Gold trading is one of the oldest forms of investment known to man. For decades, it has been the best form of financial instruments.
Gold is one of the best forms of investment. You can easily convert it into cash due to its high liquidity.
Due to its unique position within the world’s economic and political systems, the gold market provides excellent opportunities to profit.
Gold remains unaffected by the inflation, drops in the value of the currency, and global fluctuations that occur in the economy.
So in this article, I will provide you with in-depth knowledge regarding gold trading, which will enable you to earn profits.
What is Gold Trading?
Gold Trading is concerned with Buying and selling of gold as a physical or paper entity in the bullion markets.
The market where buying and selling gold, silver and associate derivatives takes place is known as the Bullion market.
The gold is brought/sold in physical form as jewellery, coins, and gold bars in any market on prevailing rates.
In the paper form, you can buy/ sell as gold ETFs, stocks and bonds in the bullion market.
What is the Bullion Market?
It is a market where gold and silver trading takes place. Its characterisation happens over the counter market.
The bullion market is the prime source of getting gold and silver financial estimates throughout the day.
London bullion market is the primary market for silver and gold trading across many in the world.
Some Facts about Gold trading
- Investors hold 40 % of the World’s Gold Deposits, and 50 % goes into making jewellery.
- Gold is More Expensive Than Platinum and silver
- Pcs, laptops and smartphones contain 50 mg of gold. One can extract only 20% of gold from them.
- Banks are the most prominent owner of gold. The exchange happens through contract.
What are the options for Gold Trade?
There are numerous options available to start gold trading. You can invest in gold in the following ways :
Buying Gold Bullions
A person who wishes to invest in gold can purchase gold bullion, from a precious metals dealer or a bank or brokerage.
A gold Bullion can be in the form of a gold bar or a gold coin or the kind of gold jewellery.
Most buyers usually buy gold coins which are among the highest circulation.
The South African Krugerrand, the American Eagle, and the Canadian Maple Leaf are examples of most bought and sold gold coins.
The gold can also be bought and sold through funds, bonds, stocks, and mutual funds.
Gold Funds Include exchange-traded funds (ETFs) and exchange-traded notes (ETNs).
- Gold Exchange Traded Funds (ETFs) are a combination of stock trade and gold investments.
- investments are made in gold bullion, which is based on the price of gold that is prevailing in the market.
- The transactions are made with the help of a stockbroker, who will buy and sell gold at market rates on your behalf.
Gold Exchange-Traded Notes
- Gold exchange-traded notes are set-term investments that pay returns based on how the gold futures market performs while your money is in stake.
- It can be traded at a higher price or sold and re-bought at a lower price, as they are flexible.
Gold stocks are like shares that individuals can buy/sell in a gold company, mining corporation, gold Mutual Funds or Exchange Traded Funds.
To buy and sell of gold stocks, you require a brokerage account just like you have for shares.
Advantages of Investing in Gold
- Gold is unaffected by the inflation, drops in the value of the currency, and global fluctuations that occur in the economy.
- Owning and possessing gold can be very satisfying as it has the potential upside to it.
- Gold has proved itself to be the best hedge against a down market.
Disadvantages of Investing in Gold
- When it comes to returns, gold trading is a lousy way of investment.
- You can make it only after selling it.
- There are no tax benefits or exemptions. It is associated with investing in gold.
- Gold has less resale value, as deductions are higher when you sell gold.
Strategies Used in Gold Trading
It is advisable to form a trading strategy, and gold is not an exception to that rule.
You are required to deploy trading plans in gold trading also. The most used strategies in gold trading are as follows:
- It is a system where gold trade takes place within the same day, or we can say it is buying/ selling financial instruments within the same day.
- Day traders are active traders who indulge in intraday strategies to gain from the changes in the price of gold instruments.
- Day trading employs a lot of techniques and strategies to take advantage of recognised market inefficiencies.
- In day trading technical analysis is used, and it requires a high degree of self-discipline, knowledge and objectivity.
- Position trading is the most common strategy in gold trading. It holds gold securities for an extended time here.
- The time of holding gold security could be from several months to years.
- Position traders use both fundamental and technical analysis to analyse the potential price trends within the gold markets.
- In swing trading, an attempt is made to secure gains in gold trading over a few days to several weeks.
- In swing trading, trades are carried for a couple of days up to several months to gain profit from a price move.
- Swing trading is a type of active trading, where traders look for quick opportunities using fundamental and technical analysis.
- Swing traders regularly search for opportunities on the daily charts, 1-hour or 15-minute charts to find precise entry and exit points.
Gold Scalping Trading
- Scalping trading utilises profiting off small price changes, which occurs after a trade is executed and becomes profitable.
- It is concerned with executing short term trading in gold markets, and it is shorter than a day trading.
- Time and sales technique are the most common techniques for getting employed in scalping.
- The time and sales method is utilised to estimate when and where to make trades using price patterns and technical indicators.
Step By Step Process Of Gold Trading
Step1: Acquire full knowledge regarding the subject matter of Gold Trading
As the quote goes “investment in knowledge pays a high amount of dividend”. So you should make an effort to learn as much as you can about gold trading.
While getting yourself much needed education or knowledge, you must research on topics such as :
- The history of gold as a currency.
- Understand why gold may be a good investment
- Understand why gold may be a bad investment.
- Learn about the factors that affect the value of gold.
Step2: Make a firm decision regarding how much money you want to invest
All form of investments and trading are subject to market risk. There is always some degree of risk involved as there are gains.
One must have a clear picture of how much investment they can make into Investing in gold in whichever way they want.
Step3 – Decide on how you will invest in gold
Above I have listed some investment vehicles that you can choose from when you have made up your mind to invest in gold.
You have the option to either buy gold in physical form or buying it on papers. You can invest in gold by Gold bullions, Gold socks, ETFs and Mutual funds.
The step is vital because the success and failure of your investment depends on your chosen investment vehicle.
Step4 – Make a Purchase of Gold
If you have decided to invest in gold physically, then you must find a reputed gold dealer that is trusted to sell good quality gold.
Before buying gold from the dealer, you must check the gold certificate, gold quality and gold weight and research gold dealers.
Tips to keep in mind while buying gold bars, coins and gold jewellery :
- Find a reputable gold dealer by checking your government website
- Always Compare gold dealer prices to get the best value
- Purchase gold bars for long-term investments only.
- Buy highly-circulated gold coins for a smaller and flexible investment.
- Use cash, online banking, or a Bank check to purchase your gold.
- Store your gold in a bank Locker or home safe to keep it secure.
If you have decided to invest in gold indirectly, then you must keep these things in mind, such as :
- Find a reliable financial advisor or a broker by asking for referrals from friends or colleagues or research on the internet for a sound investment decision.
- Invest in the gold exchange-traded fund for a low-cost investment.
- Invest in gold exchange-traded notes for higher earning potential.
- If you want to invest a small amount in gold, you can try mutual funds and systematic investment plans also.
Dos and Don’t for Gold Trading
- One should avoid buying gold from unreliable websites or Dealer as there are chances that you can become a victim of fraud or a scam.
- Gold stocks are prone to rise and crash frequently, so you must be patient.
- As an investment strategy, consider putting a fixed amount of money towards gold each month regardless of the current price prevailing in the market
- Make sure that you have trust in everyone who is handling your money. Ask question whenever necessary.
- Whenever you face difficulties, it is best to rearrange your trading strategy accordingly.
- Always Keep in mind that gold bars are often harder to resell than gold coins.
- It is obligatory to Stay updated with the latest trends and news related to gold Trade.
There are numerous ways in which you can invest in gold. You have the option to trade in direct and indirect form.
To succeed in the bullion market, try to make the best choice of investment vehicle.
Gold trading is the best source of wealth generation, the last tip that I can give you is that if you invest in gold, try to aim for long term investment.
I hope I was able to give you full information regarding gold trading. If you are confused, you can refer to books and take help of an expert in the field.