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Trading Gold

We have already looked at how to trade in gold using gold futures, but are there any others? The simple answer is yes, and below I provide some details of the current alternative ways to trade in gold, other than futures.

The first, and perhaps one of the most popular for retail traders and investors is to use spread betting as a more straightforward way to access the gold markets. Spot gold prices are quoted as a two way “spread” and you either buy the spread to go long if you believe that the price will rise, or sell the spread if you believe the price will fall. I have recently developed a dedicated site which explains all the issues and underlying principles for spread betting, so if you would like further details please just follow the link here – financial spread betting explained. All the major spread betting companies offer a wide range of commodities to trade, including gold, so you shouldn’t have any problems finding a company and opening an account. For UK residents spread betting is designated as tax free so there is an extra benefit in trading using this method! I also explain the advantages and disadvantages of trading using spread betting as against futures.

Alongside spread betting are ETF’s or exchange traded funds which are very similar and essentially derivatives that track the price of gold. The two most popular are the Streettracks Gold Shares with the ticker¬† GLD, which trades on the NYSE, and in London the Lyxor Gold Bullion Securities which trades on the London Stock Exchange with the ticker GBS. They are a short to medium term trade in much the same way as for spread betting positions and essentially speculative trades.

The next way to trade, and perhaps less well known is to use fixed odds trading. As you may know, when you use spread betting, your trades are leveraged which means you can make and lose money very quickly, and indeed lose more than when you started. Fixed odds trading is an ideal way to start if you are a novice trader as the underlying principle is one of using a fixed amount on each trade, before the position is opened, so you will always know exactly how much you will win or lose, before the position is opened. The account is not leveraged on margin and all the major markets are available to trade including gold, oil and currencies. This is an excellent way to trade as a beginner as the method automatically limits your losses, so you do not have to worry about margin, money management, stop losses or leveraged trades. If you would like further details please follow the link here – fixed odds trading explained. An alternative to fixed odds trading is binary trading, sometimes referred to as binary betting. This is a derivation of fixed odds, but again your losses are limited. If you would like details of this please just follow the link here – binary betting explained.

For those of you who prefer the world of futures and options, then gold options are certainly available. All the bullion banks trade in gold options, and you have the “option” to trade these through the COMEX division of NYMEX. As I’m sure you know, they are often used as a hedging instrument for trading gold futures. Futures trading symbols are listed as GC and options as OG. The options are American style and can be exercised at any time up to expiry. Strike prices are $10.00 per ounce apart for strike prices below $500, $20.00 per ounce apart for strike prices between $500 and $1,000, $50.00 per ounce apart for strike prices above $1,000. For the nearest six contract months, strike prices are generally¬† $5.00, $10.00, and $25.00 apart, respectively. Minimum price fluctuation is 10cents per troy ounce or $10 per contract. If options are new to you, please have a look at another site by following the link here – options trading explained. Remember in trading options, you are in essence trading the volatility, not the price.

Next, there are, of course, the more “traditional” ways to trade and invest in gold, using stocks and shares in the gold sector. Whether you use mining stocks or related mining services, you will need to do your research carefully and start by looking at the overall market, then the sector itself and then “drill down” (excuse the pun!) into the stocks and shares themselves to identify buying opportunities for the medium to long term. If you would like my own personal guide to stock selection, please follow the link here – best stocks to buy.

A further group of assets for gold are the precious metal unit trusts or best mutual funds. There are many metal funds to choose from in both the UK and the US.

Finally you can trade gold using one of the many gold indices which in essence are a basket of stocks in the gold mining sector. As a result the index smoothes out the individual performance of gold stocks, providing a broader index based performance to the sector. The two most popular are the AMEX Gold Bugs Index (HUI), which trades on the NYSE, and the XAU which is listed on the Philadelphia Stock Exchange. The biggest difference between the two indices is that the AMEX Gold BUGS Index is comprised exclusively of mining stocks that do not hedge their gold positions more than a year-and-a-half into the future. Because of this, the HUI tends to be more profitable than the XAU when gold prices are rising. However the downside is that your losses will accumulate more quickly when the price of gold declines.

If you would like to learn how to trade gold, why not join me in one of my free live trading rooms – I look forward to seeing you there