Those who are not familiar with financial and commodity markets tend to believe that the international gold market is the smallest commodity market in the world. This popular misconception stems from statistics on annual gold production. However, other figures suggest just the opposite. Gross volume of transactions involving gold far exceeds the production volume of the yellow metal. Find out how the international gold market works, where the precious metal is most heavily traded, and who takes part in gold trading in our article.
The gold market is a combination of domestic and international markets where the yellow metal and its derivatives are traded. In other words, the global gold market represents a commodity and financial center where the precious metal is traded at a set market price. Large banks, exchange floors, and some other institutions usually act as such centers.
Similar to a currency market, the global gold market is open 24 hours a day. Gold trading starts in the Far East and New Zealand gradually shifting to the following time zones including Sydney, Tokyo, Singapore, and so on. Finally, the last market to open is the one in New York. Today there are around 50 gold markets in operation, namely 19 in Asia, 14 in North America, 11 in the European Union, and 8 in Africa.
Ready-for-sale bullions are kept in the form of London Good Delivery bars of different sizes. On international markets, the most commonly traded bars are standard bullions weighing 12.5kg (400 troy ounces) of 995 or 999 fine gold. On domestic markets, there are bars weighing from 5-10 grams to 1kg as well as rolled sheets, plates, coins, disks, and even gold sand.
Transactions on the gold market are processed in a national currency (domestic market) or in US dollars (international markets) per troy ounce of fine metal in bullion. One bullion serves as a unit of trading, and only a round number of those can be shipped.
Types of gold markets
International markets are characterized by large-scale deals and various types of transactions. In addition, there are no such things as customs control or taxation. Gold transactions are conducted day and night at wholesale and small-scale wholesale level. The international market is regulated by its participants. Major international markets for gold are located in London, New York, Zurich, Chicago, Dubai, and Hong Kong.
The domestic market is directed at investors and hoarders from one or several countries. Gold is traded in the form of coins and small bars on such kind of a market. All payments are made in local currencies. National governments regulate domestic markets by pulling particular economic levers such as government price control, taxes, restrictions on imports and exports of precious metals.
The black gold market is a shadow version of a domestic market, which appeared as a result of strict government limitations imposed on gold circulation. Black markets exist along with closed markets. Such underground markets can be found in Pakistan and India.
Gold market participants
Institutions that act as sellers of gold are gold mining companies, central banks, large individual holders, and investors. Buyers are various industries, jewelry companies, private investors, speculators, and central banks.
Major bullion trading centers
The majority of gold bullion operations are conducted in large markets in Zurich and London. Originally, London held dominant position in the international gold market shipping South African gold across Europe. In the late 1960s, Zurich took over as a leader in the global gold market. This happened after South Africa established immediate contacts with banks and other key buyers and started to ship 80% of all gold produced in the country to the gold market in Zurich. When the ban on private ownership of gold was lifted in the United States in 1975, the Chicago and New York markets joined global trading.
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