Shouldn’t you be out looking for leprechauns to interrogate or chasing rainbows, dusting off your miner’s helmet or preparing to melt down that gold tooth that Granny left you?

If you have been watching the price of gold recently then you probably have the wee fellow strapped to the rack already and are just getting out the thumbscrews. Overshadowed by the headlines concerning Northern Rock and the US sub-prime crisis, gold has been climbing higher. Yesterday it touching a 27 year high. Over the last 10 years it has almost tripled in value and so far this year it’s up 16%.

GOLD CASH CHART, MONTHLY

Luckily for you, spreadbetting allows you to ditch the role as Chief Inquisitor and you can hang up your hard hat too, unless the missus thinks it makes you look like a fireman or you are auditioning for the remake of the Full Monty!

What’s So Interesting About Gold?
Gold has unique physical and chemical properties that explain why it has acted as a store of value since before Tutankhamen was a boy king. It is relatively rare, which makes it great as a currency and in normal conditions doesn’t react with air, water or most corrosive agents and is a good electrical conductor. These characteristics explain why industrial demand for gold is rising; even B&Q does a nice range of gold-plated taps now! Gold has also been used to back many currencies-that’s why central banks have stacks of gold bars tucked away in places like Fort Knox.

Where Does It All Come From And What Happens To It?
The top 5 producing countries are South Africa, the USA, Australia, China and Peru who account for about half of global gold production. Two thirds of it ends up as jewellery, 14% is taken by industry and dentistry and the balance is made up by investment demand which goes into coins, bars and specialist funds.

Why Trade Gold?
Gold is often thought of as the ultimate ‘safe-haven’ asset. Currencies get devalued, assets can be seized by governments and geopolitical and economic uncertainties come round with unerring regularity. Compare the gold chart with this one of the US Dollar Index (a measure of the value of the US Dollar against 6 major world currencies).

Gold hit a multi-decade low in 2001 at exactly the time that the dollar was at a peak against most world currencies. This article shows what happens when you let the lunatics out of the asylum. Since then the dollar has been in a tailspin against a backdrop of deteriorating trade and budget deficits in the US and an increase in ‘global uncertainty’ including wars, terrorism and rising tension in both the Middle East and East Asia. Gold has been the perfect antidote to these woes.

Let’s also add some basic economics into the mix. Annual gold production has declined from a peak of 2604 tonnes in 2001 to 2467 tonnes in 2006 whilst demand has been gradually rising to 3,375 tonnes, driven by the increasing use of gold in the electronics industry and investment demand from ‘newly wealthy’ countries like India, Russia and China.

The eagle eyed amongst you will have spotted that demand exceeds production. This can happen because the shortfall is made up from scrap and central bank sales. Of course central bank sales can’t go on for ever, but there’s still quite a bit left to go.

Investors have been diversifying risk away from stock and bond markets, which have become increasingly volatile and where returns have been diminishing. So they have stuck cash into commodities including gold which has help to drive the price up.

Trading Gold ….Skilled TV Remote Operators And Channel Hoppers Only Please.
Fancy a career change? As a Newsreader perhaps, diplomat, economist or mining engineer? Even a weather forecaster? You’ll need to be a bit of each of these and it also pays to have eyes in the back of your head (and elsewhere!) to trade gold. One eye on News 24, another on the Weather Channel, and your third on Bloomberg TV would be a good start. And no, despite its encouraging title UKTV Gold doesn’t offer trading tips!

The price of gold can be influenced by many variables including:

• Geopolitical events-a major terrorist event, an escalation in Middle East tension or a coup in the Far East would send investors scuttling for an extra bar or two or the yellow stuff.
• Economic news-the price of gold usually, but not always, moves the opposite way to the US dollar. A weak dollar usually means a high gold price and vice versa. Key economic releases to watch out for that influence the dollar are the Federal Reserve’s interest rate decisions, the monthly Non-Farm Payrolls data and quarterly GDP estimates.
• Big natural disasters-it’s a bit morbid, but such events often give the gold price a short term boost. In the month after Hurricane Katrina hit the US, gold rose by almost $40.
• Central bank gold sales and foreign exchange reserve news releases. Several governments have announced their intention to sell off some of their gold reserves, although they are a bit sharper than Gordon (the moron) Brown was and don’t tell the market before they put the trades on. The ECB usually publishes a summary financial statement on Tuesday mornings which details any gold sales that occurred in the preceding week. This article about recent Spanish central bank gold sales suggests why the price of gold might continue to rise.
• Mining companies may report they have found a new ore deposit, opened a new mine, or run into geological problems that have caused production issues. Companies may also announce forward sales (production hedges) of mine output.
• Weather events-but don’t rush out and tap the mercury in your barometer just yet. Think bigger; typhoon or monsoon. India accounts for about a quarter of all gold consumption with most of it bought after a good harvest by peasant farmers, (see, they don’t all work in call centres) who might then sell it in a tough year when a bad monsoon or typhoon wipes out their crops. Think I’m taking the Mickey? Check this article out.
• Seasonality. Gold usually performs well in the final quarter of the year in the run-up to a number of religious and ‘gift-giving’ festivals including Christmas and Diwali. Hands up anyone who has ever rushed into H Samuel at five to five on a Christmas Eve! Also many Indian weddings occur in November and December with the gold given as part of a dowry usually purchased after the harvest in September.

How To Spreadbet On Gold
There are a couple of ways to spreadbet on gold. The simplest is to buy or sell the rolling cash bet. However you could also place a bet on the price of a company which has extensive gold mining interests, although there is a higher degree of risk involved in this strategy.

Some of the world’s largest gold producing companies include Barrick Gold, Anglogold Ashanti and Gold Fields; you can trade all 3 here at paddypowertrader.com. Randgold Resources, a UK listed company with gold mining operations primarily in West Africa has also performed well recently.

RANDGOLD MONTHLY CHART

The share price has risen by 50% over the month since the sub-prime issue became a crisis, compared with a rise of about 10% in the actual gold price over the same period. You can also trade Randgold on paddypowertrader.com. There are a number of other UK and Irish smaller companies prospecting for gold deposits rather than actually producing gold which are quoted on the spreadbetting platform, however the investment risk is clearly much more significant.

Has anyone here got the Midas touch?

Let us know how and why you trade gold or bet on the shares of gold producers. With the gold price at a 27 year high of $733 do you think it is about to do its conkers, or continue rising?