Will Gold Traders Strike Gold?

Gold traders and the sellers of gold coins are witnessing a surge in the sales of the yellow metal, Bloomberg said in a report on August 1, 2011. The report further stated that there was a “global rush from investors seeking refuge from debt and banking crises.” Bloomberg added that investment into the previous metal rose rapidly in view of Greece being bailed out for a second time, US leaders debating about borrowing limits and the cost of insuring against bank defaults surging to a six-month high.

By August 2011, gold prices have risen 14%, marking the longest winning streak for gold traders since 1920. According to Bloomberg’s tracking of the four most precious metal forecasters over the past two years, gold is expected to cross $1,900 per ounce in 2012. Central Banks all over the world added 155 metric tons of the bullion, valued at $8.1 billion in the first five months of 2011, according to the World Gold Council.

Gold Traders: History of the Yellow Metal

Gold, being rare and difficult to mine, has been a precious metal used for gaining political power and making investments by countries. The yellow metal has proved its superiority over other metals by the phenomenal attempts made by people to possess more of it. In the attempt to find gold, the Phoenicians, Egyptians, Indians, Chinese and other races were sent to work as slaves in gold mines.

Gold trading began after the Second World War, following the Bretton Woods Conference in 1946. The conference involved 730 delegates from the 44 allied countries. They signed an agreement for rebuilding the world economy after the widespread devastation caused by the War. Gold was priced at $35 an ounce then. It was backed by the US dollar which eliminated any profit that people could make by trading gold.

It was in 1971, under President Nixon, that the Bretton Woods System was abandoned, opening the doors for gold trading. This lifted the 41 year long ban on gold trade. On December 31, 1974, Public Law 93-373 removed all restrictions on purchasing, selling, holding and even dealing in gold by private banks and individuals. Gold prices skyrocketed, as people started experimenting with gold trading.

In 1980, gold prices hit a new record high of $850 per ounce. This was triggered by double digit inflation rates, strong oil prices and the intervention of the Soviet Union in Afghanistan. With the uncertainties arising from the economic and political factors, investors began putting in a lot of money into gold. The upswing in prices was followed by a 19 year long bear market in gold trade.

In 1999, gold prices fell to rock bottom at $251 due to the Central Banks reducing their share of gold reserves. Also, companies dealing with gold mining started selling the yellow metal in the futuress market to protect themselves from the sharp decline in gold prices. Some gold traders benefited from this downtrend in gold prices, as they were buying long and shorting gold. But the number of such traders was overshadowed by those who suffered losses.

Gold prices were around $280 at the turn of the millennium. Prices surged more than 150% to cross $725 in May 2006. Although gold prices declined subsequently, there was still upside left. During 2010, there was a continued rally in prices, which jumped from about $1,044 in February to past $1,431 in December.

August 2011 saw gold prices surging past the $1,800 per ounce mark. Used for a variety of reasons, ranging from jewelry to for portfolio diversification, gold trading received a fillip.