Basics of Gold Trading
Gold Trading Basics
Being described as a gold trader has great appeal for many people, but anyone who gets involved in it needs to be very aware that it is not as glamorous, perhaps, as it sounds. Trading in any commodity is not for the faint-hearted and certainly not something to enter into without some prior knowledge.
Gold has long been a very desirable commodity, with the first trading taking place many centuries ago. Gold has been the cause of wars and has been stored by individuals and whole nations due to its status as a symbol of wealth and power.
Successful trading in this most desirable item is all about risk management and diversification because the value of any investment can fall as quickly as it can rise. This is where the old saying of 'not putting all of your eggs into one basket' comes into its own. An investment portfolio should include a varied range of assets in a cross section of markets. Ideally, the assets should include bonds, property and cash, as well as around 15% devoted to gold bullion.
Gold trading does not always mean having a physical stash of gold bars or coins. A lot of trading is done purely 'on paper' as well. Each different type of gold investment has a different risk level and it is quite important to understand them. Here are some of the most common forms of gold trading and an indication of the risk factor involved:
Physical Gold - Gold Bullion Bars and Coins
Gold bullion has a minimum of 90% purity and is purchased either as ingots or as legal tender coins. Physical gold is one of the safest forms of gold investment and is both duty and tax-free in the UK and the European Union.
Numismatic Gold
Numismatic or collectors' gold coins are usually purchased for rarity or historic value rather than their weight in gold and their value is generally much higher than current gold prices. Numismatic coins are a fairly safe investment, but anyone who is not familiar with them should seek professional advice before purchasing, as there are many excellent 'fakes' on the market.
The insured delivery cost for physical gold can be up to 2% of its value. Secure storage facilities will cost a further 1% per annum. Always check the net worth and credit rating before choosing a storage provider.
Digital Gold Currency
Digital Gold Currency (DGC), also known as Goldgrammes or E-gold, is becoming an increasingly popular form of gold investment. DGC providers are self-regulating and as such, are not required to conform to bank regulations, so it is important to ensure that the provider chosen is reputable and creditworthy. DGC is a safe investment and can be traded instantly in the same way as foreign currency.
Paper Gold
Paper gold investment opportunities include Exchange-Traded Funds (ETFs) and futures. Options and spread betting are usually preferred to short term, speculative investments based on the future price of gold. The gold is never 'owned' and cannot be used as an asset for financial purposes. Due to the high risk factor, paper gold trading is best left to professionals.
Conclusion
Gold is a good investment choice because it remains stable despite the political or economical climate. Being aware that different types of gold investment have very different levels of risk is important, as is understanding that some investments have to be long term to see a good result.
