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Sunday, July 15, 2012

Gold Price vs Gold Price vs Gold Price


Gold Bullion
There is more than one gold price it seems. In fact there are three.

Spot Gold Price
Gold Futures Price
Real Gold Price

Spot Gold Price
Firstly there is the Spot Gold Price. The spot price of gold refers to the price paid immediately upon delivery of gold on order. The spot price of gold is updated throughout the day around the world and can be seen posted on many websites.  It is posted live on goldprice.org also.

It is the price that gold is being bought and sold on the Comex (Commodity Exchange) in New York. A gold price is also set by the five members of the London Gold Pool1 and is used as a benchmark for the pricing of gold, gold products and derivatives world wide. The spot gold price is often regarded as the actual or real value of gold at any given time in the marketplace. This is in contrast to the future gold price which is the expected value of gold at some time in the future.2

Gold Futures Price
So the Gold Futures Price is the price to be paid on gold at some future date rather than right now.  This is the gold price you often see glibly given in the media as the ‘gold price’. Sometimes they say ‘gold futures’ price but sometimes they omit the word future giving the apparency that this is the actual gold price when it is not.

In pricing gold futures, the futures price is determined using the spot price, the risk free rate and time to maturity of the contract (along with any costs associated with storage or convenience). It also includes the expected change to the price of gold.  The Gold futures price, as has been noted frequently by various analysts, is subject to manipulation such as short selling or shorting for example.

Short selling, in this case, is selling gold that you do not own but that you promise to deliver at some time in the future. How this works is that your broker lends you the gold from their or another’s (broker) inventory. The shares will be sold and the funds credited to your account.  Eventually you will need to close the short by buying back those shares (this is called covering) and return them to your broker.  Now people that short sell are betting that the price will drop so they can then buy back the gold at a lower price and make a profit on the difference. If the price rises, of course, you would have to buy back at the higher price and consequently lose money.  It is this manipulation that causes the price of gold to be so volatile.

This is all done on paper you understand, no actual gold changes hands.  The buying and selling takes place before the designated time is up.  Other complexities can enter into this but essentially this is a paper gold price more than anything else.

Real Gold Price
The real gold price however is what would someone be willing to pay for gold in the open market place?  If gold could be bought on the open market (and it can if you know where to go) you can buy all sorts of gold from gold bullion to nuggets, coins to blanks, gold biscuits to gold jewelery.  There is invariably a premium to pay but even so the material value people place on gold determines the real price people will pay. Check out the volume and prices of gold in such places as China and Indian and you get a real sense of the value people have in storing their assets in gold.

This can easily be seen with the price that gold is selling for on eBay.  Checking the eBay gold prices, for example, (http://goldprice.org/ebay-gold-prices/) shows that gold generally sells for a minimum of around 4 percent and up to 18 or so percent above the spot or futures price.  The highest commanding gold is the Canadian Maple Leaf one ounce gold coins at about 18 percent over premium with the American Gold Eagle close behind at 14 percent.  Gold bullion is up to 5 percent on average (the price changes on a regular basis and can be seen if you refresh the page every few minutes) so the spot price of gold you see in the media is generally the lesser price or cheaper if you will.


 This is a screenshot of today’s current prices.
So there is more than one gold price it seems.  You can also calculate your gold price by going to http://goldprice.org/Calculators/Gold-Price-Calculators.html.
 Which one is the right one?  Well the one that people are willing buy gold for of course, the real gold price!




Friday, July 13, 2012

A Personal Gold Standard


A personal gold standard
Why not have your own personal gold standard?
Some people have started doing that already. Brian, in Manchester, UK sold his house and turned all his cash into gold.
"I started in 2005 and now I've got £200,000 worth - about half of what I own - in gold. If I kept all my money in the bank, the value of my work would either devalue over the long-term or it would be wiped out."
And Frances, who sold her flat in 2008, and investing 40,000 pounds in gold in a vault in Switzerland also stated, "I don't fear a financial Armageddon, but I do fear governments, in their desperate search for wealth, constantly printing more money to deal with the debt that they have at the expense of people like me. So I need to protect against that."
Their concern, like many, is that inflation will erode the value of their savings over time and banks, concerned with their own self interest will fail to protect them if the financial crisis deepens.
Many people now are converting their assets or fortunes directly to gold.  Putting them on a personal gold standard if you like.
Not good according to DeAnne Julius Former member of The Bank of England's Monetary Policy Committee.  He stated, “I think to put your faith in gold as the basis of a country's monetary system would be extremely foolish” 
So Johnny Q public is being encouraged to buy freshly printed ‘QE’ paper money while banks are furiously buying up as much gold as they can possibly lay their hands on.  It’s the old story, don’t do as I do, do as I say.
But more and more people are wising up and piling assets into gold or silver.  More and more people are adopting their OWN personal gold standard.
The gold price is currently being held down. Reports are now even surfacing in the mainstream media of gold price manipulation as the price is firmly help down so banks can buy, virtually at cost (Gold mining companies operate on a basis of requiring 1300 minimum per ounce in order to cover costs and need at least 1400 per ounce to make a profit).
Meanwhile, back at the ranch, china is buying up as much gold as she can while hoarding all its own gold, none of which is for export.
According to a Gold Council recent report for the first quarter of 2012, “Gold demand in China was boosted by the local New Year holiday to a record 255.2 tonnes, making it the largest consumer market during the quarter.”
It is expected that within the next five years, China will announce an update of its gold reserves and this is likely to be within the region of 5,000 tons, making it the second largest official owner of gold in the world.  

This is likely to given them a firmer control over the gold market and all attempts by the West to hold prices down will then prove futile.

One analyst stated, “China will probably make this announcement on a weekend. By the time trading resumes, the gold price will have 'gapped up'.”

$5,000 an ounce is, then, entirely probable, if not higher and
wealth would instantly transfer from bondholders to gold holders.

This will be what the banks are patiently waiting for as they quietly accumulate gold in their coffers. Their reserves will then be 'safe'.

It will also be a boon to those who have set up their own personal gold reserve.