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The Chicago Board of Trade


The purity of gold measured in parts per 1,000. Karat in the US. Originally derived from the weight of the Carat Seed, a plant that has seeds of amazingly uniform weight.


A carry trade where you borrow and pay interest in order to buy something else that has higher interest. The gold carry trade works as follows. A central bank loans a bank (sometimes called a bullion bank) some gold. The gold lease rate is usually very low. The bullion bank immediately sells the gold and invests in securities with a higher rate of return, such as government long-term bonds. The carry return is the return on the bonds minus the gold lease rate. However, this trade is risky on two dimensions. First, if the bullion bank invested in long-term bonds and the interest rate goes up, the trade could be unprofitable. More seriously, the bullion bank has effectively sold the gold short. If the loan is called by the Central bank and if gold has risen in value, the bullion bank will have to go into the market and purchase higher priced gold. Indeed, if many banks are short, the unwinding of the gold carry trade could drive the gold price even higher.


Written confirmation of entitlement to precious metals without necessarily having to take physical delivery of the metal. Typically precious metals certificates are for unallocated precious metals.


Commodity Futures Trading Commission, the futures and options regulatory body in the US.


A locally recognized chain of custody among trusted trading partners where bullion bars are accepted at face value without an assay test. COMEX rules specify an official “chain of integrity” for COMEX GOLD contracts. The London Bullion Market Association maintains a “Good Delivery List” of member refineries that meet certain membership requirements and have passed assay tests. Bullion products from these refineries will generally be accepted by other members of the LBMA on face value without further assay testing. However, the LBMA’s chain of integrity is purely informal. When purchasing bullion products the face value can generally be accepted if the product can be shown to have remained in the custody of a certified bullion repository since its manufacture at an acceptable refinery.


Chicago Mercantile Exchange.


The Commodity Exchange in New York established in 1933. Gold futures contract launched on December 31, 1974.


Gold coins minted to honour a particular historical occasion. These coins in general are not legal tender, although there have been exceptions. The coins usually sell at a premium over the gold content.


A market situation where the spot price is lower than the forward quotation; the differential representing the carrying (financing) costs and prevailing interest rates. Opposite of backwardation.


The pre-agreed month during which an Exchange contract becomes deliverable in the case of futures or exercisable in the case of an option.


Cumulative cost incurred during metal trading that includes storing and holding metal, warehousing, interest charges and insurance.


Supervised, secure storage arrangements for owners who have full legal ownership of specific bullion bars and wish to place them in storage. Unless the bars can be specifically identified by refiner, exact weight, fineness and serial number they cannot be allocated and they do not qualify for custodial storage.

Custodial Agreements need to be in writing. They must be executed by both the custodian and the owner, and set out all of the terms of the agreement including storage fees, insurance and specifically identifying each bar. The payment of storage and insurance is an important facet of the custodial relationship and will help convince the trustee in bankruptcy that the bullion was not transferred to the custodian.

Allocated bars do not form part of the custodian’s assets, may not be lent into the market or used in any way without the knowledge and consent of the owner. In the event of bankruptcy or insolvency allocated bars are not subject to any third-party claims of the custodian or dealer.


An agreement whereby material is treated and a pre-agreed amount of precious metal is returned to the customer.