Gold is called the most reliable object for investment. However, the mechanism of formation of the world price of yellow metal remains a mystery in many respects. Nowadays, the cost of the most famous in the history of storage means of savings raises a lot of questions.
Definition
Gold spot market - a trading platform where the conclusion of a transaction for the purchase of this precious metal implies the immediate delivery of physical goods. The name comes from the English word, roughly corresponding to the concept of "cash." The gold spot market operates on the basis of the “delivery versus payment” formula. This means that when concluding a transaction, counterparties must confirm the availability of the necessary quantity of goods and cash, and then make an exchange as soon as possible. In modern practice, the classic form of the cash market is becoming a rarity. Bidders usually allow deferred delivery and payment and partially partially unsecured transactions.
Story
For millennia, people have not had the idea that gold is a commodity. Precious metal served as a measure of value and means of payment. In the Middle Ages, gold was compared only with another physical asset playing the role of money - silver. Exact information about changes in the price ratio of the two main noble metals from the 12th century to the present day has been preserved. According to medieval merchants, silver was 15 times inferior to gold in purchasing power. Currently, this ratio ranges from 50-80.
The danger associated with the transportation of precious metals has led to the emergence of a cashless payment system. Her inventors were knights belonging to the Knights Templar. Monk soldiers accepted the gold of merchants and travelers for storage and guaranteed its receipt at any of the many branches of the military religious organization. The banking system of the Templars issued special documents to their clients, confirming the fact of possession of a certain amount of precious metal. These receipts marked the beginning of the paper money system that emerged in the following centuries.
gold standard
In the early stages, the widespread use of treasury bills did not diminish the role of monetary metals. Paper money aroused the confidence of the population only if there was a guarantee of the exchange of banknotes for a fixed amount of gold. Governments were forced to issue currencies in strict accordance with the volume of precious metal in public vaults. This principle is known in history as the gold standard.
In that era, there was no pricing of precious metals in the modern sense. There was no spot gold market. National currencies were considered solely as derivatives of yellow metal, which remained the only real form of money.For example, throughout the 19th century, $ 20 was the equivalent of one troy ounce of gold. The fluctuations of the noble metals rates that were usual in our day were unknown at that time. The principle of providing currencies with solid assets seemed indestructible, but dramatic changes awaited the financial system in the 20th century.
Bretton Woods and Jamaican Agreements
At the end of World War II, an international conference on the organization of monetary and trade relations was held at a mountain resort in the US state of New Hampshire. The negotiators decided to establish a fixed rate of one troy ounce of gold - 35 US dollars. This agreement put the American currency in a privileged position. As a result of World War II events, about 70% of global gold reserves were concentrated in the United States. This allowed us to make the American dollar the base currency of international settlements. One of the main conditions of the agreement provided for guaranteed conversion of US currency into physical gold at the established rate. The Bretton Woods system worked successfully as long as the American reserves of yellow metal were large. Problems began in the mid-70s of the last century, when the US government refused to fulfill its international obligations to convert the dollar into gold. The crisis of the Bretton Woods system was the impetus for a new agreement. The participants in the so-called Jamaican conference agreed on the complete abolition of the gold standard. Exchange rates and yellow metal steel will be determined exclusively in the course of free trading.
US spot gold market
The main characteristic of a transaction with cash goods is considered to be delivery within 24 hours. Is there a spot gold market that meets this criterion? There is a very limited number of wholesalers and buyers of precious metals in the world. There is no centralized gold trading in America's spot market. In the USA, no reliable reports on the supply of physical metal are published. Nevertheless, leading quotation providers broadcast gold price charts on the spot market in New York.
Course
The so-called London fixing has traditionally been considered a global reference point for the value of cash in yellow metal. Trading results in the UK capital are published twice a day. Participants in transactions are large dealers. The chart of gold in the New York spot market is often different from the London fixing. The organization of American and British bidding is equally lacking in transparency. These facts indicate that there is no reliable information on the gold exchange rate on the spot market in the world. A small number of large wholesale dealers are quite capable of combining their efforts with the aim of price manipulation.
Futures transactions with precious metals cannot serve as a guideline for value, since in most cases they do not end with the delivery of a physical commodity. The conclusion suggests itself that the global financial elite is not interested in creating a transparent cash gold market.
