XAU

The code for gold under ISO 4217, sitting in the X range the standard reserves for units that are not any country's money. The letters after the X follow the Latin name, aurum, and the unit the code names is one troy ounce. Gold has a code at all because bullion has long served as a settlement asset between banks: an unallocated bullion account is held and transferred in ounces in much the way a currency account is held and transferred in currency, and a code exists to describe exactly that.

The spot market's conventions are inherited from that history rather than from an exchange. The reference market quotes metal held in London vaults, a convention known as loco London, for settlement two business days forward, which is the same value date convention a spot currency deal settles on. Quoted as a pair against the dollar, the number is dollars per troy ounce, and everything downstream is counted in ounces: notional value is the ounces the contract covers multiplied by the price, and the value of one increment is the ounces multiplied by that increment.

The pip is where two sets of conventions collide, and it is the usual trip. Gold is conventionally quoted to two decimal places, so its smallest increment is a hundredth of a dollar on an ounce, while a currency pair's convention puts the increment at the fourth decimal of the rate. Neither the size nor the fraction of the price is the same, so a distance described in pips on a currency pair and a distance described in pips on gold are not comparable quantities. A second point is that a contract for difference on XAU involves no metal whatever: nothing is vaulted, no title passes, and the contract settles a difference in cash.

Gold pays no coupon and no dividend, so a position in it is financed against no income at all, the nightly figure deriving from the dollar interest rate on one side and gold's own lease rate on the other. Past that arithmetic the disagreement is wide. Gold is habitually called a safe haven, and the record is more mixed than the phrase suggests: it has risen through several episodes of falling risk appetite and fallen through others, notably when a scramble for dollar liquidity left holders selling whatever could be sold. Economists arguing about what prices it converge on three candidates, real interest rates, the dollar, and buying by official institutions, and no single one of them accounts for every episode.