Explanations of "Gold" investment-related terms A to Z

You know, when I sit in meetings and things are very tense and people take things extremely seriously and they invest a lot of their ego, I sometimes think to myself, 'Come on, you know, there's life and there's death and there is love.' And all of that ego business is nonsense compared to that.

We love AC/DC and High Voltage is a great song. But high voltage can be also fatal. This is why we use circuit breakers – to protect an electrical circuit from damage caused by excess current.

However, circuit breakers, or trading curbs, are not only used to halt excess overload, but also to curb panic selling in the stock exchange. These are temporary measures that halt trading. They were implemented in the US after the Black Monday (October 19, 1987) when the Dow Jones plunged 22.6 percent in a single day. They apply to both individual securities and market indices – in case of the latter, they are triggered only based on downward price movements. There are three levels of circuit breaker on NYSE, which kick in when, for example, the S&P 500 declines 7 percent, 13 percent, and 20 percent from its closing price the day before. In the two first cases, trading is halted for 15 minutes, unless it’s after 3:25 p.m. Eastern time. Level 3 circuit breakers halt trading for the remainder of the trading day.

Although seen as useful measures to curb panic selling, the circuit breakers can actually make trading more volatile and speed up the panic, because traders try to exit the market before the circuit breakers officially kick in. And the mere fact that some breakers were triggered, can exacerbate panic later. This should increase demand for gold as a safe haven. Moreover, the flow of information is reduced during trading halts, which hampers the price discovery process.

In the worlds of finance and banking the activity of clearing encompasses all activities from the time an initial commitment to complete a transaction is made until that transaction is finally settled

Clearing prices exist in all types of markets and for all types or product or service. The clearing price for gold (we're using gold as an example here, but the term can be used for assets in the broadest terms, including goods, services and investment products) is the price at which gold can be sold and the market can be said to be "cleared".

CME Group Inc. is an American holding company and the parent of CME, CBOT and Nymex. It is the world's leading and most diverse derivatives marketplace with exchanges that offer the widest range of global benchmark products across all major asset classes, including derivatives based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals and weather, as well as clearing services for exchange traded and over-the-counter products. In the following part of the definition you'll learn more about gold and CME.

Collateral is an asset pledged by a borrower to secure a loan. The lender can seize the collateral in the event of a default of the borrower. An example of collateral is a house bought with a mortgage. The use of collateral lowers the risk associated with the loan. This is why loans secured by collateral typically have lower interest rates than unsecured loans.

The Commodity Exchange Inc. (Comex) is an American commodity exchange where buyers and sellers electronically meet to invest in precious metals.

Money managers is category of Comex traders specified in the disaggregated version of the Commitments of Traders Report (CoT report) published by the Commodity Futures Trading Commission (CFTC), which represents registered commodity trading advisors (CTA), registered commodity pool operators (CPO), and unregistered funds identified by the CFTC that engage in managing and conducting organized futures trading on behalf of clients. As one can see, that group is very similar to non-commercial traders. The only distinction is that non-commercials are divided into money managers and other reportables in the disaggregated version of the CoT report.

Other reportables is a category of Comex traders specified in the disaggregated version of the Commitments of Traders Report (CoT report) published by the Commodity Futures Trading Commission (CFTC), which represents traders that do not fit into any other category. Usually these are larger traders that trade for their own accounts. In the disaggregated version of the CoT report, other reportables and money managers replace non-commercials from the aggregated version.

Producers / Merchants / Processors / Users (hereafter “producers”) is a category of Comex traders specified in the disaggregated version of the Commitments of Traders Report (CoT report) published by Commodity Futures Trading Commission (CFTC), which represents companies and institutions that engage in the production, processing, packing or handling of a physical commodity and use the futures markets to manage or hedge risks associated with those activities. As one can see, this group is very similar to commercial traders. The only distinction is that swap dealers (who were included in commercials before) now have their own category.

Swap Dealers is category of Comex traders specified in the disaggregated version of the Commitments of Traders Report (CoT report) published by the Commodity Futures Trading Commission (CFTC), which represents entities that deal primarily in swaps for a commodity and use the futures markets to manage or hedge the risk associated with those swap transactions.

Gold commercials (hedgers) is a category of traders specified in the Commitments of Traders Report (CoT report) which represents entities involved in the production, processing or merchandising of gold.