Gold has been a medium of exchange for thousands of years. It is relatively rare, so its value is quite stable. This also allows you to trade it in very small amounts, best exemplified by a gold coin buying a cart full of grain. It doesn’t degrade with time like spices or grain. It is visually distinct, explaining why we refer to that shade of yellow as golden. Gold remains a major commodity. Its value has only grown since it started to be used in electronics and an unstable world invested in a classic commodity to protect wealth against uncertainty. This explains why people trade in gold, as well. Here are 5 important tips in order to trade gold successfully.
1. Understand Your Options
There are a variety of ways to trade gold. The simplest strategy is buying gold coins, jewelry or bars, holding onto it, and selling it at a later date. However, the market has moved far beyond this approach unless you’re afraid your economy is going to collapse. You can buy futures contracts on the value of gold in the future. You can buy options on the market, a financial instrument that gives you the option to buy gold at that price but the ability to refuse, as well. You can buy shares of an ETF that invests in gold in various forms; they may buy stocks of gold mining firms, gold futures and invest in other rare metals, as well ETFs offer the greatest diversification and liquidity, while solid gold is the least liquid.
2. Know Why You’re Buying
You can buy gold because you’re afraid of inflation or economic collapse. Beware the risk of buying too much, limiting your ability to invest in anything else or even pay your bills. Don’t buy gold because someone on TV told you to be afraid, so buy their gold coins. The more balanced approach is investing in gold like any other commodity. There are investors who are attracted to gold because you’re investing in a physical asset, not buying something abstract like crypto currency.
3. Learn What the Normal Price Range Is
Don’t assume that knowing the price you’d pay for gold jewelry at the mall is enough to get started trading gold. The jewelers sell gold at a profit, and they provide value-added services like designing and crafting jewelry. Study what the normal price for gold is and the high and low values that it regularly hits. Then you can buy when it is cheap and sell when it is high.
4. Learn about the Factors Driving Price
If the news says there is a major stock correction occurring, worry about a hike in inflation, or another headline creating fear of financial chaos, gold prices will go up because panicked buyers flood into the safe haven. This is the time to sell gold if you’re an investor, though you can hold hoping that it goes up, too. When the economy is doing well, gold prices will go down. Then the price only fluctuates modestly based on how much demand there is for gold for jewelry and electrical contacts and how much new gold comes onto the market. For example, a major financial institution saying it will sell gold holdings to raise cash will cause the value of gold to go down for some time. The Indian wedding season drives up the cost of gold, too,
because it is bought up in such large volume as to increase the price of gold on the global market. Valentine’s Day and the Christmas holidays have far less of an impact on the global gold market.
5. Balance Security with Returns
Gold can be seen as the ultimate security. However, it isn’t where you should lock up all of your money if you want to see growth. Gold holdings don’t provide income like bonds or dividend paying stock. Only invest a portion of your portfolio in gold. In order to achieve growth, consider investing something in gold ETFs, since they can invest in mining companies that do pay dividends. Then diversify your holdings into stocks, bonds, rental real estate, REITs and other investments that either see capital gains, generate revenue, or both. The only exception to this advice is if you don’t care about seeing your financial nest egg growing.
It is possible to preserve your wealth by investing in gold. You can potentially increase the value of your investments trading in gold at the right time or investing in gold indirectly. Don’t make the mistake of buying during a panic and being left with a pile of coins you can’t sell.