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An Introduction To Gold Trading

August 22, 2012

ETF

An Introduction To Gold Trading

Article by Engie Finlayson

In recent times, gold has enjoyed quite a bull run and this has drawn in more people into gold trading and investment. Many have seen gold prices first resisting the $ 1000 per ounce level numerous times and then overcoming it rather violently. Gains for well-informed gold investors have thus been quite handsome and indeed gold trading can look very attractive to beginners.

This article introduces gold trading and answers the basic questions “Why invest in gold?” and “How to invest in gold?” To begin with, the value of gold is indicated by its spot price and this is determined chiefly by demand and supply factors. Primarily, gold is highly valued both for its “protection” feature as well as for industrial and commercial use.

A case in point: countries like China and India are constantly in demand for gold, sometimes even hoarding it — such demands can keep gold prices up. However, when gold price goes up abruptly, these gold hoards could be sold as profitable investments.

Currencies have to deal with the issue of devaluation when too much paper money is being printed or when there are economic issues. Gold does not erode likewise in terms of its value as it is a physical asset with an inherent “stored value”. Many times, gold is used as a hedge against inflation.

When it comes to economic crises, investors tend to flee currencies and other riskier investments, favoring gold as the preferred “hard currency”, if you will. This is how gold earned the reputation of a safe haven, something you might have heard on TV business news or read of in newspapers.

Think about the recent Eurozone trouble where some countries are being bailed out — you probably have seen how gold prices sky rocketed fiercely in the space of just a few months, creating new highs and breaking them.

In fact, in the space of just 5 quarters, gold has crossed the magical $ 1000 per ounce level after trying to go beyond it a few times. Gold price has hit as high as $ 1426 just a few weeks back, which translates to a huge 40% profit for savvy investors who entered at the thousand dollar level.

Depending on your appetite for risk and trading account size, there are a number of ways you can profit from the gold market, as outlined below:

** Physical goldYou can buy either bullion bars or coins if you are an investor who prefers physical gold. Consider owning Krugerrands, which are South African gold coins that have nice investment value. Sometimes, older coins can also reward you with good returns, but appraising their value may not be easy for newbies.

** Gold stocksIf physical gold is not your preference, think about owning shares of stocks in gold mining and trading companies, or gold producers themselves. You can participate in increases in the value of gold through higher stock prices. Some of these companies could be owning unexplored gold resources, so the potential for speculators driving up stock prices cannot be ignored too.

** Gold exchange traded funds, or gold ETFsGold exchange traded funds, or ETFs, are investment products that aim to track the price of gold. They are bought and sold much like stocks, making them an easy way for an investor to benefit from movements in gold price without the hefty outlay required when dealing with the physical metal.

** Covered warrantsFor short-term speculative trading in gold, covered warrants can be good instruments that allow you to get the exposure from both rise and fall in gold prices. Buy calls if you have the opinion of rising gold prices, or buy puts if you envision lower prices. As leverage is used here and warrants have expiry dates, this is a somewhat riskier trading approach.

** Gold futuresMuch like covered warrants, gold futures also provide speculative play on gold prices. This is a market where many professionals speculate and/or hedge, rather than hold for long term. While warrants are traded via your securities account, you will need to open a futures account with a commodity broker to trade gold futures.

As commodities trading can be a riskier approach to making money, do exercise caution when you engage in gold trading. Be aware that while large gains can be had, gold prices can plunge drastically as well. Always be on the alert and limit your losses to a safe level so that you do not bankrupt your trading account.

About the Author

Engie F is an independent and freelance article writer specializing in the investing domain. Get gold trading tips and learn about Comex gold futures trading today.

Use and distribution of this article is subject to our Publisher Guidelines
whereby the original author’s information and copyright must be included.

Engie F is an independent and freelance article writer specializing in the investing domain. Get gold trading tips and learn about Comex gold futures trading today.












Use and distribution of this article is subject to our Publisher Guidelines
whereby the original author’s information and copyright must be included.

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