ACCEPTABLE Bars that are considered as good delivery are acceptable.

ACID TEST A standard test to establish the fineness or caratage of gold based on the metal’s chemical reaction to the addition of acid.

ADVANCE PREMIUM FORWARD forward contract offering a constant contango throughout contract life; similar to flat rate forward. See Appendix 8 for details.

ALLOCATED GOLD Specific bars held on behalf of the owner usually by a Bank. Allocated bars may not be lent into the market as past of the holding Bank’s general pool of metal or used in any way without the knowledge and consent of the owner. Contrast unallocated.

ALLOY Mixture of gold with either another precious metal (usually silver or palladium), a base metal (copper or nickel) or a combination of both. The presence of other metals renders gold harder and more durable and thus better able to withstand machining particularly during the manufacture of jewellery. See carat.

ALLUVIAL GOLD Gold found in its native form specifically in association with the fluvial activity and river systems.

AMERICAN STYLE (Options) An option that can be exercised at any stage during its life, in other words at or before expiration date. See also European and Asian options.

ANOMALY Geological term describing changes in underlying bedrock structure which may indicate the presence of an orebody.

APPROVED REFINER A listed refiner whose bars are accepted as good delivery by the spot market or by the Exchanges. See good delivery.

ASIAN OPTIONS An option where the outcome is reliant not only on whether or not the option is in-the-money at expiry but also depends on the average price of the underlying throughout the option life. Asian options are used mainly by market participants who are obliged to have frequent exposure to the underlying asset over time. The options are then useful in capping the overall cost of the physical exposure.

ASSAY (ASSAYER) The test (or tester) of the purity of gold. Often officially appointed and recognised to assay coins and jewellery.

ASSET-OR-NOTHING CALLS (PUTS) are path-independent options which have a zero payoff if the price of the underlying at expiry is below (above) the strike price. They are in the money, however, if the price of the underlying at expiration is above (below) the strike price. They are similar to cash-or-nothing options except that, at payoff, the amount is not predetermined but is equal to the underlying asset value at expiration.

AT-THE-MONEY OPTION An option with a strike price equal that of the current price.

AVERAGING A trading term based on average prices over a predetermined period ie selling or buying on the average morning or afternoon fix in London.

AVERAGE STRIKE OPTIONS Asian options where the payoff depends on an average strike price rather than an average underlying asset price.

BAHT A gold bar destined primarily for Thailand containing 0.47 ounces of 990 fine gold.

BAR Wide generic term for cast gold showing marked geographical and cultural preferences. Most standard is the 400 oz good delivery bar and the kilobar (32.15oz) both normally containing 995-999.9 parts per 1,000 pure gold. See Appendix for details.

BARRIER OPTIONS Unlike standard European options where the payoff on expiry depends only on the price of the underlying at expiration, barrier options are path-dependent. In other words, their outcome depends on the performance of the price of the underlying during the life of the option and whether that price breeches some predetermined barrier or level. See 'in' barrier and 'out' barrier options.

BEAR/BEARISH Favouring a negative view of future price movements (opposite of bullish).

BETA An investment measure of price volatility relative to other, competing, investments; in other words the measure of one commodity’s performance against others.

BINARY OPTIONS Unlike standard options which have a smooth, linear payoff profile, binary options have discontinuous payoffs (all or nothing) depending on whether or not the price of the underlying meets some predetermined condition. Binary options can be either path-dependent or path-independent.

BIS Bank for International Settlements established in 1930 as the Central Banker to the Official Sector. Based in Basle, Switzerland and holds 200 tonnes of gold for its own account.

BLACK AND SCHOLES Two mathematicians (Fischer Black and Myron Scholes) who, in 1973, pioneered option pricing theory in general and not specific to gold.

BLANK Unstamped and unmarked gold disk produced by refineries in preparation for minting coins and medallions. Also called a planchet.

BONDS Means of raising debt through the capital markets. See also Gold-backed bonds.

BOSTON OPTION see Break forward option.

BREAK FORWARD OPTION Similar to the standard call option except that it has a zero initial cost.

BREAK-OUT A technical chart development during which the gold price suddenly breaks through levels of known or expected resistance.

BULL/BULLISH Favouring a positive view of future price movements (opposite of bearish).

BULLION Originally a term implying refining or melting of precious metals including gold. Today refers to gold eg bullion trading or bullion coins and bars.

BUY SIGNAL A technical term indicating a reversal of downward price trends and that the price could well have reached the bottom in which case it would be prudent to buy gold. Contrast sell signal.

BY-PRODUCT GOLD Gold mined and produced as a consequence of mining other metals, normally copper but also lead and zinc. Gold, and often silver, produced in this way, greatly enhances the profitability of a base metal mining operation offering substantial by-product metal credits.

CALL OPTION Option giving the purchaser the right but not the obligation to buy gold at a predetermined (strike) price.

CANCELLABLE FORWARD OPTION see Break forward option.

CASH AND CARRY An investment strategy through which the speculator buys spot for immediate payment and delivery while simultaneously sells a futures contract. The cost of holding the spot gold is offset by the contango associated with the forward transaction.

CASH-OR-NOTHING CALLS (PUTS) The simplest, path-independent binary options which have a zero payoff if the price of the underlying finishes below (above) the strike price. They pay off a constant sum if the price of the underlying is above (below) the strike price.

CARBON LEACH A metallurgical process to recover gold involving cyanide and then carbon.

CARLIN TREND A geological phenomenon in Nevada bearing particularly rich gold-bearing ore bodies.

CBOT The Chicago Board of Trade.

CARAT The purity of gold measured in parts per 1,000. Karat in the United States. See Appendix for table of caratages.

CCA Comex Clearing Association.

CENTRAL BANKS See Official Sector

CFTC Commodity Futures Trading Commission, the futures and options regulatory body in the United States.

CIF Standard quotation including the ‘cost, insurance and freight’.

CHARTIST Technical analyst and forecaster of the gold market based on historical price trends. See technical analysis.

CHOOSER OPTIONS An option bought and paid for but immediately after an agreed time the buyer can elect whether the option is to be a standard European put or call with an equal strike price and equal remaining time to expiry. Similar to a straddle although cheaper since the holder must choose, before expiration, whether the option is a put or a call.

CHOP Distinguishing stamp on a bar for identification purposes and proof of gold content.

CHUK CHAM 990 fine gold jewellery most popular in China and Hong Kong and recognisable by its distinctive yellow colour.

CLEARING HOUSE The separate body through which all futures contracts traded on an Exchange are cleared and guaranteed. Usually administered by either Banks or by Exchange members themselves.

CME Chicago Mercantile Exchange.

COLLARS Options which have the same payoff as the standard call expect that the upside is not unlimited but is subject to a maximum. The option buyer forgoes any payoff above this maximum.

COMEX The Commodity Exchange in New York established in 1933 and launched its gold futures contract on 31 December 1974.

COMMEMORATIVE COINS 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.

COMPLEX CHOOSERS Options where either the put/call strike prices or the put/call time to expiry or both are not equal.

COMPOUND OPTIONS A major family of exotic options. They are options on options. The underlying asset is an option rather than a tangible commodity or security. Valuation of the option is complicated by the fact that two times to expiry must be accounted for: the time to expiration of the compound and the time to expiration of the underlying option.

CONTANGO 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.

CONCENTRATE The intermediate stage of mining and processing by which time unwanted minerals have been removed thus increasing the gold content in preparation for refining.

CONSIGNMENT STOCK Stock of bars or semi-fabricated gold products placed with a Bank by a client to stand as guarantee of payment.

CONTRACT A standard and legally binding agreement traded on the Exchanges allowing for the buying and selling of gold futures and options.

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

COST CURVE Graphical representation of the costs of producing a metal for an entire primary industry. Usually cumulative output expressed in percent plotted against unit operating costs.

COST OF CARRYING Cumulative cost incurred during metal trading which includes storing and holding metal, warehousing, interest charges and insurance.

COUPON Annual interest rate associated with capital market bond issues.

CRUSHING First stage of mineral processing after mining during which the ore is reduced to smaller pieces.

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

CUT-OFF GRADE The lowest payable grade of gold-bearing ore below which it is unprofitable to mine.

CYLINDER OPTION See range forward options

DELTA HEDGING The amount of hedging necessary against an option position to ensure a zero or square exposure to it at any point during the option’s life.

DERIVATIVES (gold based) Overall term for highly leveraged paper or financial products whose underlying value is based on the gold price. Includes products such as gold loans, forwards, futures, options and warrants.

DILUTION The undesirable but often unavoidable mixing of ore body and sterile surrounding rock during the mining process which effectively lowers the gold grade.

D’ORE The result of processing and smelting usually at the mine site which produces a matt containing impure gold alloy which is then refined. Most d’ores contain about 60-70% gold and usually in association with silver.

DOWN-AND-IN CALLS A barrier option where the call is paid for up front but not received until the knock-in barrier is reached. See also up-and-in calls.

DOWN-AND-OUT CALLS A barrier option where the standard calls are paid for and exist until such time as the price of the underlying falls below a predetermined barrier after which the options cease to exist.

DOWN-AND-IN PUTS A barrier option where the put is paid for up front but not received until the knock-in barrier is reached. See also up-and-in puts.

DOWN-AND-OUT PUTS A barrier option where the standard puts are paid for and exist until such time as the price of the underlying falls below the predetermined barrier after which the options cease to exist.

DUCTILE The physical property exhibited by gold which allows it to be drawn out into fine wire.

DREDGING A mining process specific to placer deposits associated with ancient alluvial or glacial activity.

ELECTROWINNING/ELECTROLOYSIS A final stage in the refining process which produces high purity metal via electrical current being passed a solution of hydrochloric acid.

ELECTROPLATING Process used to coat surfaces with very thin layers of gold. Achieved via gold potassium cyanide being coated onto a substrate through electrolysis. Used mainly in the decorative industry.

EMCF European Monetary Co-operation Fund

EPITHERMAL Geological term for gold-bearing deposits found in association with volcanic activity.

EUROPEAN STYLE (Options) An option that can only be exercised on (not before) the date of expiry.

EXCHANGE Organisations through which members can trade futures and options based on a wide range of commodities on behalf of clients.

EXCHANGE OPTIONS An option offered by an Exchange such as COMEX. It is a standard contract subject to the rules and regulations of the governing exchange. The COMEX option offers the buyer a COMEX futures contract should the option be exercised. Distinguish this between another EXCHANGE OPTION which is an exotic product that allows the holder to exchange one underlying asset for another.

EXERCISING AN OPTION The option purchaser holds the writer (seller) of an option to the agreed contract.

EXOTIC OPTIONS Generic term for the more sophisticated option strategies which have features over and above the basic contracts.

EXPIRATION DAY Last day on which an option can be exercised after which is expires.

EXPLOSIVE OPTIONS See knock-out options

FINENESS The measured purity of gold quoted in parts per 1,000.

FINE WEIGHT The measured pure gold content of a bar or coin arrived at by multiplying the gross weight by the caratage.

FIXING The twice daily (10.30am and 3.00pm) meeting of the five fixing members in London during which time the gold price is fixed momentarily, providing a bench-mark price.

FLOTATION A metallurgical process during which minerals are separated out of crushed ore.

FLEXIBLE FORWARD OPTION See range forward options

FOOL’S GOLD Iron pyrites which looks like native gold.

FORWARD BAND OPTIONS See range forward options

FORWARD CONTRACT A principal-to-principal contract usually entered into by a mining company to sell its gold at a future price for future delivery. Substantially more flexible than a futures contract.

FORWARD-STARTS Generally options that are paid for upfront but are only received at a predetermined future date. Options whereby the buyer, after a predetermined time (the grant time), can, at no extra cost, receive an option with the usual life length but at a strike price that will be at-the-money at expiry. The primary application is in share options schemes offered to the staff of a company.

FORWARD WITH OPTIONAL EXIT see Break forward option.

FOUR NINES GOLD The purest form of gold containing 999.9 parts per 1,000. Occasionally gold containing 999.99 is fabricated for use in the electronics industry.

FUNDAMENTAL ANALYSIS The method of price forecasting which requires an understanding of the major sectors of the gold market and the dynamics of metal flows through the market. Contrast this to technical analysis.

FUTURES CONTRACT A standard contract offered by the major Exchanges which allow for the purchase or sale of metal at a pre-agreed price for future delivery at a pre-agreed date.

GANGUE Sterile non-mineralised rock surrounding an ore body.

GAP OPTIONS Options that place emphasis on the role played by the strike price of a standard option. The strike price in gap options not only determines whether the option is in- or out-of-the money at expiration but also the magnitude of the resulting payoff. The gap is the difference between the strike price and the resulting payoff.

GOFO Reuters screen code for the daily gold lease rates.

GOLD-BACKED BONDS Debt raised through the capital markets issued with a gold options alternative to enhance the value/attraction of the investment.

GOLD CERTIFICATES Written confirmation of ownership of gold without necessarily having to take physical delivery of the metal.

GOLD LOAN A means of raising capital for project financing which involves monetising gold.

GOLD/SILVER PRICE RATIO The relative price between gold and silver; a ratio on which speculators are known trade.

GOLD STANDARD Historical monetary system associated with a fixed price, rather than a free-market price of gold.

GOOD DELIVERY An industry standard of quality indicating that a gold bar is of a minimum quality set by the London Bullion Market Association. To meet these requirements, a bar must contain 350-430 troy ounces of 995 purity (parts per 1,000) gold. It also must bear the stamp of a recognised refinery. A list covering all the current refiners with good delivery status is available from the LBMA.

GPC Gold Potassium Cyanide - the major source of electrolytic gold plating destined for the decorative industry.

GRADE Measure of gold contained in an ore body usually expressed in grammes per tonne or ounces per tonne.

GRAIN Small gravel-sized globules of gold produced by pouring molten metal into chilled water. Used primarily by the jewellery fabricators.

HEAP LEACHING Low cost method of extracting gold from crushed ore by subjecting iy to a spray of dilute cyanide. The gold leaches out and is collected.

HEDGE Active management of price risk using the various derivative products available.

HOARDING The purchase and holding of physical metal to ensure against political, social and financial uncertainties.

IFS International Financial Statistics

IMF International Monetary Fund

IMM International Monetary Market

'IN' BARRIER OPTIONS Options which are paid for up front but are not received until a specified price level (the barrier or the knock-in boundary) is broken. If the barrier is broken at some stage during the options life, then the buyer receives a standard European options with a strike price and time to expiration. If the barrier is not broken, then at expiry, the holder receives a cash rebate.

IN-THE-MONEY OPTION An option which has a positive intrinsic value is said to be in the money. In the case of a call, it is in the money when the strike price is lower than the current price. A put option is in the money when the strike price is higher than the current price.

INTRINSIC VALUE (of an option) The difference between the strike price and current price of the underlying commodity.

KNOCK-OUT OPTIONS Exotic option whereby the contract is cancelled if the spot price breaks through an agreed price. See up-and-out puts and down-and-out calls. The knock-out option is priced differently since it can explode or be cancelled while theoretically it still has time value.

LEASE RATE The level of return a lender of metal can earn for providing market liquidity. Quoted daily on Reuters; its level is a function of the supply and demand for short term metal.

LEASING/LENDING The process by which the Central Banks (and other holders of physical gold) can earn a return on what would otherwise remain a non-interest bearing asset. Lent gold provides the necessary liquidity for day-to-day transactions.

LEGAL TENDER (COINS) Officially minted gold coins which may be used to purchase goods and services to the total of their face value. Since the value of the gold content greatly exceeds the coin’s face value, this rarely, if ever occurs.

LIMIT DOWN Arbitrary price level below which trading on a Futures and Option Exchange ceases during that trading day. Imposed to prevent very sharp price declines in futures prices and are adjusted from time to time at the discretion of the Exchange. See Limits.

LIMITS Arbitrary price barriers imposed by Futures and Options Exchanges to limit severe price movements during a trading day. There are no limits in the spot market. See Limit Up and Limit Down.

LIMIT UP Arbitrary price level above which trading on a Futures and Option Exchange ceases during that trading day. Imposed to prevent very sharp price increases in futures prices and are adjusted from time to time at the discretion of the Exchange.

LIQUIDITY The volume of business or turnover on an Exchange or any market forum; can be applied to either the paper market or the physical.

LOAN COLLATERAL The use of gold stocks by the Official Sector to stand as collateral for foreign exchange loans, often during times of financial crisis.

LOCAL Independent individual on an Exchange floor trading for his/her own account.

LOCO Physical location of metal implied in price quotations. Unless otherwise stated, price quotations imply delivery loco London.

LONG To be long of a commodity or associated futures or options contract is to have been a buyer. Contrast short.

LOOKBACK OPTIONS A path-dependent option where the payoff is reliant not only on whether the option is in-the-money at expiry, but also on the maximum or minimum price achieved by the underlying during at least some part of the option life. Some analysts do not regard the lookback as a true option since it will always pay to exercise the option at expiry.

LOT Exchange or trading room term for a standard futures contract.

MARGIN The cash deposit against a paper contract payable as a guarantee. An initial payment is usually made and thereafter further margin requirements (margin call) may have to be met depending on the performance of the contract throughout it life.

MARK TO MARKET The trading practice of automatically re-evaluating a customers outstanding position according to the current price and subsequent price movements - in other words so that the customers balance always reflects the most recent price. This can lead to margin calls.

MARKUP The premium over the spot gold price applied to jewellery and other investment products.

MARKET MAKER Active quoter of two way prices for both clients and counterparties.

MATURITY DATE Date on which option matures; when it is either exercised or it expires worthless. Also known as expiration date.

MILL Processing plant which prepares mined ore for smelting and further downstream extraction of metal.

MIN-MAX See range forward options and cap and collars.

MINT Agency usually associated with a state-owned refinery which is capable of striking coins.

MOVING AVERAGE A basic method of charting a metal price which reflects the average progress over a elected period of time, eg one month or annual moving averages.

MULTIPLE OPTION FINANCING Term used in bullion financing in which the gold loan agreement is flexible in that the borrower can elect to make capital and interest payments in either gold or hard currency.

NEARBY MONTH The closest active trading month on a futures and options Exchange. For example, in October the nearby month will be November.

NUGGET An irregularly shaped piece of gold found in its native form usually in alluvial settings.

NUMISMATIC COINS Gold coins collected primarily for their historical value and interest. Not normally legal tender.

NYMEX New York Mercantile Exchange

OPEN OUTCRY Method of trading any commodity where dealers face each other in a dealing ring or pit and there is direct communication. Contrast: Screen Trading.

OPEN INTEREST The daily indication on an Exchange of the outstanding futures or options contracts which have yet to be delivered against or liquidated.

OPTION CONTRACT An Exchange product offering the holder the right but not the obligation to buy or sell gold at a pre-agreed price by an agreed date.

OPTION FENCE See range forward options

ORE/ORE BODY Distinct body of rock containing minerals in sufficient concentration to be mined profitably. Economic feasibility depends largely on the price of the mineralised metals and the cost of extracting them.

ORE RESERVE Measured quantify of mineralisation in an ore body.

OUTCROP Geological structure which breaks through the surface of the earth.

OUT-OF-THE-MONEY (option) An option that has no intrinsic value it is said to out of the money. A call is out of the money when the strike price is higher than the current price. A put is out of the money when the strike price is lower than the current price.

OTC Over-the-counter; term used to describe an option that is written and traded through principals rather than a Exchange.

'OUT' BARRIER OPTIONS Are options which are paid for up front and exist until, during the option life, a predetermined barrier is broken after which the options are rendered null and void. If the barrier is not breached, the holder receives standard European options. If the barrier is broken and the options are extinguished, the holder is then paid a rebate.

PATH DEPENDENT OPTIONS Options whose payoff at expiry is dependant on the price performance of the underlying throughout the life of the option. Refers mostly to barrier options. See also path independent options.

PATH INDEPENDENT OPTIONS Options whose payoff is based entirely on the price of the underlying at expiration date and the price performance of the underlying during the life of the option is irrelevant. Standard European and American options are path independent. See also path dependent options.

PLACER Gold-bearing deposit made up mainly of gravels which have been subject to alluvial or glacial activity.

PLANCHET see blank.

POSITION TRADING Strategy adopted by a metal trader during which he/she maintains a short or a long position for a period of time.

PREMIUM The cost which the buyer of an option pays to the writer or seller of the option; normally only a very small fraction of the value of the underlying commodity.

PRIMARY GOLD Newly mined metal.

PRINCIPAL-TO-PRINCIPAL Bullion transactions executed directly between the client and the market makers without being channelled through an exchange. Used primarily by market participants who have actual physical transactions to complete rather than the speculators. Speculative business tends to be channelled via the exchanges.

PROOF COINS The finest quality of gold coins struck (sometimes twice) with specially prepared dies and which sell at a premium over similar coins.

PUT OPTION Option giving the purchaser the right but not the obligation to sell gold at a particular strike price.

REEF Highly stratified mineral bearing deposit which is clearly identifiable from surrounding rock.

REUTERS International screen-base news agency widely used by all metal and foreign exchange market participants.

RHO Measure of an option’s sensitivity to changes in interest rates.

ROLLOVER Renewal of a forward position as it approaches maturity.

SDR Special Drawing Right; the ‘currency’ or credit unit created by the IMF.

SELL SIGNAL A technical term indicating a reversal of downward price trends and that the price could well have reached the top in which case it would be prudent to sell gold. Contrast buy signal.

SETTLEMENT DATE The pre-agreed date on which any gold transaction must be settled.

SHORT To be short of a commodity or associated futures or options contract is to have been a seller. Contrast long.

SLAG Waste product from the smelting and refining processes.

SOUK Market associated primarily with the Middle East in which physical gold of very high purity is actively traded mainly in the form of jewellery, coins and small bars.

SPOT DEFERRED Hybrid forward contact offering floating interest rates and no fixed delivery. More flexible than a conventional forward but without the cost of an option.

SPOT MARKET The immediate market where delivery obligations usually occur no more that 2 days after the transaction.

STOP-LOSS A client’s order left with a dealer to liquidate a potentially loss making position should the price break through a specified level. Executed to prevent further financial losses.

STABILISED CONTANGO Forward contract offered by the South African Reserve Bank to the country’s mines.

STRIKE PRICE The agreed price at which the option can be exercised which will be equal to, higher or lower than the current price of the underlying.

SWAP A spot sale with a simultaneous equal forward purchase of equal tonnage. This is the definition of a gold or bullion swap which may differ from the term used by the foreign exchange markets.

SWITCH Trading procedure during which a futures contract is liquidated while simultaneously establishing the same position for a more distant contract month.

TECHNICAL ANALYSIS (charting) the method of price forecasting based of the mapping of past price trends. Patterns identified within the charts are used to predict future price movements.

THETA Measure of change in an option exposure that results from the passage of time.

TIME VALUE Option value associated with the time left to maturity since during the life an option can move in and out of the money.

TOLL REFINING An agreement through which the refiner is paid an agreed fee for the process but with no change in the ownership of the metal under treatment.

UNDERLYING Shortened term for the underlying commodity upon which futures and options are traded.

UP-AND-IN CALLS A barrier option where the call is paid for up front but is not received until the predetermined knock-in barrier is reached. Differs from down-an-in calls in that the price of the underlying is initially below the barrier.

UP-AND-IN PUTS A barrier option where the put is paid for up front but is not received until the predetermined knock-in barrier is reached. Differs from down-an-in puts in that the price of the underlying is initially below the barrier.

UP-AND-OUT CALLS A barrier option where the standard calls are paid for and exist until such time as the price of the underlying rises above a predetermined barrier after which the options cease to exist.

UP-AND-OUT PUTS A barrier option where the standard options are paid for and exist until such time as the price of the underlying rises above the predetermined barrier after which the options cease to exist.

UPGRADING Re-refining in order to improve the purity normally of a gold bar from 995 to 999.9.

VOLATILITY The rate of change in the price of the underlying commodity.

VOLUME The daily turnover or number of contacts traded on an Exchange.