As a rare earth metal that doesn’t rust, gold is a rare commodity with an intrinsic value. Gold carries an intrinsic value regardless of the market, location, or time. The truth about gold is that it provides your portfolio with a risk mitigation strategy in case the markets go sideways. In other words, what we’re currently experiencing now. I hope I got your attention today, as my main talking point is how to trade gold.
Table of Contents
Introduction on How to Trade Gold
How? For starters, gold has an inverse relationship with the dollar. That means that when the dollar value drops, the price of gold soars. So, essentially, you can use gold as a hedge against inflation.
Like all of us who trade, we speculate on prices to make a profit. As far as gold is concerned, it’s no different. We have many options to speculate on price, from futures to exchange-traded funds (ETS), options to spot prices, or shares. As far as physical gold bars or coins are concerned, they’re not handled during the transaction but settled in cash.
Bullion refers to the physical metal itself, and investment in ETFs, Gold mining stocks, and other assets that don’t require physical delivery is not an investment in Bullion.
5 Minute Takeaway on How to Trade Gold
- Gold has been money longer than any currency in history.
- Physical gold is the best long-term store of value
- You can use gold as a hedge against inflation
- When the dollar value drops, the price of gold soars.
- Next to the S&P 500, gold is the second most liquid asset, according to the World Gold Council.
- There are many different types of gold you can trade in, from futures and coins to ETFs that own gold.
Why Trade Gold?
There are several reasons why you might decide to trade gold. First, gold has been a store of value for at least 3,000 years, while one of the longest currencies in history, the British Pound, is about 1,200 years old. Whether for pure speculation, the desire to own physical gold, or as a hedge against inflation, the list is long. Gold tends to go up when other investments decline, providing a stabilizing effect for your portfolio.
Is Trading Gold Profitable?
When it comes to knowing how to trade gold for money, you want to be profitable. That’s why we stress knowing how to read markets. Investment firms and hedge funds use precious metals like gold and silver as safe havens in portfolios. When the market goes bearish, and it will, your portfolio has profits still coming in.
If you pay attention to the charts, you know that gold goes up when the market is moving down. Of course, that doesn’t mean it won’t also go up in a bull market. But more and more people turn their eyes to gold when things get shaky—making it a profitable investment.
First, the price of gold is rarely volatile. This is what makes it an ideal hedge against market volatility for equities. For example, in 2022, we saw a severe market correction for growth stocks, but even value stocks have dropped.
The S&P 500 and NASDAQ are both deep into the bear market territory. Gold? It’s trading at or near its all-time highs. This is the power of having a stabilizer like gold in your portfolio.
Is it going to make you a millionaire in a few years? Unfortunately, not. The price of gold is at all-time highs from centuries of being traded.
This will not provide long-term capital growth in the same way that tech stocks will. But in a bear market, where stocks are tumbling, gold acts as a way to keep your portfolio above water.
Warren Buffett Hates Gold
Yes, he does. Buffett has been quoted as saying that gold has no use and, therefore, no intrinsic value. He says the same for Bitcoin and other cryptos as well.
Buffett comes from a time of investing where the utility to the consumer and the profits the company makes from the product are the true value of the investment. He loves companies like Coca-Cola and Apple, so you can see how he forms his investment thesis.
But because Buffett doesn’t like gold, it doesn’t mean it’s a bad investment. He has made plenty of losing trades, so don’t just copy every move he makes. Buffett has his own style of investing, and you should have yours.
When he says he doesn’t invest in gold, that’s fine, but he also has tens of billions of dollars to afford to make a few bad trades now and again. Unfortunately for us, we don’t all have that luxury. You’ll make money if you know how to trade gold for money.
Bullion Banks
To put it in terms, everyone can understand bullion banking is trading precious metals as commodities. Bullion is incredibly expensive to store and insure because of its rarity and weight.
Did you know that the Central Bank stores most of the gold bullion? Shockingly, with over 8,000 metric tons, the US is the world’s largest holder of gold. The large bars are locked and keyed in the bank’s vaults.
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| DESCRIPTION | Stock indexes list that includes S&P 500, Dow Jones, Nasdaq 100, Russell 2000 and foreign indices | 11 sectors, IT, healthcare, energy, real estate, financial, materials, utilities, industrials, consumers, communications | Stock symbols list that includes company name and ticker symbol. Non-listed companies are included |
| INCLUDED | Index name • Ticker symbol • Overview • ETFs • FAQs Indexes > | Sector name • Ticker symbol • Overview • ETFs • FAQs Sectors > | Company • Stock symbol • Overview • ETFs • FAQs Symbols > |
What Is the Price of Gold?
Before asking who sets the price of gold, you must understand which price you mean. Prices to buy and sell gold are set in one of three ways:
The Spot Price: Typically, when you buy and sell gold Bullion, the price is agreed on the gold commodity spot price. This is a theoretical price for a set weight of gold before being refined and fluctuating according to supply, demand, and currency strength. Under a spot price contract, the market sets the price at the time of purchase.
The Fixed Price: This is where Fixed Price comes into play for larger orders. The fixed price is an average gold price close to the spot price. Its purpose is to counter the minute-by-minute fluctuations in price. Likewise, each price is derived by testing and adjusting an initial price. Moreover, it’s set by the LBMA or Comex twice daily, at 11 am and 3 pm UK time. More on this below.
The Futures Contract Price: This option is future purchasing; a customer and a supplier agree to a set price of gold for a specified weight, delivered at a set time.
Unlike a traditional consumer product, it’s not as simple as a manufacturer and retailer deciding the price of gold. This makes it difficult to know who sets the price of gold, so below, I’ve tried to simplify matters…
Who Sets the Price of Gold?
Gold prices are set by what’s known as “The London Gold Fix.” Five The London Gold Market Fixing Ltd. members meet twice daily to determine gold trading prices. You’re likely familiar with their other term, which is known as “benchmarks.” I imagine an old boys’ club sitting around drinking bourbon and smoking cigars. Each of the five bankers represents one of London’s five biggest bullion banks. These five banks are HSBC, JP Morgan, Scotiabank, UBS, and ICBC Standard. The prices established by these bankers help determine gold prices internationally.
Ways on How to Trade Gold
Gold is a fantastic commodity asset and one of the best to start trading. Additionally, whether you want to invest in gold for the long haul or actively trade it, you’ve got many choices. Each option has its pros and cons, depending on what you’re looking for.
Below are the different types of gold you can trade in:
1. Gold Bullion
Bullion refers to investment-grade metal, not just an object made of gold like the ring you wear on your finger. One of the most popular ways to invest in gold is to own physical bars of it. Also known as Gold Bullion, it’s essentially the highest-purity physical gold, usually in the form of ingots or bars. However, we have other forms of Bullion, like “bullion coins.” When an investor buys bars of gold, they range in size from a few grams to over 400 ounces.
2. Gold Jewelry
Who doesn’t love gold jewelry? This popular choice offers multiple benefits: something classy to wear, a source of appreciation, and the ability to be covered by most homeowner insurance policies. However, as mentioned above, jewelry does not typically count as investment-grade metal like bullion bars.
3. Gold Futures
There are several ways for investors looking to enter the gold market to invest in this precious metal. One common strategy is through gold futures. Gold futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery from the seller a specific quantity of gold at a predetermined price on a future delivery date. Like other futures contracts, they allow investors to profit from future gold price changes.
Some investors also purchase gold futures contracts because they view gold as a reliable store of value.
Unlike an options contract, a futures contract requires both parties to follow through with the transaction, even if unprofitable. Gold futures are offered in 100 ounces, 33.2 ounces, and 10 ounces and are an alternative to bullion coins and mining stocks.
4. Gold Coins
The most common means of buying gold directly is in bullion gold coins. Coins are often collectibles with values not always aligned with gold prices. Most gold coins weigh one or two ounces, but some are smaller.
5. Mining Stocks
It owns shares in companies that produce gold. Value can rise with the increase in the price of gold and if the miner can increase production.
6. ETFs
Another way to trade gold for money is to buy ETFs. ETFs are exchange-traded funds. They are a type of investment fund and an exchange-traded product, which is well traded on the stock exchange.
ETFs are a better option than mutual funds. They offer low operating costs, greater transparency, and better tax efficiency.
They offer the chance to make more money and are secure, profitable investments. You can buy/sell ETFs if you have an online broker account. ETFs are liquid and trade openly during market hours.
Best Trading Companies
7 of the Best Gold Mutual Funds
- Goldman Sachs Physical Gold ETF
- VanEck Merk Gold Trust
- FT Cboe Vest Gold Strategy Target Income ETF
- iShares Gold (trust) Strategy ETF
- wShares Enhanced Gold ETF
- FT Cboe Vest Gold Strategy Quarterly Buffer ETF
- SPDR Gold Shares
Final Thoughts: How to Trade Gold
These funds take away the headache of owning physical gold. Some Gold ETFs invest only in companies in the gold mining industry. Meanwhile, some gold ETFs focus on tracking the prices of gold. The SPDR Gold MiniShares Trust fund is the best-performing gold ETF based on performance over the past year.
Gold is the king of all commodities. You will understand all other Bullion if you understand how to trade gold.
