Beginner's Guide To Gold Trading - By: Engie Finlayson

Recently, gold has enjoyed a heart-stopping bull run and this has drawn in more people into gold trading and investment. Many have seen gold prices first resisting the $1000 per ounce level several times and then crossing over rather violently. Gains for educated gold investors have thus been quite spectacular and indeed gold trading can look very fascinating to new comers.

This article briefly examines gold trading and answers the basic questions "Why invest in gold?" and "How to invest in gold?" For starters, the value of gold is reflected in its spot price and this is determined largely by demand and supply factors. Primarily, gold is highly valued both for its "protection" feature as well as for industrial and commercial use.

To illustrate, countries like China and India are constantly in demand for gold, sometimes even hoarding it -- such demands can keep gold prices up. However, when gold price goes up excessively, these gold hoards could be traded as profitable investments.

Currencies have to deal with the concern of devaluation when too much paper money is being printed or when there are economic issues. Gold does not erode in the same way in terms of its value as it is a physical asset with an inherent "stored value". Many times, gold is utilized as a hedge against inflation.

During economic crises, investors tend to flee currencies and other riskier investments, favoring gold as the preferred "hard currency", if you will. This is how gold earned the reputation of a safe haven, something you might have read about in the newspapers or heard on TV reports.

A good example is the recent Eurozone trouble where some countries are being bailed out -- you probably have seen how gold prices sky rocketed fiercely in just a few months, creating new highs and breaking them.

In fact, within a short period of 5 quarters, gold has moved above the magical $1000 per ounce level after trying to go beyond it a few times. Gold price has hit as high as $1426 just a few weeks back, which translates to a massive 40% gain for savvy investors who bought at the thousand dollar level.

Depending on your appetite for risk and available funds, there are several ways you can play the gold market, as outlined below:

** Physical gold
You can buy either bullion or gold coins if you are an investor who prefers physical gold. Consider owning Krugerrands, which are South African gold coins that have nice investment value. Sometimes, older coins can also give you good returns, but appraising their value may not be easy for newbies.

** Gold stocks
If physical gold is not something you can keep well, think about owning shares of stocks in gold mining and trading companies, or gold producers themselves. You can gain exposure to increases in the value of gold by way of higher stock prices. Some of the gold companies could have access to yet-to-be explored gold resources, so the potential for speculators driving up stock prices cannot be overlooked too.

** Gold exchange traded funds, or gold ETFs
Gold exchange traded funds, or ETFs, are investment products that are tagged to the price of gold. They are bought and sold much like stocks, making them an easy vehicle for an investor to benefit from movements in gold price without the hefty outlay required when dealing with physical gold.

** Covered warrants
For short-term speculative gold trading, covered warrants can be good vehicles that allow you to benefit from both rise and fall in gold prices. Purchase calls if you have the outlook of rising gold prices, or purchase puts if you expect lower prices. As leverage is employed here and warrants have expiry dates, this is a somewhat riskier trading approach.

** Gold futures
Much like covered warrants, gold futures also offer speculative play on gold prices. This is a market where many professionals speculate and/or hedge, rather than hold for long term. While warrants are traded through your securities account, you will need to open a futures account with a commodity broker to trade gold futures.

As commodities trading can be a riskier approach to making money, do exercise caution when you contemplate gold trading. Be mindful that while large profits can be enjoyed, gold prices can plunge drastically too. Always be watchful and limit your losses to a sensible level so that you do not kill your trading account.

About the Author

Engie F is an independent and freelance article writer specializing in the investing domain. Get gold trading tips and learn about Comex gold futures trading today.

Article Directory Source: http://www.articlerich.com/profile/Engie-Finlayson/130313

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