Where appropriately located, gold is much less vulnerable.
Reserves are for using when you need to. Total and incontrovertible liquidity is therefore essential. Gold provides this.

  

If there is one thing of which we can be certain, it is that today¶s status quo will not last for ever. Economic
developments both at home and in the rest of the world can upset countries¶ plans, while global shocks can affect the
whole international monetary system.

Owning gold is thus an option against an unknown future. It provides a form of insurance against some improbable
but, if it occurs, highly damaging event. Such events might include war, an unexpected surge in inflation, a
generalised crisis leading to repudiation of foreign debts by major sovereign borrowers, a regression to a world of
currency or trading blocs or the international isolation of a country.
In emergencies countries may need liquid resources. Gold is liquid and is universally acceptable as a means of
payment. It can also serve as collateral for borrowing.

&   

The public takes confidence from knowing that its Government holds gold - an indestructible asset and one not prone
to the inflationary worries overhanging paper money. Some countries give explicit recognition to its support for the
domestic currency. And rating agencies will take comfort from the presence of gold in a country's reserves.

The IMF's Executive Board, representing the world's governments, has recognised that the Fund's own holdings of
gold give a "fundamental strength" to its balance sheet. The same applies to gold held on the balance sheet of a
central bank.

h  

Gold is sometimes described as a non income-earning asset. This is untrue. There is a gold lending market and gold
can also be traded to generate profits. There may be an "opportunity cost" of holding gold but, in a world of low
interest rates, this is less than is often thought. The other advantages of gold may well offset any such costs.

h 
 

The opportunity cost of holding gold may be viewed as comparable to an insurance premium. It is the price
deliberately paid to provide protection against a highly improbable but highly damaging event. Such an event might
be war, an unexpected surge of inflation, a generalised debt crisis involving the repudiation of foreign debts by major
sovereign borrowers, a regression to a world of currency and trading blocs, or the international isolation of a country.

 c
+

This is a matter for countries and central banks to decide in the light of their particular circumstances. The
international average is about 10.2% at current market prices but, in the EU it is over 50% and the USA holds around
75% of its reserves in gold. Countries facing particular volatility in their economic and/or political circumstances will
want to consider the level of gold in their reserves.

What are commodities?

8 November 2007
Commodity investment has become increasingly popular over the past few years, as the associated benefits have
become more widely known. As global growth has continued unabated, led by the new economic powerhouse of
China, commodities have been consumed at an unprecedented rate. With the rise in demand and problems of tight
supply, prices have risen across most of the commodity spectrum.
Commodity investors, both passive and active, have enjoyed an above-trend performance. However, unlike in
previous bull markets, commodities are no longer just the preserve of institutional portfolios, and there are now many
products available for the retail investor. Moreover, with strong returns, significant newsflow and several available
investment vehicles, investment money has poured into commodity markets.
 
   
Commodities offer many different characteristics to other asset classes and are, therefore, an excellent portfolio
diversifier, no matter how large or small a portfolio. Table one shows the correlation of commodities with equities and
bonds over the past decade and, as can be seen, commodities show little correlation to the main asset classes over
the period.
The reasons for this are fundamental. Unlike bonds, commodities are real assets and tend to hold their value in the
face of inflation. Similarly, they are physically scarce and, as such, experience positive price shocks at times when
other asset classes, such as equities, sell off. The war premium applied to the oil price is a pertinent example of how
commodities can actually be an effective portfolio hedge in uncertain times. Therefore, their inclusion in a balanced
portfolio can help generate strong absolute returns with less risk.
Many investors, however, have been surprised that recent returns from their commodity investments have not
matched the rises in underlying prices. Since the early 90s, the primary avenue available for investing in commodities
has been traditional indices. These indices performed well for a period, but over the past few years it has become
increasingly clear that their performance has been different to that of the commodity spot (cash) price.


Gold price

Gold has been used throughout history as money and has been a relative standard for currency
equivalents specific to economic regions or countries. Many European countries implemented gold
standards in the later part of the 19th century until these were dismantled in the financial crises
involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to
gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US
unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition
to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.

Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-
daily telephone meeting of representatives from five bullion-trading firms of the London bullion market.
Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived
from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth
the gold price versus various assets and key statistics:

Price of 1 troy ounce (31 g) of gold since 1960 in nominal US-Dollars and inflation adjusted by Consumer Price Index CPI-U.


 
  
     
A
 -
  
-

-

  -

 


  
_      


_   _     

_    __   

_    _
 _ _
 

_   _ 
  
 

_  
__   
 

  _
 _ 
 __

  _ _
_  _ 
_ ___

   
  _
 _

_
 
 


  _
 
 

 

_


  
 

_    _
 _ _


[9]
In March 2008, the gold price exceeded US$1,000, achieving a nominal high of US$1,004.38. In real
terms, actual value was still well below the US$599 peak in 1981 (equivalent to $1417 in U.S. 2008 dollar
value). After the March 2008 spike, gold prices declined to a low of US$712.30 per ounce in November.
Pricing soon resumed on upward momentum by temporarily breaking the US$1000 barrier again in late
February 2009 but regressed moderately later in the quarter.
Later in 2009, the March 2008 intra-day spot price record of US$1,033.90 was broken several times in
October, as the price of gold entered parabolic stages of successively new highs when a spike reversal to
$1226 initiated a retrace of the price to the mid-October levels.
[10]
On October 12, 2010, Gold closed at a new nominal high of $1348.50 in NYMEX. On October 7, 2010
[11]
gold prices touched an all time high with an intra-day spot price reaching $1,365.00.

[edit]Factors influencing the gold price

Today, like most commodities, the price of gold is driven by supply and demand as well as speculation.
However unlike most other commodities, hoarding (saving) and disposal plays a larger role in affecting its
price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and
mass-produced jewelry, with little value over its fine weight ² and is thus potentially able to come back
onto the gold market for the right price.[12][13] At the end of 2006, it was estimated that all the gold ever
mined totaled 158,000 tonnes (156,000 LT; 174,000 ST).[14] This can be represented by a cube with an
edge length of 20.2 metres (66 ft).

At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold
as official gold reserves.[15] Given the huge quantity of gold stored above-ground compared to the annual
production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual
production.[16] According to the World Gold Council, annual mine production of gold over the last few
years has been close to 2,500 tonnes.[17] About 2,000 tonnes goes into jewellery or industrial/dental
production, and around 500 tonnes goes to retail investors and exchange traded gold funds.[17] This
translates to an annual demand for gold to be 1,000 tonnes in excess over mine production which has
come from central bank sales and other disposal.[17]

Central banks and the International Monetary Fund play an important role in the gold price. The ten year
Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its
members (Europe, United States, Japan, Australia, Bank for International Settlements and the
International Monetary Fund) to less than 500 tonnes a year.[18] European central banks, such as
the Bank of Englandand Swiss National Bank, were key sellers of gold over this period.[19] In 2009, this
agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.[20]

Although central banks do not generally announce gold purchases in advance, some, such as Russia,
have expressed interest in growing their gold reserves again as of late 2005.[21] In early 2006, China,
which only holds 1.3% of its reserves in gold,[22] announced that it was looking for ways to improve the
returns on its official reserves. Some bulls hope that this signals that China might reposition more of its
holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold
[23]
which has led to a surge in prices.
The price of gold is also affected by various well-documented mechanisms of artificial price suppression,
arising from fractional-reserve banking and naked short selling in gold, and particularly involving
the London Bullion Market Association, the United States Federal Reserve System, and the
[24][25][26][27]
banks HSBC and JPMorgan Chase. Gold market observers have noted for many years that the
[28]
price of gold tends to fall artificially at the start of New York trading.
ð 


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 happened in the USA during the Great Depression of the 1930s, leading President
Roosevelt to impose a national emergency and issue an executive order outlawing the ownership
[29]
of gold by US citizens. There was only one prosecution under the order, and in that case the
order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order
[30]
was signed by the President, not the Secretary of the Treasury as required.
, 
 c 

 


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
[31][32]
which led to an economic bubble forming in precious metals.
'
-  -
 c-
 
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 rise