How is gold traded? Financial markets offer investors a platform to trade using multiple financial products.
Gold is a fast commodity in the market because of its price volatility; usually felt after a period of relative consolidation and price stability and the reaction of securities markets to the US dollar.
Here are 5 ways to trade gold for investors.
Gold exchange-traded funds (ETFs) allow investors to trade gold without physically processing bullion. Gold EFT tracks the effectiveness of spot gold prices according to various market indices and thus provides investors with the opportunity to own gold without using it as leverage. EFT’s passive management method ensures that investors ’gold stocks are always valued at an optimal market level in conjunction with various market indices. However, virtual gold traded by EFT is supported by physical gold assets shared by investors.
- Miner’s unit stocks
Investors can buy shares in gold mining companies in speculation on dividends at the expense of gains from rising gold prices or short-term trading opportunities. However, gold reserves, including smaller ones, are risky because their effectiveness depends on both the domestic market and spot gold prices. This gives the investment a leverage of 3 to 1 on both sides of the investment. Traders may be intimidated by either the spot price of gold or domestic factors, making investments volatile and thus suitable for investors with a high risk tolerance.
- Physical gold bars
Unlike EFT, traditional gold trading involves buying and selling gold coins, bullion and jewelry and storing them in a safe at home or in a piggy bank. The physical stock of gold acts as a currency hedge or an alternative source of cash that offers high liquidity. An investor may alternatively purchase physical gold in markets and resell in retail stores as ingots, coins or accessories after adding value. The trader places a mark-up on the product depending on the cost and sentimental value of the gold items.
Gold traded on the stock exchange (ETN) – a loan that the investor distributes to the bank, tracking them on certain indices. Upon redemption, the investor receives the equivalent of the index in the form of gold. This approach does not guarantee the investor a positive return, and therefore it is risky because it lacks a fundamental guarantee. However, the flexibility of ETN allows an investor to develop a gold trading strategy as a long-term, short-term or pursue a mixed strategy.
- Closed funds
These funds provide investors with a less risky opportunity to invest and trade in gold. Closed-end funds specializing in gold trading have a portfolio of gold allowances if traders choose to trade at a premium or at a discount. Closed-end funds select companies that are conservative, efficient, and reliable, and therefore provide a less risky investment opportunity.