Friday, 13 February 2009
Sunday, 8 February 2009
Monday, 14 January 2008
BULLION GLOSSARY
THE LONDON BULLION MARKET ASSOCIATION
GLOSSARY OF TERMS
A
ACCELERATED SUPPLY – Gold reaching the market through mine hedging and finance transactions before it is physically produced - generally created by producer hedging or finance transactions.
ALIQUOT – A small representative sample taken from a gold bar for assay to determine its fine gold 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, that 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 seller asks for gold or silver.
ASSAY – The testing of gold or silver to determine its fineness or purity.
ASSAYER – A tester of precious metals to determine their purity.
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, which is equal to the current market price of the underlying asset.
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 gold or silver on the basis of the average price of the gold or silver fixings over an agreed period of time.
B
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.
BAR CHART – A type of chart commonly used in technical analysis that shows highs, lows and closing prices.
BARRIER OPTION – An exotic option that either comes to life (is knocked-in) or is 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.
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.
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.
BRITANNIA – British gold coin first issued in 1987 with a fineness of 916.6.
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.
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.
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 COINS - Contemporary precious metal coins minted by official agencies in unlimited numbers for investment purposes.
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.
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.
C
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 - 1) A measure of the weight of precious stones. 1 carat = 0.2053 gm.2) A measure of the proportion of gold in an gold alloy, on the basis that 24 carat is pure gold, often expressed as K or k, e.g. 18k is 75% gold.
CFTC – Commodity Futures Trading Commission. The United States Government’s regulatory agency for all US future markets.
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 WALL – A barrier to the flow of information between two different parts of a firm’s business.
CHOP- Assay mark of Chinese origin.
CIF – Cost, insurance and freight. A CIF price includes the cost of material together with transport and insurance costs to the final specified destination.
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. 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.
D
DEFERRED SETTLEMENT- An arrangement whereby settlement of both sides of a bullion deal, metal and money, are deferred on a day-to-day basis.
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 gold or silver. It may not involve physical movement of metal and is usually made by a simple paper transfer in the LBMA clearing system.
DELIVERY DATE – The specified day on which gold or silver 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
E
EAGLE – The first 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.
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.
F
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.
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.
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 RATE AGREEMENT – See Gold Forward Rate Agreement.
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.
FSMA – The Financial Services and Markets Act 2000 - the legislation that set up the Financial Services Authority and defines its powers, coming into force from 2001.
FUNDAMENTAL ANALYSIS – The study of basic underlying factors, which will affect the supply and demand of the commodity being traded.
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.
G
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 a 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.
GOLD – Latin name Aurum. Chemical symbol Au. Its specific gravity is 19.32 and melting point 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.
GOLD FIXING – Held twice each working day at 10.30 am and 3.00 pm in the City of London.
GOLD FORWARD RATE AGREEMENT – An off balance sheet instrument that enables parties either to hedge or to speculate against future gold lease rate movements. It is an agreement to settle the difference between the interest payable on a future notional gold loan with reference to a fixed rate of interest agreed at inception of the agreement, and a floating rate for the period, which pertains in the market when the notional loan period commences. The floating rate is generally determined against the benchmark of US dollar LIBOR minus GOFO mean, and the difference is generally settled in US dollars.
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 either with gold coin 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.
GOOD DELIVERY – The specification that a bar must meet in order to be acceptable for delivery in a particular terminal market or futures exchange, e.g. London Good Delivery. (see also LBMA Good Delivery Lists.)
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 ounces.
H
HALLMARK – A mark or number of marks made on gold or silver jewellery and other fabricated products to confirm that the quality is of the carat fineness marked on the item.
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.
HONG KONG GOLD AND SILVER EXCHANGE - Hong Kong's exchange first opened in 1910 and became the Chinese Gold and Silver Exchange Society in 1918.
I
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.
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.
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, i.e., the in-the-money element.
ISDA- The International Swaps & Derivatives Association.
ISDA MASTER AGREEMENT- The International Swaps & Derivatives Association (ISDA) over-the-counter derivatives master agreement was drawn up by the New York-based trade association in 1987 and revised in 1992.
ISDA BULLION DEFINITIONS – An addendum to the ISDA Master Agreement developed in 1997 by ISDA and the LBMA to cover bullion terms.
ISTANBUL GOLD EXCHANGE – The Istanbul Gold Exchange was founded in 1995.
K
KAM – Chinese for gold.
KEY REVERSAL – In technical analysis, a crucial change in price direction, signalling an end to either a bull or a bear market.
KILO BAR – A popular small gold bar. A one-Kg bar .995 fine = 31.990 troy ounces, and a one-KG bar 9999 fine = 32.148 troy ounces.
KNOCK-IN – In options, an exotic option in which the option becomes valid only when a pre-agreed 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.
KRUGERRAND – South African gold coin first issued in 1967 with a fineness of 916.6.
L
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 in every possible way.
LBMA GOOD DELIVERY LISTS – Lists 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.
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.
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.
M
MAPLE LEAF – Canadian gold coin with a fineness of 999.9.
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.
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.
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 or prices over a given period of time.
N
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.
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).
O
OFFER – The price at which a dealer is willing to sell. See also Ask.
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.
OPEN POSITION - A market position, which has not been closed out.
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.
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.
OUT OF THE MONEY – Refers to options with only time value, i.e., no intrinsic value, e.g., calls where the strike price is greater than the underlying asset price; 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.
P
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.
PRECIOUS METALS – Metals of great value being gold, silver, platinum and other platinum group metals
PUT OPTION – A contract that 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.
Q
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.
R
REFINING – The separating and purifying of gold and silver from other metals.
RESISTANCE – In technical analysis, the price level where selling is expected to emerge.
RHO – Rho is a measure of an option's sensitivity to a change in interest rates; this will affect both the future price of the option and the time value of the premium. Its impact increases with the maturity of the option.
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.
S
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 that 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 bullion 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 clearinghouse 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.
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.
SIB – The Securities and Investment Board, the main regulator of Financial Services in the UK.
SILVER – Latin name Argentum. The chemical symbol Ag, relative density is 10.5 and the melting point 960°c.
SILVER FIXING - Held each working day at 12.00 pm in the City of London.
SIMEX – The Singapore International Monetary Exchange was established in 1983 from an alliance between the Gold Exchange of Singapore and the International Money Market (IMM) in Chicago.
SMELTING –The process of melting ores or concentrates to separate out gold or silver 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 – A forward sale contract with no fixed delivery, but with the facility to roll forward the pricing of a contract at pre-determined intervals on the basis of current interest rates. This gives more flexibility than conventional 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 SROs will be taken over by the FSA late in 2001.
STANDARD BAR – 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.
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.
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’, so 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 locations.3) A swap or exchange of different size or quality of gold bars.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.
T
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.
TOCOM – The Tokyo Commodity Exchange, established in 1984.
TOLA – Traditional Indian unit of weight for gold. One tola = 0.375 troy ounces = 11.6638 grams. The most popular sized bar is 10 tola = 3.75 troy ounces.
TOM/NEXT – Refers to the time period commencing one business day forward from the present and ending one business day later (usually spot). In bullion, 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.
TROY OUNCE The traditional unit of weight used for precious metals, which was attributed to a weight used in Troyes, France, in medieval times. One troy ounce is equal to 1.0971428 ounces avoirdupois.
U
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.
V
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.
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.
VOLATILITY – Refers to options. The rate of change in the price of the underlying asset.).
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.
W
WAFER – A thin gold bar 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 gold or silver held.
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.
WINDOW OPTION – An option whose outcome depends on the performance of the underlying during the life of the option and whether that price lies between certain parameters on a certain observation day or days.
WRITER – In options, the seller or granter of the option.
Y
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.
Z
ZERO-COST OPTION – An option strategy under which one option is purchased by simultaneously selling another option of equal value. (End).
GLOSSARY OF TERMS
A
ACCELERATED SUPPLY – Gold reaching the market through mine hedging and finance transactions before it is physically produced - generally created by producer hedging or finance transactions.
ALIQUOT – A small representative sample taken from a gold bar for assay to determine its fine gold 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, that 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 seller asks for gold or silver.
ASSAY – The testing of gold or silver to determine its fineness or purity.
ASSAYER – A tester of precious metals to determine their purity.
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, which is equal to the current market price of the underlying asset.
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 gold or silver on the basis of the average price of the gold or silver fixings over an agreed period of time.
B
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.
BAR CHART – A type of chart commonly used in technical analysis that shows highs, lows and closing prices.
BARRIER OPTION – An exotic option that either comes to life (is knocked-in) or is 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.
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.
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.
BRITANNIA – British gold coin first issued in 1987 with a fineness of 916.6.
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.
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.
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 COINS - Contemporary precious metal coins minted by official agencies in unlimited numbers for investment purposes.
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.
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.
C
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 - 1) A measure of the weight of precious stones. 1 carat = 0.2053 gm.2) A measure of the proportion of gold in an gold alloy, on the basis that 24 carat is pure gold, often expressed as K or k, e.g. 18k is 75% gold.
CFTC – Commodity Futures Trading Commission. The United States Government’s regulatory agency for all US future markets.
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 WALL – A barrier to the flow of information between two different parts of a firm’s business.
CHOP- Assay mark of Chinese origin.
CIF – Cost, insurance and freight. A CIF price includes the cost of material together with transport and insurance costs to the final specified destination.
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. 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.
D
DEFERRED SETTLEMENT- An arrangement whereby settlement of both sides of a bullion deal, metal and money, are deferred on a day-to-day basis.
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 gold or silver. It may not involve physical movement of metal and is usually made by a simple paper transfer in the LBMA clearing system.
DELIVERY DATE – The specified day on which gold or silver 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
E
EAGLE – The first 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.
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.
F
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.
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.
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 RATE AGREEMENT – See Gold Forward Rate Agreement.
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.
FSMA – The Financial Services and Markets Act 2000 - the legislation that set up the Financial Services Authority and defines its powers, coming into force from 2001.
FUNDAMENTAL ANALYSIS – The study of basic underlying factors, which will affect the supply and demand of the commodity being traded.
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.
G
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 a 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.
GOLD – Latin name Aurum. Chemical symbol Au. Its specific gravity is 19.32 and melting point 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.
GOLD FIXING – Held twice each working day at 10.30 am and 3.00 pm in the City of London.
GOLD FORWARD RATE AGREEMENT – An off balance sheet instrument that enables parties either to hedge or to speculate against future gold lease rate movements. It is an agreement to settle the difference between the interest payable on a future notional gold loan with reference to a fixed rate of interest agreed at inception of the agreement, and a floating rate for the period, which pertains in the market when the notional loan period commences. The floating rate is generally determined against the benchmark of US dollar LIBOR minus GOFO mean, and the difference is generally settled in US dollars.
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 either with gold coin 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.
GOOD DELIVERY – The specification that a bar must meet in order to be acceptable for delivery in a particular terminal market or futures exchange, e.g. London Good Delivery. (see also LBMA Good Delivery Lists.)
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 ounces.
H
HALLMARK – A mark or number of marks made on gold or silver jewellery and other fabricated products to confirm that the quality is of the carat fineness marked on the item.
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.
HONG KONG GOLD AND SILVER EXCHANGE - Hong Kong's exchange first opened in 1910 and became the Chinese Gold and Silver Exchange Society in 1918.
I
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.
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.
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, i.e., the in-the-money element.
ISDA- The International Swaps & Derivatives Association.
ISDA MASTER AGREEMENT- The International Swaps & Derivatives Association (ISDA) over-the-counter derivatives master agreement was drawn up by the New York-based trade association in 1987 and revised in 1992.
ISDA BULLION DEFINITIONS – An addendum to the ISDA Master Agreement developed in 1997 by ISDA and the LBMA to cover bullion terms.
ISTANBUL GOLD EXCHANGE – The Istanbul Gold Exchange was founded in 1995.
K
KAM – Chinese for gold.
KEY REVERSAL – In technical analysis, a crucial change in price direction, signalling an end to either a bull or a bear market.
KILO BAR – A popular small gold bar. A one-Kg bar .995 fine = 31.990 troy ounces, and a one-KG bar 9999 fine = 32.148 troy ounces.
KNOCK-IN – In options, an exotic option in which the option becomes valid only when a pre-agreed 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.
KRUGERRAND – South African gold coin first issued in 1967 with a fineness of 916.6.
L
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 in every possible way.
LBMA GOOD DELIVERY LISTS – Lists 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.
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.
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.
M
MAPLE LEAF – Canadian gold coin with a fineness of 999.9.
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.
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.
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 or prices over a given period of time.
N
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.
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).
O
OFFER – The price at which a dealer is willing to sell. See also Ask.
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.
OPEN POSITION - A market position, which has not been closed out.
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.
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.
OUT OF THE MONEY – Refers to options with only time value, i.e., no intrinsic value, e.g., calls where the strike price is greater than the underlying asset price; 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.
P
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.
PRECIOUS METALS – Metals of great value being gold, silver, platinum and other platinum group metals
PUT OPTION – A contract that 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.
Q
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.
R
REFINING – The separating and purifying of gold and silver from other metals.
RESISTANCE – In technical analysis, the price level where selling is expected to emerge.
RHO – Rho is a measure of an option's sensitivity to a change in interest rates; this will affect both the future price of the option and the time value of the premium. Its impact increases with the maturity of the option.
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.
S
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 that 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 bullion 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 clearinghouse 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.
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.
SIB – The Securities and Investment Board, the main regulator of Financial Services in the UK.
SILVER – Latin name Argentum. The chemical symbol Ag, relative density is 10.5 and the melting point 960°c.
SILVER FIXING - Held each working day at 12.00 pm in the City of London.
SIMEX – The Singapore International Monetary Exchange was established in 1983 from an alliance between the Gold Exchange of Singapore and the International Money Market (IMM) in Chicago.
SMELTING –The process of melting ores or concentrates to separate out gold or silver 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 – A forward sale contract with no fixed delivery, but with the facility to roll forward the pricing of a contract at pre-determined intervals on the basis of current interest rates. This gives more flexibility than conventional 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 SROs will be taken over by the FSA late in 2001.
STANDARD BAR – 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.
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.
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’, so 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 locations.3) A swap or exchange of different size or quality of gold bars.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.
T
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.
TOCOM – The Tokyo Commodity Exchange, established in 1984.
TOLA – Traditional Indian unit of weight for gold. One tola = 0.375 troy ounces = 11.6638 grams. The most popular sized bar is 10 tola = 3.75 troy ounces.
TOM/NEXT – Refers to the time period commencing one business day forward from the present and ending one business day later (usually spot). In bullion, 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.
TROY OUNCE The traditional unit of weight used for precious metals, which was attributed to a weight used in Troyes, France, in medieval times. One troy ounce is equal to 1.0971428 ounces avoirdupois.
U
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.
V
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.
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.
VOLATILITY – Refers to options. The rate of change in the price of the underlying asset.).
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.
W
WAFER – A thin gold bar 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 gold or silver held.
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.
WINDOW OPTION – An option whose outcome depends on the performance of the underlying during the life of the option and whether that price lies between certain parameters on a certain observation day or days.
WRITER – In options, the seller or granter of the option.
Y
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.
Z
ZERO-COST OPTION – An option strategy under which one option is purchased by simultaneously selling another option of equal value. (End).
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