Global Gold Market

Global Gold Market


Key Position in International Markets

Hong Kong has secured a key position in the international gold market. This important role is attributed to a number of factors. They include political stability, free trade, a respect for private ownership, a sound and established legal system, good communications networks, sophisticated telecommunications facilities, a strong financial system and a stringent regulatory system. Yet another important factor worth noting is that Hong Kong spans across the Asia time zone and it provides pricing information for the gold market after the close of New York market and before the opening of the London market. Because of this connection, international investors can continue their trading, hedging or arbitrage activities in Hong Kong. Effectively, the emerging of Hong Kong gold market turns the trading of gold around-the-clock.


The London Bullion Market

London is the focus of the international Over-the-Counter (OTC) market for gold and silver, with a client base that includes the majority of the central banks that hold gold, plus producers, refiners, fabricators and other traders throughout the world.

Members of the London bullion market typically trade with each other and with their clients on a principal-to-principal basis, which means that all risks, including those of credit, are between the two counterparts to a transaction. This is known as an ‘Over the Counter’ (OTC) market, as opposed to an exchange traded environment.


The London bullion market is a wholesale market, where minimum traded amounts for clients are generally 1,000 ounces of gold and 50,000 ounces of silver. Unlike a futures exchange – where trading is based around standard contract units, settlement dates and delivery specifications – the OTC market allows flexibility. It also provides confidentiality, as transactions are conducted between the two principals involved.



London Gold Market History

Records trace bullion transactions in London back to the 17th century with the formation of the oldest original member of the market, Mocatta and Goldsmith, in 1684. It was, however, the introduction of the London Silver Fixing in 1897 and the London Gold Fixing in 1919 that marked the beginning of the market’s structure and of the co-operation between members that has created the marketplace as it is today.

The five members of the London Gold Fixing dominated the UK marketplace until 1980 when, fuelled by oil price inflation and spiralling international tension, gold reached $850 per ounce and silver $50. The level of activity and profitability in the market drew increasing global attention, which resulted in an influx of international players to London and set the market on course to become the centre of the international arena that it is today.



Loco London Gold

Loco London is a concept that is perhaps the most important aspect of the London bullion market as it represents the basis for international trading and settlement in gold and silver. Most global over-the-counter gold and silver trading is cleared through the London bullion market clearing system, with deals between parties throughout the world settled and cleared in London.

This concept has evolved over time. In the second half of the nineteenth century, London developed as the centre through which gold from the mines of California, South Africa and Australia was refined and then sold.

With this business as a base, and supported by the increasing acceptance of the London Good Delivery List, London bullion dealing houses established global client relationships. These clients opened bullion accounts with individual London trading houses. It soon become evident that these “loco London” accounts, while used to settle transactions between bullion dealer and client, could also be used to settle transactions with other parties by transfers of bullion in London. Today, all such third party transfers on behalf of clients of the London market are effected through the London bullion clearing system.


Trading Unit

For gold, this is one fine troy ounce, and for silver, one troy ounce. In the case of gold, the unit represents pure gold irrespective of the purity of a particular bar, whereas for silver it represents one ounce of material of which a minimum of 999 parts in every 1,000 will be silver.


Troy Ounce

The traditional unit of weight used for precious metals. The term derives from the French town of Troyes, where this unit was first used in the Middle Ages. One troy ounce is equal to 1.0971428 ounces avoirdupois. In the bullion market, all references to ounces mean troy ounces.


The Loco London Spot Price

This is the basis for virtually all transactions in gold and silver in London. It is a quotation made by dealers based on US dollars per fine ounce for gold and US dollars per ounce for silver.




Unit for Delivery of Loco London Gold

This is the London Good Delivery gold bar. It must have a minimum fineness of 995.0 and a gold content of between 350 and 430 fine ounces with the bar weight expressed in multiples of 0.025 of an ounce - the smallest weight used in the market. Bars are generally close to 400 ounces or 12.5 kilograms.


Unit for Delivery of Loco London Silver

This is the London Good Delivery silver bar. It must have a minimum fineness of 999 and a recommended weight between 750 and 1,100 ounces, although bars between 500 and 1,250 ounces will be accepted. Bars generally weigh around 1,000 ounces. Both gold and silver bars must conform to the specifications for Good Delivery set by the LBMA. Further information can be found in the Good Delivery section.


Bar Weights and Their Agreed Fine Gold Content in Troy Ounces

This is the London Good Delivery silver bar. It must have a minimum fineness of 999 and a recommended weight between 750 and 1,100 ounces, although bars between 500 and 1,250 ounces will be accepted. Bars generally weigh around 1,000 ounces. Both gold and silver bars must conform to the specifications for Good Delivery set by the LBMA. Further information can be found in the Good Delivery section.


Gross weight 995.0 assay 999.0 assay 999.9 assay
      1 kilo       31.990       32.119       32.148
      ½kilo       15.995       16.059       16.074
      ¼ kilo       7.998       8.030       8.037
      200 grams       6.398       6.424       6.430
      100 grams       3.199       3.212       3.215
      50 grams       1.600       1.607       1.608
      20 grams       0.640       0.643       0.643
      10 grams       0.321       0.322       0.322
      5 grams       0.161       0.161       0.161
      100 ounces       99.500       99.900       99.990
      50 ounces       49.750       49.950       49.995
      25 ounces       24.875       24.975       24.998
      10 ounces       9.950       9.990       9.999
      5 ounces       4.975       4.995       5.000
      1 ounces       0.995       0.999       1.000
      10 tolas       3.731       3.746       3.750
      5 taels       5.985       6.011       6.017

CME: The Gold Futures Market in USA

Gold futures are hedging tools for commercial producers and users of gold. They also provide global price discovery and opportunities for portfolio diversification. In addition, they:


  • Offer ongoing trading opportunities, since gold prices respond quickly to political and economic events
  • Serve as an alternative to investing in gold bullion, coins, and mining stocks

About Gold

Since ancient times gold has been coveted for its unique blend of rarity, beauty, and near indestructibility. Nations have embraced it as a store of wealth and a medium of international exchange, and individuals have sought to possess it as insurance against the day-to-day uncertainties of paper money.

Following the California gold discovery of 1848, North America became the world's major gold supplier. From 1850 to 1875, more gold was discovered here than in the previous 350 years. By 1890, the gold fields of Alaska and the Yukon were the principal sources of supply and, shortly afterwards, discoveries in the African Transvaal indicated deposits that exceeded even these. Today, the principal gold producing countries include South Africa, the United States, Australia, Canada, China, Indonesia, and Russia.

Gold is a vital industrial commodity. It is an excellent conductor of electricity, is extremely resistant to corrosion, and is one of the most chemically stable of the elements, making it critically important in electronics and other high-tech applications.


Gold Futures

  Product Symbol

GC

  Venue

CME Globex, CME ClearPort, Open Outcry (New York)

  Hours
  (All Times are New   York Time/ET)

CME Globex:

Sunday – Friday 6:00 p.m. – 5:15 p.m. (5:00 p.m. – 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

CME ClearPort:

Sunday – Friday 6:00 p.m. – 5:15 p.m. (5:00 p.m. – 4:15 p.m. Chicago Time/CT) with a 45-minute break each day beginning at 5:15 p.m. (4:15 p.m. CT)

Open Outcry:

Monday – Friday 8:20 a.m. - 1:30 p.m. (7:20 a.m. - 12:30 p.m. CT)

  Contract Size

100 troy ounces

  Price Quotation

U.S. Dollars and Cents per troy ounce

  Minimum   Fluctuation

$0.10 per troy ounce

Information from: HK CGSE ; London Bullion Market Association; CME USA