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Metals

There are two major subsets to the metals category: precious and industrial. Although gold certainly is used in the jewelry industry and electronics and other industries, it is considered precious due to its traditional role as a medium of exchange (in other words, money). Silver is considered both precious and industrial. Metals such as copper (sometimes called the poor man's gold) are certainly considered to be in the industrial class.

Precious metals

Gold

Unique and precious, gold is its own asset class. Prices are quoted alongside securities in the major financial media. Gold is still a hedge against asset erosion in times of inflation and political unrest, and it is becoming increasing popular as an investment vehicle in China (as it has perhaps lost some of its luster in the West). In 1816, Great Britain, the world's major superpower, backed its currency exclusively with gold, which in turn forced other nations to follow its lead. The metal formally entered the world's monetary system in 1944 when the Bretton Woods agreement fixed all the world's paper currencies in relation to the dollar, which in turn was tied to gold. Then in 1971, Nixon canceled the dollar's convertibility to gold, which likely allowed the hyperinflation of a decade later. Today, many of the world's central banks, particularly in Europe, are divesting themselves of a portion of their gold reserves. Gold now trades freely in accordance to supply and demand. At times, it acts like an industrial metal (responding to jewelry demand), but it still is its own asset class with money flowing into the metal as a store of value when inflationary expectations heat up. South Africa is the world's largest gold producer, accounting for more than 25% of the world's production and 50% of the reserves. The next five major producers (in order) include Russia, the United States, Canada, Australia, and Brazil. The all-time futures price high as this book goes to press was $1,026 (reached in January 1980 on the October 1980 contract when the spot price hit $875). When the contract was listed in 1976, it came “on the board” less than $100. The COMEX is by far the world's largest precious metals market, with its 100 troy-ounce contract. Prices are quoted in dollars and cents per ounce, with a $1 move equaling a profit or loss of $100 per contract.


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