Financial instability has been one reason for the recent increased interest in trading commodities, particularly in trading gold. The global financial and political uncertainty has lead to the recent rally in the price of gold and investors and speculators alike have moved to take advantage of the current climate.
Gold is priced in USD so gold traders should be aware that in buying gold they are also exposed to movements in the value of the dollar in addition to that of the underlying asset. If you are spread betting on gold, however, this is not the case as you are not actually looking to buy gold but to trade on its price movements, so profits and losses will be in the currency you are using to trade. This is important since it is widely acknowledged that as the dollar falls the price of gold will rally since the majority of those buying gold are doing so in currencies other than the USD. As such, as the value of the dollar falls in respect to your currency of choice, gold becomes cheaper in real terms. This correlates with the current weakness of the dollar and the rally in the price of gold. The gold price chart below illustrates the 15 year gold price in USD/oz and demonstrates that since the global financial crisis really started to take hold, during the middle of 2007, the price of gold has soared and his hit record highs, year-on-year, since 2002.
Gold futures are traded on exchanges in London, Sydney, Tokyo, Singapore, and on the NYMEX and CBOT exchanges. Like the foreign exchange market you can trade gold 24 hours a day but note that the intra-day swings for gold can be rather large and it is generally perceived as an asset designed for long term investment rather than a commodity built for day trading. Many investors look at buying gold as a method for investing and saving rather than trading and speculating and look to use it as a vehicle for hedging against economic, political or social crises due its long term stability. Commodity investors have a number of options for how they choose to trade gold, namely through the use of futures contracts, ETFs and spread betting.
Trading Gold
| Site | More Info | |
 |
Capital Spreads Review Min Stake: £1 Min IMR: 100 Spread Size: 4 Points |
Join Now |
 |
WorldSpreads Review Min Stake: £1 Min IMR: 200 Spread Size: 4 Points |
Join Now |
 |
Spread-Ex Review Min Stake: £1 Min IMR: 100 Spread Size: 14 Points |
Join Now |
 |
City Index Review Min Stake: £1 Min IMR: 350 Spread Size: 4 Points |
Join Now |
 |
Finspreads Review Min Stake: £1 Min IMR: 350 Spread Size: 4 Points |
Join Now |
Gold futures contracts are a legal commitment between two parties whereby one party agrees to either buy or sell an agreed quantity of gold by a specified date at a predetermined price. The leverage involved in this type of contract, through the initial margin, does make them a high risk/reward investment.
An alternative strategy to gain leveraged access to trading gold is to use spread betting. In the UK there is no Capital Gains Tax on profits from spread betting and traders can speculate on movements in the price of gold in either direction. As mentioned, the short term volatility in gold prices does suggest it is more geared towards a longer term investment. So, although with spread betting you can roll your bets over from one expiry date to the next, there is a charge for this service and, as such, could be a high cost strategy over time. Based on this, spread betting on gold is recommended only when you feel the short-term price is not in keeping with current events.
Another option for trading gold is through the ETF, GLD, which is traded on the NYSE. Many popular ETFs such as GLD, which aims to track the value of the underlying asset, have call and put options which are similar to futures contracts – the difference being the final execution is not a commitment. A call option, for example, is where the buyer of the option has the right but not the obligation to buy an agreed amount of gold, for a specified price, prior to the contract expiry date. A put option is where the seller of the option has the right but not the obligation to sell an agreed amount of gold, for a specified price, prior to the contract expiry date. If, for example, the price of gold rises above the strike price then the owner of the call option has the right to buy the agreed amount of gold prior to the expiration of the contract should he believe the price has peaked, or, he simply wishes to lock in a profit.