Glossary of Terms

ACCELERATED SUPPLY

Gold sold to the market before it is physically produced – generally created by producer hedging or finance transactions.

ALIQUOT

A small representative sample taken from a precious metals bar for assay to determine its fine precious metals content.

ALLOCATED ACCOUNTS

These accounts are opened when a customer requires metal to be physically segregated and needs a detailed list of weights and assays.

ALLOY

A mixture of two or more chemical elements, including at least one metal. In the case of gold, it is mixed with a baser metal or metals to lower the purity, influence the colour or add durability.

AMERICAN-STYLE OPTION

An option which can be exercised at any stage during its life, at or before expiration date.

ARBITRAGE

Simultaneous buying and selling of the same asset in different markets in order to capitalise on variations in price between those markets.

ASIAN-STYLE OPTION

An option which, if it expires in-the-money, is automatically settled on the basis of the difference between the strike price and the average price of the underlying asset in a given period prior to expiration.

ASK

The price a dealer or seller asks for a commodity.

ASSAY

The determination of the precious metal content of an alloy, either using a direct method (where the actual precious metal content is measured) or an indirect, instrumental method (usually based on spectrographic analysis) in which the levels of impurities are measured and the precious metal content is calculated by difference. For gold, the main direct method is fire assay, also known as cupellation or gravimetric analysis.

ASSAYER

A tester of precious metals.

ASSAY MARK

The stamp by an assayer on a bar or piece of precious metal to guarantee its fineness.

ASSAY OFFICE

An official or statutory organisation controlling the testing of precious metals within a country.

AT THE MONEY

Refers to an option strike price that is equal to the current market price of the underlying asset.

AUSTRALIAN SECURITIES EXCHANGE

The ASX was formed in 2006 following the merger of the Sydney Futures Exchange with the Australian Stock Exchange. Website: www.asx.com.au

AVERAGE STRIKE OPTIONS

Asian-style options where the ultimate settlement depends on an average strike price rather than an average underlying asset price.

AVERAGING

A method whereby a smoothing of the fluctuations in price movements may be achieved by agreeing to buy or sell a specified total quantity of precious metal on the basis of average prices over an agreed period of time.

BACKWARDATION

A market situation where prices for future delivery are lower than the spot price, caused by shortage or tightness of supply.

BANK OF ENGLAND

Founded in 1694, ‘The Old Lady of Threadneedle Street’ has been the focal point of gold and silver trading in London for over three centuries. It is one of the most active central banks in gold and is the gold depository for many of the world’s central banks. Website: www.bankofengland.co.uk

BAR CHART

A type of chart commonly used in technical analysis that shows highs, lows and closing prices.

BARRIER OPTIONS

Exotic options that either come to life (are knocked-in) or are extinguished (knocked-out) under conditions stipulated in the options contract. The conditions are usually defined in terms of a price level (barrier, knock-out or knock-in price) that may be reached at any time during the lifetime of the option. There are four major types of barrier options: up-and-out, up-and-in, down-and-out and down-and-in. The extinguishing or activating features of these options mean they are usually cheaper than ordinary options, making them attractive to purchasers looking to avoid high premium.

BEAR

Someone who expects prices to fall.

BEAR CALL SPREAD

The purchase and sale of call options at different exercise prices but with the same expiry date. The purchased (or long) calls have a higher exercise price than the written (or short) calls. The investor expects a fall in the price of the underlying asset.

BEAR MARKET

A market in which the trend is for prices to decline.

BEAR PUT SPREAD

The purchase and sale of put options at different exercise prices but with the same expiry date. The puts purchased have a higher exercise price than the puts written. The investor expects a fall in the price of the underlying asset.

BERMUDA-STYLE OPTION

Exotic options that combine certain features of American- and European-style options. They may be exercised on predetermined dates during the lifetime of the option or on the expiry date. (See also American-Style Option and European-Style Option).

BETA

The beta of a rate or price is the extent to which that rate or price follows movements in the overall market. If the beta is greater than one, it is more volatile than the market; if the beta is less than one, it is less volatile.

BID

The price at which a dealer is willing to buy.

BIS

Bank for International Settlements. Based in Basel, Switzerland, it was founded in 1930 and now acts as a non-political central bank for central banks. Website: www.bis.org

BLACK-SCHOLES MODEL

An option-pricing model initially derived by Fischer Black and Myron Scholes in 1973 for securities options and later refined by Black in 1976 for options on futures.

BLANK

A blank disc of metal with milled edges used to make a coin.

BRAZILIAN MERCANTILE AND FUTURES EXCHANGE

The BM&F was incorporated in July 1985. Website: www.bmf.com.br

BRITANNIA

British gold coin first issued in 1987 with a fineness of 916.6.

BREAKOUT/BREAKAWAY GAP

In technical analysis, this occurs when prices break out of their trading range, leaving a gap in the chart. It is associated with an increase in volume and is regarded as a strong trend signal.

BROKER

An intermediary between traders for physical, futures and over-the-counter deals. Brokers receive a fixed commission predetermined between the broker and his/her client.

BUDAPEST STOCK EXCHANGE

The Budapest Stock Exchange had its origins in the Hungarian Stock Exchange, which was formed in 1864. Following World War II, the Exchange was dissolved by the government and was re-established on 21 June 1990. Commodity trading was introduced on 2 November 2005. Website: www.bse.hu

BULL

Someone who expects prices to rise.

BULL CALL SPREAD

The purchase and sale of call options at different exercise prices but with the same expiry date. The purchased (or long) calls have a lower price than the written (or short) calls. The investor expects a rise in the price of the underlying asset.

BULL MARKET

A market in which the trend is for prices to increase.

BULL PUT SPREAD

The purchase and sale of put options at different exercise prices but with the same expiry date. The puts purchased have a lower exercise price than the puts written. The investor expects the price of the underlying asset to rise.

BULLION

The generic word for gold and silver in bar or ingot form. Originally meant ‘mint’ or ‘melting place’ from the old French word bouillon, which means boiling.

BULLION and PRECIOUS METAL COINS

Contemporary precious metal coins minted in unlimited numbers for investment purposes.

BUTTERFLY SPREAD

The simultaneous purchase of an out-of-the-money strangle and sale of an at-the-money-straddle. The buyer profits if the underlying remains stable and has limited risk in the event of a large move in either direction.

BUY SIGNAL

In technical analysis, a chart pattern which indicates a key reversal upwards in price and the time to buy.

CALENDAR SPREAD

The simultaneous purchase and sale (or vice versa) of an option of the same strike for different months.

CALL OPTION

An option which gives the purchaser the right, but not the obligation, to buy an asset at a pre-determined price on or by a set date.

CAP

An options contract whereby the seller agrees to pay to the purchaser, in return for a premium, the difference between a reference rate and an agreed strike price when the reference exceeds the strike on or before a specific date.

CARAT

Derived from the word for “carob” in various languages, it was originally equivalent to the weight of the seed of the carob tree. It has two meanings in modern usage:

A measure of the weight of precious stones. 1 carat = 0.2053 gm.
A measure of the proportion of gold in a gold alloy, on the basis that 24 carat is pure gold, often expressed as K or k, e.g. 18k is 75% gold.

CASH & CARRY

The purchase (or sale) of an underlying spot asset and the simultaneous sale (or purchase) of a futures or forward contract.

CFTC

Commodity Futures Trading Commission. The United States government’s regulatory agency for all US future markets. Website: www.cftc.gov

CHARTIST

An analyst who forecasts future price trends by the technical interpretation of chart patterns based on historical prices.

CHERVONETZ

A Russian bullion coin, 900 fine with fine gold content of 0.2489 troy ounces and a face value of 10 roubles. Issued in the 1970s.

CHINESE GOLD AND SILVER EXCHANGE SOCIETY

Hong Kong’s exchange first opened in 1910 and became the Chinese Gold and Silver Exchange Society in 1918. Website: www.cgse.com.hk

CHINESE WALL

A barrier to the flow of information between two different parts of a firm’s business.

CHOP

Assay mark of Chinese origin. The term is now widely applied to a manufacturer’s mark on bullion bars

CIF

Cost, insurance and freight. A CIF price includes the cost of material together with transport and insurance costs to the final specified destination.

CME GROUP

The CME Group was formed by the 2007 merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT). Website: www.cmegroup.com

COIN GOLD

A gold alloy, usually with a minimum fine gold content of 900, prepared for making coins, usually with silver or copper, to improve durability.

COLLAR

A supply contract between a buyer and a seller of a commodity, whereby the buyer is assured that he will not have to pay more than some maximum price, and whereby the seller is assured of receiving some minimum price.

COMEX

The Commodity Exchange in New York, a division of NYMEX.

COMPOUND OPTIONS

These are options on options. The underlying asset is an option rather than a tangible commodity or security.

CONSIGNMENT STOCKS

These are gold or silver bars which are placed by an organisation with a client against a guarantee of payment at the prevailing price as the metal is taken out of the stock.

CONTANGO

The market situation where the price for future (forward) delivery is greater than the spot price.

COST OF CARRY

The cost of holding a physical commodity over a period of time. The main elements are funding costs, storage and insurance.

COVERED OPTION

A covered call option is one where the writer owns the underlying asset on which the option is written. A covered put option is one where the writer sells the option while holding cash.

DAY ORDER

An order to buy or sell at a particular price level which is only valid for one business day.

DEFERRED SETTLEMENT

An arrangement whereby settlement of both sides of a bullion deal, metal and money, are deferred on a day-to-day basis.

DELIVERY

The actual transfer of the ownership of precious metal. It may not involve physical movement of metal and is usually made by a simple paper transfer in the clearing system.

DELIVERY DATE

The specified day on which precious metal must be delivered to fulfil a contract.

DELTA

Option risk parameter that measures the sensitivity of an option price to changes in the price of its underlying instrument.

DELTA HEDGING

A strategy undertaken by granters of options to protect their exposure. A delta hedge calculation takes into account changes in the spot price, the time to expiry and the difference between the strike and spot prices.

DERIVATIVE

A financial instrument derived from a cash market commodity, futures contract, or other financial instrument. Derivatives can be traded on regulated exchange markets or over-the-counter. For example, metal futures contracts are derivatives of physical commodities; options on futures are derivatives of futures contracts.

DORÉ

An unrefined alloy of gold with variable quantities of silver and smaller quantities of base metals, which is produced at a mine before passing on to a refinery for upgrading to London Good Delivery standard.

DOUBLE BOTTOM/DOUBLE TOP

In technical analysis, a double bottom occurs when the price falls to the same level twice and fails to penetrate. This signals good support. A double top is the opposite, i.e., when a price rises to the same level twice and fails to break above it, and therefore produces a level of good resistance

DOUBLE EAGLE

Gold coin with a face value of US$20 issued as legal tender in the United States during the period 1850-1932. It is 900 fine with a fine gold content of 0.9675 troy ounces.

DOW THEORY

Developed by Charles Dow and referred to as the six tenets of Dow Theory, it addresses market psychology, price action and marks the foundations of technical analysis. The six tenets are:

The averages discount everything;
There are three trends;
Major trends have three phases;
The averages must confirm each other;
Volume must confirm the trend;
A trend is assumed to be in effect until it gives definitive signals that it has reversed.

DUBAI GOLD AND COMMODITIES EXCHANGE

The DGCX commenced trading in 2005. Website: www.dgcx.ae

EAGLE

The earliest legal tender US gold coin first minted in 1795. It is 900 fine.

EFP

Exchange for Physical. Actual exchange between an OTC contract and a futures contract which takes place off exchange between parties.

ELLIOTT WAVE THEORY

Developed by R.N. Elliott, the approach defines markets as moving in a predetermined number of waves. Markets move in a sequence of five waves in the direction of the underlying trend and correct in a sequence of three waves. The trend movement or impulse is labelled 1-2-3-4-5 and a correction is labelled A-B-C. See Wikipedia article

ETF/ETC

Exchange Traded Commodities (or Exchange Traded Funds) are open-ended, listed securities which are arbitrageable with the underlying markets. ETCs trade on stock exchanges and have multiple market makers. ETCs are either backed by the physical commodity where possible (eg, gold, silver, platinum, palladium) or are priced off commodity futures markets, thereby providing retail and institutional equity investors with the opportunity to gain exposure to major commodities through existing equity accounts.

EUROPEAN-STYLE OPTION

An option that can only be exercised on the expiry date.

EXCHANGE TRADED OPTIONS

Options on future contracts offered by a recognised futures exchange, such as NYMEX.

EXERCISE

The exercise by an option holder of his right to buy (call) or sell (put) an asset at the agreed strike price.

EXOTIC OPTIONS

The generic term for the more sophisticated option strategies which have features over and above basic option contracts.

EXPIRY DATE

The last date on which an option can be exercised.

FAS 133

see Financial Accounting Standards Board Statement 133.

FCM

Futures Commission Merchant. The legal term for a US commodity brokerage house handling futures exchange business.

FIBONACCI NUMBERS

The Fibonacci sequence is calculated by adding any number in the series to the previous number –

1 2 3 5 8 13 21 34 55 89 …

The ratio of any number in the series to the next tends towards the irrational Golden Ratio Φ (0.618…) and the ratio to the number two positions away tends to 1–Φ (0.381…). The mid-point between the two is ½. These ratios (usually shown as percentages) are known as the Fibonacci ratios and are used in technical analysis to calculate retracement levels during a correction. The inverse of Φ is 1+Φ and is used in calculating Elliott Wave projections. Fibonacci ratios form an integral part of Elliott Wave Theory.

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)

Private-sector organisation responsible for establishing standards of accounting and financial reporting in the US.

FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT 133 (FAS 133)

FAS 133 obliges US companies to put all financial derivative instruments that are not used to hedge exposure on the balance sheet at market value. Companies therefore disclose unrealised gains and losses on derivatives, rather than accounting for them only at maturity.

FINENESS

The proportion of precious metal in an alloy expressed as parts in 1,000.

FINE WEIGHT

The weight of gold contained in a bar, coin or bullion as determined by multiplying the gross weight by the fineness.

FIRE ASSAY

A method of determining the content of a metal (most commonly gold) in an alloy involving the removal of other metals by what is in effect a combination of fire-refining (for the removal of base metals) and chemical refining (for the removal of silver) and then determining the gold content by comparing the initial and final weights of the sample. Fire assay can determine the gold content of Good Delivery-type alloys to an accuracy of better than 1 part in 10,000. Fire assay is also known as cupellation or gravimetric analysis.

FLAG

In technical analysis, one of the basic chart patterns. In a bull market a flag occurs when prices consolidate for a period then continue to rise. In a bear market the converse occurs, i.e., prices resume falling after a period of consolidation.

FLAT-RATE FORWARDS

Forward contracts offering a constant contango throughout the life of the contract.

FLOOR

A supply contract between a buyer and seller of a commodity, whereby the seller is assured that he will receive at least some minimum price. This type of contract is analogous to a put option, which gives the holder the right to sell the underlying at a predetermined price.

FOB

Free on Board. A FOB price usually includes cost of transport, insurance and loading onto a vessel at the port of departure.

FOOL’S GOLD

Pyrites of iron sulphide, which is gold-like in appearance and can delude amateur prospectors.

FORWARD PREMIUM

The difference between spot and forward quotations which will be determined by money and precious metal interest rates and storage charges.

FORWARD TRANSACTION

Purchase or sale for delivery and payment at an agreed date in the future.

FSA

Financial Services Authority. The single financial services regulator in the United Kingdom. Website: www.fsa.gov.uk

FSMA

The Financial Services and Markets Act 2000 – the legislation that set up the Financial Services Authority and defines its powers. It came into force in late 2001.

FUNDAMENTAL ANALYSIS

The study of basic underlying factors which will affect the supply and demand of a traded commodity.

FUTURES CONTRACT

An agreement made on an organised exchange to buy or sell a specific commodity or financial instrument on a set date in the future at a set price. In practice, most futures positions are ‘squared off’ before maturity with delivery, if it takes place, in the form of a warehouse receipt.

GAMMA

The sensitivity of an option’s delta to changes in the price of the underlying instrument.

GEARING

The potential to magnify profits or losses by incurring exposure to large positions from an initially small investment outlay. Also known as leverage.

GOFO

Gold Forward Offered Rate. The gold equivalent to LIBOR. The rates at which dealers will lend gold on swap against US dollars.

GOFRA

Gold Forward Rate Agreement. An ‘off balance sheet’ instrument used to minimise forward gold interest rate exposure. It hedges the combined effect of moves in both US dollar and gold interest rates with settlement in dollars..

GOLD

Latin name Aurum. Chemical symbol Au. Its specific gravity is 19.32 and melting point is 1063°C.

GOLD ACCUMULATION PLANS (GAPs)

Gold investment accounts whereby the investor agrees to invest a certain sum of currency in gold each month. Gold accumulated in the account can later be sold back or withdrawn as physical metal in a variety of forms, including bars, coins or jewellery. s.

GOLD FIXING

Held twice each working day at 10.30 am and 3.00 pm in the City of London.

GOLD LOAN

The provision of finance in gold for a gold-related project or business, typically in mining or jewellery inventory finance, which provides a combination of generally inexpensive funding together with built-in hedging.

GOLD PARITY

Legally fixed quantity of gold to which a monetary unit is pegged.

GOLD POOL

The gold pool was an alliance between the central banks of Britain, Belgium, France, Italy, the Netherlands, Switzerland, the United States and West Germany from 1961 to 1968 which endeavoured to maintain the gold price at US$35 dollars per troy ounce.

GOLD/SILVER RATIO

The number of ounces of silver that can be bought with one ounce of gold.

GOLD STANDARD

A monetary system with a fixed price for gold, and with gold coin either forming the whole circulation of currency within a country or with notes representing and redeemable in gold.

GOLD WARRANT

1. A warrant giving the buyer the right to buy gold at a specific price on a specified value date, for which the buyer pays a premium. While similar in structure to options, warrants are securitised instruments.
2. A certificate often issued by exchanges indicating ownership of physical metal.

GOLDFRA

Gold Lease Forward Rate Agreement. Similar to a GOFRA but is restricted solely to gold interest rates hedging with settlement in gold. A hedging product that is popular with those who have gold borrowing or deposit requirements. Goldfras are generally settled against the benchmark of US dollar LIBOR minus the GOFO mean on the observation date.

GOOD DELIVERY

The specification which a gold or silver bar or a platinum or palladium ingot or plate must meet in order to be acceptable for delivery in a particular terminal market or futures exchange.

GRAIN

One of the earliest units of weight for gold, one grain being the equivalent of one grain of wheat taken from the middle of the ear. 1 grain = 0.0648 grams or 0.002083 troy ounces. 15.43 grains = 1 gram; 480.6 grains = 1 troy ounce; 24 grains = 1 pennyweight. (See also Granules).

GRANULES

Bullion, including its various alloys presented for sale in granulated form, often referred to as grain.

GUINEA

British gold coin with a nominal value of £1 first issued in 1663 and named after gold from Guinea in West Africa. It was unofficially revalued at 21 shillings at The Great Recoinage of 1696, a value confirmed in 1717. It has a fineness of 916.6 and a fine gold content of approximately ¼ troy ounce.

HALLMARK

A mark or number of marks made on gold, silver or platinum jewellery and other fabricated products to confirm that the quality is of the fineness marked on the item. See website: www.thegoldsmiths.co.uk

HEAD AND SHOULDERS

A three-peak pattern resembling the head and shoulders outline of a person, which is used to chart stock and commodity price trends. The pattern indicates the reversal of a trend. As prices move down to the right shoulder, a head and shoulders top is formed, meaning that prices should be falling. A reverse head and shoulders pattern has the head formation at the bottom of the chart and means that prices should be rising.

HEDGE

A transaction entered into in order to offset the impact of adverse price movements of an asset.

HISTORIC VOLATILITY

Mathematically derived from price fluctuations of the underlying asset over a past specified period of time.

IBMA

The International Bullion Master Agreement, issued by the LBMA in 1994.

IFEMA

International Foreign Exchange Master Agreement.

IMF

the International Monetary Fund was conceived at the Bretton Woods Conference in 1944 to promote international monetary co-operation and stability. It opened in Washington DC in 1947. Website: www.imf.org

IMPLIED VOLATILITY

Volatility as calculated by determining the variable in the Black-Scholes option price formula from market option prices. The element of the formula that identifies the degree of supply and demand for options.

IMRO

The Investment Management Regulatory Organisation (an SRO) – superseded by the Financial Services Authority in 2001.

IN THE MONEY

Refers to options with intrinsic value. For example, calls where the strike price is less than the underlying asset price or puts where the strike price is greater than the underlying asset price.

INTRINSIC VALUE

Refers to options. The difference between the current spot price and the option strike (or exercise) price, ie, the in-the-money element.

IRIDIUM

Chemical symbol Ir. Its specific gravity is 22.50 and its melting point is 1539 °C.

ISDA

The International Swaps & Derivatives Association. Website: www.isda.org

ISDA MASTER AGREEMENT

The International Swaps and Derivatives Association (ISDA) over-the-counter derivatives master agreement was drawn up by the New York-based trade association in 1987, revised in 1992 and again updated in 2002.

ISDA BULLION DEFINITIONS

An addendum to the ISDA Master Agreement developed in 1997 by ISDA and the LBMA to cover bullion terms. The 2005 ISDA Commodity Definitions incorporates the 1997 ISDA Bullion Definitions with some revisions.

ISLANDS

In technical analysis, an island top is formed when a market gaps up and then gaps down during an uptrend to leave an isolated trading session. An island bottom is found at the base of a downtrend. islands are regarded as a reversal pattern.

ISTANBUL GOLD EXCHANGE

The Istanbul Gold Exchange was founded in 1995. Website: www.iab.gov.tr

JAKARTA FUTURES EXCHANGE

(PT. BURSA BERJANGKA JAKARTA) The JFX was established in August 1999. Website: www.bbj-jfx.com

JAPANESE CANDLESTICK THEORY

The principles were developed in Japan during the 17th century by Munehisa Homma, a rice broker. Similarly to a bar chart, a candle chart uses the open, high, low and closing prices – however, in a candle chart a body is created between the opening and closing prices. The bodies are presented in different colours to highlight the session’s direction – usually a white body for an up day (open above the close) and a black body for a down session (close below the open). Regarded as good short-term signals.

KAM

Chinese for gold.

KEY REVERSAL

In technical analysis, a crucial change in price direction, signalling an end to either a bull or bear market.

KILO BAR

A popular small gold bar. A one kg bar .995 fine = 31.990 troy ounces, and a 1 kg bar 999.9 fine = 32.148 troy ounces.

KNOCK-IN

In options, an exotic option in which the option becomes valid only when a predetermined price level (usually different to the strike price) is touched during the lifetime of the option. .

KNOCK-OUT

An exotic option which is automatically terminated or ‘knocked out’ if the price of the underlying asset reaches a predetermined level (usually different to the strike price) during the lifetime of the option.

KOALA

Australian platinum coin with a fineness of 999.5.

KRUGERRAND

South African gold coin first issued in 1967 with a fineness of 916.6.

LAKH

(or Lac) Indian term for 100,000. Frequently used to describe silver or gold orders.

LBMA

The London Bullion Market Association was formally incorporated on 14 December 1987 to represent the interests of the participants in the wholesale bullion market and to encourage the development of the London market.

LEVERAGE

see Gearing.

LIMIT ORDER

An order that has restrictions placed on it. The customer specifies a price and the order can only be executed if the market moves to or betters that price.

LIQUIDITY

The market tradability of an asset. A highly liquid market has a large number of buyers and sellers, or lenders, making it easy to enter or exit.

LOCO

The place – location – at which a commodity, e.g. loco London gold, is physically held.

LBMA GOOD DELIVERY LIST

List of acceptable refiners of gold and silver whose bars meet the required standard (of fineness, weight, marks and appearance) of the London Bullion Market Association.

LONG

A long position means the purchase and retention of an asset.

LONG STRADDLE

The purchase of call and put options with the same exercise price and expiry date. The investor expects a significant increase in volatility; direction of prices is not of prime importance.

LOOKBACK OPTION

A history-dependent option where the settlement at maturity is reliant not only on whether the option is in-the-money at expiry, but also on the maximum or minimum price achieved by the underlying asset during at least some part of the option life.

LOT

Commonly used word for a standard futures contract.

LPPM

The London Platinum and Palladium Market was formalised by a Deed of Establishment in 1987 and represents the interests of the participants in the wholesale platinum and palladium markets and encourages the development of the London and Zurich markets. Website: www.lppm.org.uk

LPPM GOOD DELIVERY LISTS

Lists of acceptable refiners of platinum and palladium whose plates and ingots meet the required standard (of fineness, weight, marks and appearance) of the London Platinum and Palladium Market.

MACD

(Moving Convergence / Divergence Momentum Indicator) Usually the difference between the 26-day and 12-day exponential moving averages, although these parameters can be altered. A positive MACD indicates the 12-day average is above the 26-day average and highlights a positive period / trend. The opposite holds true for a negative reading and a downtrend.

MAPLE LEAF

Canadian gold coin with a fineness of 999.9 or platinum coin with a fineness of 999.5.

MARGIN

Deposit, or collateral, required as security against open positions in futures, forwards or options markets. Also called ‘Initial Margin’ or ‘Original Margin’.

MARGIN CALL

The request for additional funds to cover losses on forward or futures contracts where the price has moved against a client. Also see Variation Margin.

MARKET ORDER

An order given to a dealer for immediate execution, to buy or sell at the best prevailing price. Also known as ‘At Best’ or ‘At Market’.

MARK TO MARKET

The revaluation of a position at current market price levels.

MCX

Multi Commodity Exchange of India Ltd. Headquartered in Mumbai, MCX is a demutualised multi-commodity futures exchange. The exchange began operations in November 2003. Website: www.mcxindia.com .

MIN/MAX

A zero cost collar-style hedging strategy whereby a client sells one option in exchange for another. In bullion markets, primarily used by producers who grant call options in exchange for put options – in this case, the structure guarantees that the client will receive a minimum pre-determined price in exchange for a possible opportunity loss if the actual price at maturity is above a maximum level, as determined by the strike price of the call option granted.

MOVING AVERAGE

In technical analysis, this is a key trend line that is plotted on a bar chart, reflecting the progress of prices over a given period of time. (See also Weighted Moving Average).

NAKED OPTION

The sale of an option by a party who does not hold the underlying asset to back it. See covered option.

NAPOLEON

French gold coin with a face value of 20 francs, bearing a portrait of Napoleon I or Napoleon III. It had a fineness of 900 and a fine gold content of 0.1867 troy ounces.

NCDEX

National Commodity and Derivatives Exchange. An on-line multi-commodity exchange located in Mumbai, it began operations in December 2003. Website: www.ncdex.com

NOBLE

Isle of Man platinum coin with a fineness of 999.5.

NUMISMATICS

The specialised sector of the coin business for the study and collection of rare coins and other media of exchange, particularly those with archaeological and historic interest.

NYMEX

A US futures exchange consisting of two divisions, NYMEX (the New York Mercantile Exchange) and COMEX (the Commodities Exchange). Website: www.nymex.com.

OFFER

The price at which a dealer is willing to sell.

OPEN INTEREST

On a futures exchange, the daily statistic that indicates the number of open contracts, i.e., those which have not been fulfilled or closed out.

OPEN OUTCRY

A style of trading conducted on a futures exchange in a ring or a pit where dealers face each other, calling out the price, contract, month and number of contracts.

OPTION

An option is the right but not the obligation to buy and sell a pre-determined quantity of an underlying asset at a pre-determined price by or on a defined date.

ORE

Originally from the Old English for crude or unwrought metal. It refers to any economic mineral deposit of precious or other metals.

OSMIUM

Chemical symbol Os. Its specific gravity is 22.50 and its melting point is 2700 °C.

OTC

Over the Counter. Transactions that are quoted and conducted between parties on a principal-to-principal basis as opposed to being traded via a broker on an exchange.

OTC OPTION

Over the Counter options are not traded on recognised future exchanges but between organisations acting as principals, or between a bank and its client.

OUT OF THE MONEY

Refers to options with only time value, ie, no intrinsic value, e.g., calls where the strike price is greater than the underlying asset price or puts where the strike price is less than the underlying price.

OVERBOUGHT

A market in which the price, under excessive buying pressure, has risen too high and too fast without genuine fundamental support to maintain the new level.

OVERSOLD

A market which has fallen too far and too fast under excessive selling pressure and is expected to move back to a higher, more neutral level.

PALLADIUM

Chemical symbol Pd. Its specific gravity is 12.00 and its melting point is 1555 °C.

PALLADIUM FIXING

Held twice each working day at 9.45 am and 2.00 pm in the City of London.

PANDA

Chinese gold coin of 999.9 quality, first made in 1982.

PANNING

The classic and simple method of mining alluvial gold.

PAPER GOLD

A term used to describe gold contracts such as loco London deals and futures contracts which do not necessarily involve the delivery of physical gold.

PENNYWEIGHT

Originally the weight of a silver penny in Britain in the Middle Ages which is still widely used in North America as the unit of weight in the jewellery trade. 20 pennyweights = 1 troy ounce.

PHILHARMONIKER

Austrian gold coin of 999.9 fineness, first issued in 1989.

PIA

The Personal Investment Authority took over from LAUTRO and FIMBRA in 1994 as SRO for most firms conducting investment business with the private investor. It was superseded by the FSA in 2001 when FSMA came into force.

PLATINUM

Chemical symbol Pt. Its specific gravity is 21.45 and melting point is 1773 °C.

PLATINUM FIXING

Held twice each working day at 9.45 am and 2.00 pm in the City of London.

PLATINUM GROUP METALS

Platinum, palladium, iridium, osmium, rhodium and ruthenium.

PRECIOUS METALS

Metals of great value being gold, silver, platinum, palladium and other platinum group metals.

PUT OPTION

A contract which gives the buyer the right, but not the obligation, to sell a specified amount of an asset at a predetermined price on or before a specified date.

PUT SPREAD

An options position comprised of the purchase of a put option at one level and the sale of a put option at some lower level. The premium received by selling one option reduces the cost of buying the other, but participation is limited if the underlying goes down.

QUARTATION

The process in which silver is separated from gold by dissolving it out with nitric acid, more commonly referred to as nitric acid parting.

REFINING

The separating and purifying of precious metals from other metals.

RESISTANCE

In technical analysis, the price level where selling is expected to emerge.

RHO

A measure of an option’s sensitivity to a change in interest rates; this will impact on both the future price of the option and the time value of the premium. Its impact increases with the maturity of the option.

RHODIUM

Chemical symbol Rh. Its specific gravity is 12.44 and its melting point is 1966 °C.

RISK

The exposure to adverse market movements, mischance or the possibility of losing money.

ROLLED GOLD

The process in which a layer of carat gold alloy is mechanically bonded to another metal.

RSI

(Relative Strength Index) Developed by J. Welles Wilder, the RSI compares the magnitude of an instrument’s gains to its losses over a set period (usually 14 days). This is a momentum oscillator and provides information such as overbought or oversold conditions and divergence between price and indicator.

RUTHENIUM

Chemical symbol Ru. Its specific gravity is 12.20 and its melting point is 2500 °C.

SCRAP GOLD

The broad term for any gold which is sent back to a refiner or processor for recycling.

SELL SIGNAL

In technical analysis, a chart pattern which indicates a key reversal downwards in price.

SETTLEMENT DATE

The date on which a contract must be fully paid for and delivered. It is the general practice in international precious metals markets for settlement to take place two business days after the transaction date, i.e., spot.

SETTLEMENT PRICE

In futures markets, the price that is set by the exchange committee at the end of each trading day and which is used by the clearing house to market open positions and assess margin calls.

SETTLEMENT RISK

The risk that arises when payments are not exchanged simultaneously, generally arising due to time differences. One party to a transaction must effect payment or delivery in an earlier time zone without having confirmation of the receipt of a reciprocal asset in a later time zone.

SFA

The Securities and Futures Authority (an SRO) was responsible for the regulation of investment business in the UK. It was superseded by the FSA in 2001 when FSMA came into force.

SHANGHAI GOLD EXCHANGE

The Shanghai Gold Exchange was founded in 2002. Website: www.sge.sh

SHANGHAI FUTURES EXCHANGE

The Shanghai Futures Exchange was formed in December 1999. Website: www.shfe.com

SHORT

A short position means the sale of an asset not yet owned.

SHORT STRADDLE

The sale of a call and put option with the same exercise price and expiry date. The investor has a neutral view of the underlying asset and expects limited price fluctuation.

SILVER

Latin name Argentum. The chemical symbol is Ag, specific gravity is 10.49 and the melting point is 960°C.

SILVER FIXING

Held each working day at 12.00 pm in the City of London.

SINGAPORE EXCHANGE LIMITED (SGX)

The Singapore Exchange was inaugurated on 1 December 1999, following the merger of the Stock Exchange of Singapore (SES) and the Singapore International Monetary Exchange (SIMEX). Website: www.sgx.com

SMELTING

The process of melting ores or concentrates to separate out the metal content from impurities.

SOUK

The local name for market used throughout the Arab world.

SOVEREIGN

British gold coin with face value of one pound sterling, a fineness of 916.6 and a fine gold content of 0.2354 troy ounces.

SPOT SETTLEMENT

Delivery of metal and payment of money, which takes place two business days after the transaction date.

SPOT DEFERRED

Hybrid forward contract offering floating interest rates and no fixed delivery. It is more flexible than conventional spot or forward contracts.

SROs

Self Regulatory Organisations were established under the Financial Services Act of 1986 to carry out the regulation of most institutions involved in investment activities in the UK. Under FSMA, the role played by the SROs was taken over by the FSA in 2001.

STANDARD BAR / PLATE / INGOT

1) Gold bar weighing approximately 400 ounces or 12.5 kilograms and having a minimum fineness of 995 parts per 1,000 pure gold
2) Silver bar weighing approximately 1,000 ounces with a minimum fineness of 999
3) Platinum or palladium plate or ingot between 1 and 6 kilos with a minimum fineness of 999.5.

STANDARD DEVIATION

Statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. Indicates probability of a variable or price falling within a certain width or band around the mean.

STOCHASTICS

Developed by George Lane, this momentum oscillator shows the location of the current close relative to the high/low range over a specified period. Closing levels near the top of the range indicate buying pressure, while closing levels near the base of the range indicate selling pressure.

STOP LOSS

An order placed to liquidate an open position when the price reaches a specified level in order to prevent further losses. These orders are only handled on a ‘best efforts’ basis, as there is no guarantee that an order can be executed at the specified price if the market is highly volatile and prices move so fast, or ‘gap’, that the order cannot be carried out at the price requested.

STRADDLE

Purchase or sale of call and put options for the same underlying asset with the same expiry date and strike price.

STRANGLE

In options, a speculative strategy of either buying or selling puts and calls, each with the same expiry date but with different strike prices.

STRIKE PRICE

In options, the pre-determined price at which an option may be exercised.

SUPPORT

In technical analysis, the price level where new buyers are expected to emerge.

SWAP

1. Simultaneous purchase and sale of spot against forward.
2. An exchange between different locations.
3. A swap or exchange of different size of quality of bullion bars or platinum / palladium ingots or plates.
4. An agreement whereby a floating price is exchanged for a fixed price over a specified period.

SWITCH

Simultaneous purchase and sale of the same asset for different maturity dates.

TAEL

Traditional Chinese unit of weight for gold. 1 tael = 1.20337 troy ounces = 37.4290 grams. The nominal fineness of a Hong Kong tael bar is 990, but in Taiwan 5 and 10 tael bars can be 999.9 fine.

TECHNICAL ANALYSIS

The study of historical prices, examining patterns of price change, rates of change, and changes in volume of trading and open interest, in order to predict future price behaviour. Technical analysis is usually performed in chart or graph form.

THETA

In options, the rate of change in the value of the option with respect to time with all else remaining the same.

TIME VALUE

Refers to options. The difference between an option’s market price and its intrinsic value.

TOLA

Traditional Indian unit of weight for gold. 1 tola = 0.375 troy ounces = 11.6638 grams. The most popular sized bar is 10 tola = 3.75 troy ounces. Weights are for 999.9 gold purity.

TOKYO COMMODITIES EXCHANGE

TOCOM was established on 1 November 1984 as a merger of the Tokyo Textile Exchange, the Tokyo Rubber Exchange and the Tokyo Gold Exchange. Website: www.tocom.or.jp.

TOM/NEXT

Refers to the time period commencing one business day forward from the present and ending one business day later (usually spot). In precious metals, generally refers to the swap rate for borrowing or lending metal vs. US$ for this time period, which is typically used to manage short-term liquidity flows.

TREND/TREND LINE

In technical analysis, trend is defined as a directional move over a period of time. There are three types – up, down and sideways. A trend line is a straight line that connects two or more price points, extending it into the future to act as a support or resistance. Trend lines are important in that they identify and confirm trends. (See also Support and Resistance).

TROY OUNCE

The traditional unit of weight used for precious metals, which was attributed to a weight used in Troyes, France, in medieval times. 1 troy ounce is equal to 1.0971428 ounces avoirdupois.

UNALLOCATED ACCOUNT

An account where specific bars are not set aside and the customer has a general entitlement to the metal. This is the most convenient, cheapest and most commonly used method of holding metal. The holder is an unsecured creditor.

UNDERLYING

The variable on which a futures, option or other derivative contract is based.

VALUE DATE

The date agreed between parties for the settlement of a transaction.

VANILLA OPTION

A standard transaction that is not tailored to the needs of either party. A plain vanilla option pays out the difference between the strike price of the option and the spot price of the underlying at the time of the exercise.

VARIATION MARGIN

Additional margin, or collateral payable by an investor, resulting from an adverse movement in the price of the underlying asset in a forward, futures or options contract.

VEGA

A measure of how much an option’s price will change as the volatility of the underlying fluctuates.

VOLATILITY

Refers to options. The rate of change in the price of the underlying asset. (See also Implied Volatility and Historic Volatility).

VOLUME

On futures exchanges, the number of contracts traded in a session.

VRENELI

Swiss gold coin with a face value of 20 francs issued as legal tender in the period 1897-1935. It had a fineness of 900 and a fine gold content of 0.1867 troy ounces.

WAFER

Small, thin gold bars popular in the Middle East, South East Asia and Japan.

WAREHOUSE RECEIPT

A warehouse or depository receipt is issued when delivery is taken on a futures exchange. It specifies the quantity and fineness of precious metal held.

WEIGHTED MOVING AVERAGE

Used in technical analysis, a weighted moving average gives a greater weighting to more recent price data, as opposed to a simple moving average that gives equal weighting to all prices. (See also Moving Average).

WHITE GOLD

A gold alloy containing whitening agents such as silver, palladium or nickel as well as other base metals. Often used as a setting for diamond jewellery.

WRITER

In options, the seller or granter of the option.

YIELD CURVE

The relationship between interest rate yields and maturity lengths. The yield curve normally has a positive slope (i.e., upwards) because yields on long-term interest rates usually exceed short-term yields. An investor expects a higher return for holding an asset for a longer time, hence yields normally increase with maturity length.

ZERO-COST OPTION

An option strategy under which one option is purchased by simultaneously selling another option of equal value. See also Min/Max.

Glossary of Terms

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