Gold as investors´ instrument.

Spot market
Current transactions of buying and selling are executing on terms of "spot" with the value date (date of entry/ writing-off of metal and currency) on the second day after the day of settle a deal. International market of current transactions is known as spot market. Standard lot volume on terms of "spot" is 5 thousands of troy ounce (Troy ounce is generally accepted measure of weight of precious metals. Contain 31,1034807 gr.). Aims of such operations executing are Fund of precious metals of lending agencies forming and clients´ requests processing. Starting point of price settings of physical gold detection is price of London market, Loco London ("loco" means the place of metal delivering. It is the most important condition for operations with precious metals).

"Swap" operations
This is frequently used in economic literature. Concerning gold market it can be explained as buying and selling of metal and contrary operations executing at the same time. Such transactions´ volume are larger than "spot" transactions volume because gold swap does not have such influence on precious metals market like "spot" operations. Standard operation includes 32 thousands ounce (1 ton).

It is divided into three types in practice:

Swap by times (financial swap)
It is classical type of swap operations. It correspond combination of available and fixed-date opposite transaction: buying (selling) of one and the same metal amount on conditions of "swap" and selling (buying) on conditions of "forward". Date of closer operation´s executing is named "date of valuation" and further date of operation´s executing is date of swap ending. Agreement can be concluded for any period of time: from 1 day to several months. Usual dates of swap agreement is considered 1, 3, 6 months and 1 year. The essence of operations consists in possibility of conversion gold into currency with keeping the right of buyback gold after swap expiration. Before the contract expiration parties can come to an agreement about prolongation of the contract or eliminate the swap making opposite calculations. Last time swap operations becomes more popular. First of all benefit from attraction of financial resources is obvious in comparison with US Dollars deposits´ attraction because rates of interest for swaps are lower. Moreover the possibility of smooth gold attraction which can be used for remains of metal accounts managing by banks, for example. In the end, these operations are very popular among central banks. If they want to convert their own gold reserves they can be sure that their activity will not seriously influence on gold market; instead of direct selling on the market gold is moving between contra agents.

Swap by metal quality
In actual practice the situation can appear when market participant needs gold of higher pureness than he has. This wish can be met using swap by metal quality. Such swap provides buying (selling) of one quality metal and against selling (buying) gold of another quality at the same time. At the same time the party which is selling metal of higher quality receives award which depends on deal´s volume and risk connected with substitution of one type of gold for another.

Swap by place
Such swap provides buying (selling) of gold at one place against selling (buying) of it at another place. One of the parties receives award because gold can be more expensive at one place.

Deposit operations
Gold can return interest in case if it is an object of lend because it is financial asset. These operations are executing when it is necessary to attract the metal in the account or enter it there for definite period of time. Gold deposit rates is usually lower than currency rates, which can be explained by high currency liquidity. Standard deposit periods - 1, 2, 3, 6 and 12 months but they can be changed. Bank attracting precious metals in the network of deposit contracts can use it for making profit during exact period of time, for instance, financing gold-mining or for arbitrage operations, etc. Owners of gold get income from invested gold and avoid expenses for physical metal storage.

Forwards
Except of listed above operations on the world market other operations can be executed: forward deals which provides for real metal delivery at the day that is more than two working days. Making such deal buyer is ensuring himself/herself from gold price increase on the spot market in future. Insurance is secured by make the price which will be mutual settlement executed for fixed. However such deal does not give possibility of usage more auspicious conjuncture.
Forward cannot be cancelled. It can be only balanced (close forward position) by buying and selling of stipulated by the deal amount of metal for current price with future selling it for price stipulated by the forward contract. Such transactions are concluded frequently on gold Interbank market. If selling of metal for exact period is necessary seller work it off under conditions of spot and then makes a swap deal: buy metal on conditions of spot and sell it on conditions of forward at the same time.

Transactions with CFD
We were considering physical metal markets´ organization and functioning before. However other part connected with trading with virtual instruments arouses interest.

Among the events that changed the world financial markets not many of them had such influence like CFD introduction. Due 70-s era of unprecedented percentage and currency rates changing aroused need in new financial instruments which could be used for increased risks management. Prosperity of derivative financial instruments industry is connected with its possibility of fast and effective reacting on changing tendencies on the market. Eventually virtual section of the gold market became independent field with huge turnover which were bigger than turnover of physical market turnover in many times.

Futures is a legal contract bound parties (futures contract), in accordance with it one party agrees to execute and other - to accept delivery of exact amount (and exact quality) goods in definite period of time in future at the price set while contract concluding. In world practice gold future contracts are being traded on several stocks, and the biggest amount of contracts for gold is concluded on COMEX NY. Operations with gold have been executing since 1974 there. The main aims of futures operations are hedging and speculation. An attractiveness of such deals is the fact that it is no need to have much money or many goods. Investment of small capital can give much profit on suitable conditions.

Another popular form of futures is gold option, introduced in 1976 and widely spread in 1982 after their executing in the USA.

Option is a fixed - term contract, which enables the client to buy call option or to sell put option of a certain standard amount of goods by a fixed price on the exact date ( European option ) or during the all specified period of time ( American option ). The writer of the option sells the right to the counterpart to execute the transaction or cancel the deal. The buyer of the option fees for this right to the writer - option money. The buyer has the right to exercise an option at a fixed price - the price of exercising the option. Therefore, the active part in the transactions with the options is the buyer, because only this person makes decision on fulfillment of conditions of the option contract.

Option transactions are often used for hedging. So, if the investor hedges his/ her risks from increasing in the price of gold, he/ she will be able to buy call option or sell put option; if the investor hedges his/ her risks from lowering of prices, he/ she will be able to sell call option or buy put option. Compared with other instruments of hedging, the option is attractive, because, besides the fixing prices of fulfillment, in order to protect from adversing changes in market conditions, it gives the opportunity to take an advantage of favorable conditions.

In addition, options promote the development of speculative operations. The maximum size of losses of option's buyer is limited by the paid bonus, the gains are potentially unlimited. Consequently, the situation for the writer of the option is vice verse. The options can be involved in over - the - counter market. Such options are called dealer's options. Their difference is that they are not emitted by an exchange market, but an actual legal personality, whom guarantees the execution of the option.

Upon that, dealers' options can be divided into two groups:
Options for selling in the retail market to meet the private speculative demand. Initially, getting such options was associated with increased risk, because in the second half of the 70-s in the USA there were a lot of cases of fraudulent practices with options, because of high market volatility. The reaction of authorities was to put in the new requirements to the organization of trading with dealers' options. Particularly, it was foreseen to deposit the gold in the custodian bank and the option bonus for the dealer before the execution of the option or after the expiration of validity. gold trading options. The subjects of the deals are gold mines, industrial customers and major dealers.

Deals with such kind of options are different for large volumes and more continued period of validity. The purpose of such options is to smooth the price risk of producers and consumers of metal, in other words, it is not the speculative motive, but the hedging of participants of the process. Unlike stock options, which are characterized by possible transparency of information, concerning its key measures, dealers options are sold either directly or through a dealer network. Whatever, all the deals with options must be accompanied by a rendering of appropriate accounts, which ensures that the terms of an option contract will be proceeded and to reduce participants' risks.

The volumes of trading by futures and options (paper gold) are frequently exceeded the speed of buying and selling of the yellow metal (the last one amounts only a few percent). At the same time, being the second to the economic meaning of physical gold market, industry of derivatives have recently had a huge impact on the underlying asset price dynamics, because of the superiority of multiple volumes. The participants of stock deals with the gold are interested in the high market volatility, because it makes the opportunities to maximize the profit. These actions of speculators often sharply increase the movement of the market. Hence the fantastic rise of gold price in 1980 and its rapid drop in 1997 - 1999.

Gold price fluctuation
As a rule gold price depends on worldwide economic situation. Moreover gold price was always indicator of effectiveness or unprofitability of alternative investment instruments. Gold depreciated in the period of funds turnover and extensive use of different instruments of capital increase. On the contrary in case of economy stagnation, its rollback or recession, gold seemed to be the most stable and liquid instrument of capital fixation and its future saving. Here analogy can be drawn to currency exchange market and gold can be compared to Swiss frank which is considered as a buffer where volatility can be waited over.

In other words when "bulls" are ruled on the market, consumption is rising and pull all the economic sectors then gold pales into insignificance. But it is temporary.... In august 1998 Russia was going through the difficult period: state treasury bills depreciation, oil crisis, and following ruble devaluation hit everybody. That time Russians trying to save their capital bought almost all gold in banks and did not regret. Since august 1998 price of one ounce of gold has increased in three times. Even with a glance of 20 % VAT which was taken off that time gold justified investors´ hopes. However that time physical bodies were able to buy gold only in Russian banks. Meanwhile price of one ounce of gold formed on the internal market, and price of gold was higher than on the world market because of limitedness of providers and high demand within Russia. Now there are possibilities for Russians regardless of crisis locality to buy gold on the world open market. It became possible not only because of financial and stock institutes´ development in Russia, but because of huge amount of brokers appearance which provide an opportunity of entrance the international markets.

Concerning current crisis, its picture has fundamental features. It not only runs through the economy structure of different countries but provokes the recession. That is why buying of gold is being considered as one of the safest way of capital saving. Last year gold quotations overcame the level of 1000 USD. Prices of other precious metals are near the maximum prices. For the first time in last 30 years silver approached 21 USD for 1 ounce. Platinum and palladium rose in price till 2273 USD and 582 USD, respectively. However then price of precious metal increased. But this increase did not concern gold. Moreover in spite of decline of production and as a result gold demand among the companies, gold keeps high price due to speculative and capital-saving character.

Other factors have influence upon gold price. For example, US Dollar and oil price. Meanwhile gold value movement is inverse relation with US Dollar and direct relation with oil value dynamic. It is declared that when currency exchange market volatility and US Dollar rate decrease, gold appears to be alternative investment harbor. While the price of one barrel of oil increases gold is the mean of petrodollars accumulation.