The Gold Glossary: Terms and vocabulary
Interested in physical gold investing, but unfamiliar with some of the language in the gold market? This article teaches you the vocabulary of commonly used terms and acronyms to help you better understand how to invest in gold.
Allocated Gold
Allocated gold is physical gold that’s stored in a professional vault which belongs to the owner outright. Allocated gold doesn’t feature on on the vault provider’s balance sheet and isn’t exposed to any outside factors because it’s not an asset of that company. Is a type of Direct Investment in gold.
Bid Price
The price where traders, market makers, or dealers are willing to purchase an asset.
Bullion
Bullion is gold, silver or other precious metals in the form of bars, ingots or specialised coins.
Bear Market
A downwards or bearish market is when prices are falling, encouraging selling.
Bull Market
A bull market means that the market is rising, encouraging buying.
Central Bank
The primary, national bank of a country that carries out the government’s monetary policy, issues currency as well as providing financial and banking services to government and the banking system. Examples of central banks included the United States Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England.
Deflation
A general decrease in prices of goods and services over time and thus a rise in the purchasing power of money. The opposite of inflation. At a macro level deflation is usually seen during times of crisis, credit contraction or a general decline in the money supply. At a micro level deflation can be seen in highly competitive industries, such as technology, which forces prices down via innovation.
An ETF stands for exchange-traded fund, a financial instrument based on the underlying asset. The largest gold ETF is the SPDR gold Trust. When investing in an ETF, you don’t own physical gold – you’re taking out a contract on its price movement.
Fiat Currency
A government-issued currency that is not backed by a physical commodity such as gold but rather the government itself. Also known as paper money or fiat money. The value of the currency is linked to the reputation and faith in the country itself as well as the current macroeconomic outlook.
Fiscal Policy
The means to which a government asserts its influence over the economy. The key components are government spending and tax revenues.
Gold Futures
A gold future is a contract to trade a specific amount of gold at a set price decided now, but with a future settlement date. That means you don’t have to pay yet (at least not in full) and the seller will not deliver until the specified date in the contract. Futures contracts are traded on formally recognised exchanges, such as the US Comex in New York or Shanghai Gold Exchange.
Gold Standard
A monetary system where the nation’s currency is backed by a fixed quantity of gold. No longer used though many countries retain substantial gold reserves.
Helicopter Money
Can be thought of as unconventional expansionary monetary policy in which central banks can pay money directly to individuals, businesses or finance governments.
A swift, out-of-control and extreme increase in the general price level within an economy sometimes defined as at least 50% increase per month. Without fail, incredibly burdensome for societies as general commerce becomes exceptionally difficult, often resulting in shortages of food and key goods and societal or state breakdown.
A general increase in prices of goods and services and thus a fall in the purchasing value of money. The opposite of deflation. When a currency loses value more rapidly, demand for gold or Silver in that currency may rise as individuals look for a more stable store of wealth and value.
LBMA
The London Bullion Market Association (LBMA) represents the wholesale gold and Silver market worldwide. Its members provide the banking, dealing, vaulting and transport services which buyers and sellers need to trade large-bar gold and Silver efficiently.
Liquidity
The ease at which an asset can be traded without adversely affecting its price. gold is an example of a very liquid asset.
Undertaken by a nation’s central banks in order to achieve macroeconomic goals that enable sustainable economic growth. The primary tool is controlling the money supply. This can be classified as expansionary or contractionary. Changing interest rates is one such method of controlling the money supply. In recent years, additional tools have been used more widely such as emergency lending programs, direct purchase of securities, yield-curve control in order to counter deflation and create low, stable inflation.
Offer Price (sometimes called the Ask Price)
The price where investors, traders, market makers, or dealers are willing to sell an asset.
Over the Counter (OTC)
Over-the-counter markets are those in which buyers and sellers trade directly between one another, with no use of a central exchange or other intermediaries.
Spot Market
A market where assets are traded for immediate delivery. This contrasts with a Futures Market where settlement is at a future, specified date.
Stagflation
Defined as a period of inflation during a time of economic contraction or stagnation, specifically with high unemployment.
Troy Ounce
One of the generally accepted weight measurements for precious metals that dates back the Middle Ages in Troyes in France. One Troy Ounce equates to 31.1034768 grams.
Unallocated gold
Usually found in banks as a service to offer clients exposure to gold as an asset. However, the client is not the owner of the gold and it remains the property of the bank. Instead, the client’s money is backed by an equivalent amount of gold. The client effectively becomes a creditor of the bank in this regard and is not able to take actual ownership of the gold.
