Advantages of Gold Trading

In the first week of May 2011, the US Mint sold 62,000 ounces of American Eagle gold coins, which is the highest monthly amount since March 1999. The mint’s website states that the sales in the first week of May were 57% of the total in April 2011. If this trend were to continue, May sales would reach approximately 240,250 ounces. In December 2009, the mint sold 231,500 ounces of the coins, while it sold 269,000 ounces in March 1999. Analyst Edel Tully of UBS AG in London said in her report to clients, “Higher prices prompt greater coin demand, particularly if the reason for higher prices is fear.” Gold trading and coin purchasing accelerated even as prices dropped 4.4 percent last week, the most in almost a year. The main reasons for gold prices surging to a record $1,577.57 an ounce on May 2 were Europe’s debt crisis, a weakening US dollar and conflict in the Middle East and North Africa.
Benefits of Gold Trading

Here are some of the advantages of gold trading:

• The gold market changes frequently and gold prices fluctuate continuously. Gold trading gives traders the opportunity to benefit from changes in gold prices.
• Gold trading does not cease when other markets slump. Even during periods of economic slowdown and political turmoil, the gold market is highly active. In fact, gold prices have typically risen during such periods, which is why many traders consider the yellow metal as a defensive or safe haven asset.
• Empirical data reflects an inverse relationship between gold prices and the value of the US dollar. This is the reason for traders and investors considering gold trading as a means of balancing their profits and losses against the US dollar.
• As gold tends to maintain its purchasing power over time, people may buy gold to balance the effects of inflation and currency value changes. This means that even when the value of a currency declines, due to inflation, the value of gold does not diminish.
• Gold trading is enhanced by the availability of information on the Internet.

Gold Trading When Prices Are Falling

When most people think of gold trading, they think about making a profit when the price of the yellow metal rises. However, traders have the opportunity to make profits even when gold prices are moving downwards. This is done through a strategy known as shorting gold. Gold prices have risen significantly over the past decade. However, if one feels that gold prices are too high and would decline in the near future, then one can consider shorting gold.

How gold trading is done is largely dependent on the individuals objectives, risk taking capacity and time horizon. For instance, an individual with a long term horizon may prefer not to short physical gold or a gold fund. This is because gold prices typically rise over the long run. This can be seen from data over the past two decades. Gold prices have risen from around $252 per ounce in 1999 to around $1,500 in 2011.

Everyone should consider some exposure to gold for a well diversified portfolio. Experts suggest a minimum allocation of 10% to physical gold and/or gold related investments. Gold trading can take various forms, including buying gold coins and bars, gold certificates, gold futures, gold ETFs and gold mining stocks. Again the option to choose would depend on the individual’s trading objectives. A person can own gold as a speculator or a saver. A saver would typically buy more of gold bullions, a risk conscious investor may choose gold ETFs and gold certificates and a speculator may be more excited about purchasing gold futures and options.