5 ways to trade gold

How is gold traded? Financial markets offer investors a platform to trade using several financial products.

Gold is a fast market commodity because of its price volatility; usually follows 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.

  1. ETF

Gold exchange-traded funds (ETFs) allow investors to trade gold without physically handling the bullion. Gold EFT tracks the performance of spot gold prices against various market indices and thus gives investors the opportunity to own gold without using it as leverage. EFT’s passive approach to management ensures that investors’ gold shares are always valued at the optimal market level in conjunction with various market indices. However, virtual gold traded using EFT is backed by physical gold assets that are shared between investors.

  1. Single share miner

Investors can buy shares of gold mining companies in anticipation of dividends by profiting from rising gold prices or short-term trading opportunities. However, gold prospector stocks, including junior gold stocks, are risky because their performance depends on both the domestic market and spot gold prices. This gives the investment 3 to 1 leverage on both sides of the investment. Traders can be spooked by either the spot gold price or internal factors that make the investment volatile and thus suitable for investors with a high risk tolerance.

  1. Physical gold in bars

Unlike EFT, traditional gold trading involves buying and selling gold coins, bars and jewelry and storing them in a home safe or a bank deposit box. Physical gold stocks act as a currency hedge or an alternative source of cash that offers high liquidity. An investor can alternatively purchase physical gold in the markets and resell it in retail stores as bars, coins or accessories after adding value. The trader marks up the products depending on the cost and sentimental value of the gold pieces.

  1. ETN

Gold exchange-traded notes (ETNs) are debt loans that an investor provides to a bank that are matched against specified indices. Upon redemption, the investor receives the equivalent of the index performance in the form of gold. This approach does not guarantee positive returns to the investor and, therefore, is risky, as it has no fundamental guarantee. However, the flexibility of ETNs allows an investor to develop a gold trading strategy as long-term, short-term or follow a mixed strategy.

  1. Closed funds

These funds provide investors with a less risky opportunity to invest and trade in gold. Closed-end funds that specialize in gold trading have a portfolio of gold traders where traders choose to trade at a premium or discount. Closed-end funds select companies that are conservative, efficient and reliable, therefore providing a less risky investment opportunity.

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