How to trade and invest in gold? As with other commodities, gold bullion can
be traded in several different ways. 1. As a commodity (through the spot or futures price), 2. Buying and storing physical gold,
3. Gold ETFs, 4. And stocks of gold producers and explorers. The spot market: this is where professional traders and dealers buy and sell gold for more or less immediate
settlement. It has no specific location or trading platform,
instead it is governed by a set of common rules and standards that have to be followed, that indicates pricing, payment and delivery. The importance of the spot market is that
the price set, is the price of gold that influences other investment and trading vehicles that
retail market participants can get involved in. This includes the price that physical bullion changes hands. The most common way is either gold coins or finely weighted gold ingots.
When making a purchase ensure what is being supplied is genuine and then ensure its safety.
There are companies through which you can buy gold bullion which will then store it,
but you pay a premium for the service, an ongoing storage charge and then another premium
charge when you sell. Also when you sell bullion, either gold bars
or coins, there is a tax to pay through capital gains, that is unless you buy British sovereigns,
which are considered currency and attract no capital gains tax. Gold ETFs These are part of the popular exchange traded products that are around, and they are funds that track the price of gold.
While there is an annual fund administration fee, because there is no ownership of the
underlying bullion, there is no marginal cost for the purchase or sale of units in the fund. Finally, shares in gold producers. These
are a favoured way for many to invest or trade in the gold space.
The main advantage of buying gold shares is that any move up in the gold price magnifies
the added profit a gold producer makes. If a gold producer has a cost per ounce of
$900 and when you buy shares in the producer the gold price is $1,000 per ounce, the profit
is $100 per ounce of gold that’s mined. If the gold price rises to $1,100, anyone holding the underlying metal
has a 10% uplift, however the gold producer has doubled its profit margin.
Clearly, if the underlying metal falls by $100, holding gold will only see a 10% drop in value, where the company makes no money at all on each ounce it pulls from the ground. Like any investment, a considered, and balanced
approach is always recommended.