Gold future trading debuted first at Winnipeg Commodity Exchange (know is Comex) in Canada in 1972. The gold contract gain popularity among traders, led to many countries had too started gold future trading. Which include London gold future, Sydney future exchange, Singapore International Monetary Exchange (Simex), Tokyo Commodity Exchange (Tocom), Chicago Mercantile Exchange, Chicago Board of Trade (CBOT), Shanghai Gold Exchange, Dubai Gold and Commodity Exchange are some of the world Top recognized exchange, and in India, National Commodity and Derivative Exchange (NCDEX) and Multi-Commodity Exchange (MCX), and National Board of Trade (NBOT) are some Indian exchanges where Gold are traded. History of gold trading in India is dates back to 1948 with Bombay Bullion Association, which is formed by the group of Merchants.

PRODUCTION OF GOLD
Till now the total gold is extracted from the mines is about $1 trillion dollar, which is accumulated in physical form is enough to built Eiffel tower. Annual gold production worldwide is about US$35 billion and by far the one of the largest-trading world commodity. Worldwide, gold mines produce about 2,464 tonnes in the year 2004 from total supply of 3328 tonnes but unable to meet identifiable demand of 3497 tonnes. Gold is mined in more than 118 countries around the world, with the large number of development projects in these countries expected to keep production growing well into the next century. Currently, South Africa is the largest gold producing country, followed by the United States, Australia, Canada, Indonesia, Russia and others, some of these countries also account for highest gold reserves from potential 50,000 tonnes of world-wide reserves.

Why central banks hold gold
Monetary authorities have long held gold in their reserves. Today their stocks amount to some 30,000 tonnes – similar to their holdings 60 years ago. It is sometimes suggested that maintaining such holdings is inefficient in comparison to foreign exchange. However, there are good reasons for countries continuing to hold gold as part of their reserves. These are recognized by central banks themselves although different central banks would emphasize different factors.

Diversification: In any asset portfolio, it rarely makes sense to have all your eggs in one basket. Obviously the price of gold can fluctuate – but so too do the exchange and interest rates of currencies held in reserves. A strategy of reserve diversification will normally provide a less volatile return than one based on a single asset.

Gold has good diversification properties in a currency portfolio. These stem from the fact that its value is determined by supply and demand in the world gold markets, whereas currencies and government securities depend on government promises and the variations in central banks’ monetary policies. The price of gold therefore behaves in a completely different way from the prices of currencies or the exchange rates between currencies.
Physical Security: Countries have in the past imposed exchange controls or, at the worst, total asset freezes. Reserves held in the form of foreign securities are vulnerable to such measures. Where appropriately located, gold is much less vulnerable. Reserves are for using when you need to. Total and incontrovertible liquidity is therefore essential. Gold provides this.

Unexpected needs: If there is one thing of which we can be certain, it is that today’s status quo will not last forever. Economic developments both at home and in the rest of the world can upset countries’ plans, while global shocks can affect the whole international monetary system.

Owning gold is thus an option against an unknown future. It provides a form of insurance against some improbable but, if it occurs, highly damaging event. Such events might include war, an unexpected surge in inflation, a generalised crisis leading to repudiation of foreign debts by major sovereign borrowers, a regression to a world of currency or trading blocs or the international isolation of a country. In emergencies countries may need liquid resources. Gold is liquid and is universally acceptable as a means of payment. It can also serve as collateral for borrowing.

Confidence: The public takes confidence from knowing that it’s Government holds gold – an indestructible asset and one not prone to the inflationary worries overhanging paper money. Some countries give explicit recognition to its support for the domestic currency. And rating agencies will take comfort from the presence of gold in a country’s reserves. The IMF’s Executive Board, representing the world’s governments, has recognized that the Fund’s own holdings of gold give a “fundamental strength” to its balance sheet. The same applies to gold held on the balance sheet of a central bank.

Income: Gold is sometimes described as a non income-earning asset. This is untrue. There is a gold lending market and gold can also be traded to generate profits. There may be an “opportunity cost” of holding gold but, in a world of low interest rates, this is less than is often thought. The other advantages of gold may well offset any such costs.

Insurance: The opportunity cost of holding gold may be viewed as comparable to an insurance premium. It is the price deliberately paid to provide protection against a highly improbable but highly damaging event. Such an event might be war, an unexpected surge of inflation, a generalized debt crisis involving the repudiation of foreign debts by major sovereign borrowers, a regression to a world of currency and trading blocs, or the international isolation of a country.