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C. Statistics |
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Precious
Metals – CTRM Considerations
This page has
some high level notes about Precious Metals.
This is intended to share relevant information in the context of CTRM
system design.
Outline
1) List of
Precious Metals
2) Trading Attributes
3)
Considerations for CTRM system design
1) List of Precious Metals
Gold
Silver
Platinum
Palladium
2) Trading Attributes
2.1) Units
Precious
Metals may commonly trade in ounces or kilograms. As little as one gram may be
valued/valuable.
2.2) Most
commodities will typically trade as a function of price, meaning having a
payment based on quantity * price. Precious Metals will have that as well. In addition, precious metals will trade based
on an interest rate, a ‘GOFO’ rate for Gold Forward rate.
2.3) Trade
Types
Precious
Metals will trade as
Futures
Options on
Futures
Swaps
(financial derivative)
Financial
Options
Physical Buys
and Sells
3) Considerations for CTRM system design
Note: In the example
below, we’ll say ‘gold’ as an example and use that to refer to precious metals
in general, where applicable.
3.1) Need a
way to allow for payments based on interest rates (GOFO). Some systems support this by modelling gold,
etc., as if they were a currency. That
seems to be a workaround. Ideally would
be able to model them once as a commodity and have the system support payments
based on interest rates or prices.
3.2) Physical
Inventory
Gold, etc.,
will come in various forms. Bars, Coins,
etc. Depending on the situation, firms may need to track specific bars, coins,
etc. For example, you might have 100
gold bars, each with a different serial number that needs to be tracked.
In other
cases, the gold is not track by specific bars, and is just an ounce or kilogram
amount.
3.3) Flaking
in transit
Gold bars will
flake, i.e., have small pieces fall off, in transit. Need to be able to account for account for
that:
3.3.1) Track
pre-shipping weight, arrival weight, and the amount that flaked off.
3.3.2) Allow
for payments based on the gram difference, such as a fixed price for each gram
lost, an index price based on the shipping date or an index price based on the
delivery date.
3.4) Need
‘accounts’ for gold in warehouses.
Physical gold
will be at a particular real world location.
In addition, a client can have multiple ‘accounts’ (i.e., like bank
accounts) for the gold. So need both the
ability to model in a CTRM system transferring gold from one physical location
to another as well as the ability to transfer from one account to another, even
if the gold doesn’t move physical locations.
3.5) Pricing
by Location and Coin/Bar type
Physical Gold
will be valued differently based on where it is located, such as London or New
York. Also, physical bars will be valued
differently than coins. And each coin
will be valued differently, such as US Eagles versus Canadian Maple Leafs, each
being the commonly used name for one ounce coins. A system will need to support these pricing
variations.
3.6) Gold
‘bank accounts’.
Systems will
need to be able to model something like a bank account, but for gold. There needs to be a way to see
3.6.1) end of
day balances of gold. i.e., need to be able to see back in time ‘forever’ what
the end of day balance was. Also need to
be able to project daily balances based on planned future
deliveries/transfers. This needs to be
by account.
3.6.2)
Transfers of gold into or out of accounts each day. Meaning each type of activity, such as
buying, selling, transporting from one location to another or transferring from
one account to another. For example, if
the prior start of day balance was 100 ounces and the current end of day
balance is 170 ounces, then need to see if that was due to, for example, two
buys of gold from different counterparties, one for 40 and one for 30
ounces. In other words, a detailed view
of the transactions, just like you might see on your bank account statement.
3.6.3) Same as
above, but for the cash (e.g., USD) side of the transaction. This would apply for a buy or sell and not
necessarily for a transport or transfer.
As a generic
note, this page is not intended to be a full design spec for gold for a CTRM
system. Instead, it is intended to be
the seed of information to use as a newly elevated starting point.
Introduction to
CTRM
Click on this
link for a great introduction to CTRM software: Introduction to CTRM Software