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20 August 2011

Gold as Investment Instrument

InstaForex Company suggests you to get acquainted with one of the most stable and effective instruments of capital saving. Nowadays, almost every interested person can get an access to the global gold market and invest his/her funds in this precious metal. Moreover, gold can be not only a dead weight but also a profitable deposit. You can use gold in futures deals, which bring tangible yield. It is very gainful to invest in gold at the period of crises, when other investment instruments cannot give the same result.

Gold is the oldest and the most efficient measure of capital and wealth assessment. Other precious metals were used for the same purposes. Generations were changing, however, for everybody gold was a common equivalent as well as a means of payment and a commodity at the same time. The "gold standard" system exerted a great influence on the world economic development in the 19th – 20th centuries. National borders receded in the face of gold and it served as the main world currency until the 70’s of the 20th century. Due to this, operations with precious metals were under strict control. Generally, the transactions were conducted at the level of the states' monetary authorities and the international financial organizations.
However, as a result of contradictions within the system, qualitative changes took place and currency rates became floating.As a consequence, the gold's role was changed, on the legal basis it was excluded from the world currency turnover. Liberalization of gold deals began; the private individuals’ rights for physical possession of metals were expanded. The precious metals market altered, thus not only the market structure, but also its members and the line of operations changed. Nowadays, gold is no longer a payment facility; however it has not left the system of economic relations. Today the world gold market is a complex of domestic and international markets, which are almost independent from the governments’ control. All this guarantees a 24-hour global trading both in precious metals and in their derivative instruments.
The structure of the demand on the world gold market can be nominally divided into 3 sectors: hoarding at all levels, industrial and domestic consumption and speculative operations. Supply consists of precious metals, private and government reserves, processions of secondary raw materials (gold) and illegal traffic.
The main sources of supply are gold producers; the main buyers are those who use it for industrial purposes. Both appear on the market irregularly due to different factors. However, we will dwell upon surges and recessions on the market of precious metals further.
Gold markets
The international gold markets are located in such cities as Zurich, Hong-Kong, London, New-York, Dubai. Strict requirements are imposed on rather few market participants. They are usually big banks and specialized companies, which have good reputation and credit standing. Spectrum of possible transactions at the international market is rather wide. There are no taxes and customs control. Large operations with precious metals are conducted 24 hours a day, which is provided by an extensive clients' network related to gold market. The deals are not rigidly regulated, as the rules are made by market participants.
Domestic gold markets are the markets of one or several countries focused on local investors mainly. They are divided into open and regulated markets. The open markets are nearly all markets in Europe, for example, in Milan, Paris, Amsterdam, and Frankfurt-on-Main. The regulated markets are located in the Third World countries. On domestic markets, the operations are mostly made with small bars and coins with national currencies being the means of payment.
Black markets can be found in some countries of the Asian region. Their emergence is stemming from the total governmental control of the operations with gold. The black markets co-exist with closed ones. A closed market is a form of a domestic market organized radically, where the import and export of gold are banned and because of taxes’ rates the precious metals' trading is not really profitable by the reason of the domestic prices exceeding the world gold prices.
Participants of gold markets
Mostly the primary gold is provided by the gold producers. They can be either small enterprises or big corporations. It is quite logical that the company’s influence on the market depends on the quantity of gold supplied by it. Consequently, other market participants pay special attention to the behavior of the major gold producers.

Industrial and jewellery enterprises, as well as companies which deal with refining (clearing of gold).

In some countries there are special sections on the largest stocks which deal with precious metals’ trading and gold in particular.

Different interests of investors lead to various types of investments in the related to gold instruments. As a rule, the most popular instruments for gold market investors are CFDs.

Banking sector
National banks are the hugest operators at gold market, they make rules. It should be mentioned, that active sales of gold reserve is not their main goal but they are demonstrating interest to active utilization of the reserves. The central banks have great influence on the market conditions which was revealed in the 90’s of the 20th century. National banks have big influence on the market climate which has become especially noticeable in the 90's of the 20th century.

Intermediary and dealers
Professional intermediaries and dealers on the gold markets are specialized companies and commercial banks. They have one of the leading functions as almost all gold goes to their hands at first.

Physical metal market
The largest volume of operations with physical gold is carried out in London and Zurich. Firstly, the major part of all gold trading operations were conducted in London, which was facilitated by the deliveries of the metal from the countries of the British Commonwealth (mostly from the Republic of South Africa). They were attracted by the skilful organization of precious metals trading. Gold was transported from London to continental Europe and from there it was forwarded to the Middle East.

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