There is a great interest in investing and trading in gold as its high liquidity offers a unique opportunity for profits. Understanding the specific characteristics of the gold market can offer many advantages to those who appreciate its price fluctuations. There are different ways to invest and trade in gold – to hold the precious metal physically in your possession or to trade it without holding onto it physically. We will now look at how to invest in gold and go through a few important steps you need to know in order to be able to trade in gold.
How to Invest in Gold
There are three main ways to invest in gold:
- Holding gold in your possession – These generally take the form of gold coins, such as the South African Krugerrand, but they can also include gold heirlooms that a family may hold onto. Gold coins can be bought directly from a mint or from a coin dealer. The latter is usually the preferred option, but make sure they are a reputable dealer before you buy from them.
- Gold ETFs (Exchange Traded Funds) – This is a type of mutual fund that invests directly in gold bullion. While you buy and sell the gold bullions when you invest this way, you never actually come into physical contact with the gold. The bullions are held by a third party. This is a simple and cost-effective way to trade in gold.
- Gold mining stocks – Gold mining stocks are stocks in companies that mine gold. These stock prices fluctuate more than the actual price of gold so they are more risky, but also offer a higher potential for profit.
Understanding What Moves Gold
Before you begin trading in gold, it is important to understand what causes its price fluctuations. There are many specific catalysts that affect gold. Most notably, these include supply and demand, inflation and deflation, and even fear and greed. These catalysts are always in play around the world and interact with each other to influence the way the price of gold will react.
Understanding the Players in the Market
There are many different players in the gold market as many different types of individuals and organizations are attracted to gold. Collectors will hold onto physical gold and they rarely sell, becoming long-term players. On top of that, they provide significant liquidity as they are constantly in the market to buy. Institutions, on the other hand, which tend to buy and sell together with bonds and currency, provide hedging in the market. Understanding the other players in the market will help you gain an understanding of how the market works and how to approach gold trading.
Conclusion – Getting Started
Once you understand the gold market, you can get started with investing or trading. Make sure to sign up for a demo trading account if you plan to trade online as this will give you the chance to get a feel for the price fluctuations before you begin trading for real money.