Gold Trading: The Timeless Trade
Gold Trading: The Timeless Trade
Gold trading across the world has witnessed growth over the past decade. As of September 5, 2011, gold bullion rose to $1,873.10/ounce, posing to surpass its dearer cousin Platinum which was priced at $1,887/ounce.
Gold has been a valued commodity since time immemorial, Egyptians, Greeks and Romans all have been in awe of the beauty of the yellow metal. The current scenario is no different. Today, the power of gold lies in its ability to diversify investments and preserve one’s purchasing power.
Gold Trading versus Other Investment Options
Contrary to other investment options, the price of the yellow metal has been on the rise. In 2005, Rick Munarriz of Motley Fool posted a question comparing an ounce of gold with a stock of Google. At that time, the price of one share of Google was $405 and an ounce of gold was about to breach the $500 barrier.
On January 4, 2008, New York Times reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on the US equity market. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the US. Google closed 2008 at $307.65 while gold closed the year at $866.
Post the barter system, gold gained prominence as a currency, continuing this stance throughout the medieval ages. Following industrialization and the emphasis on paper currency as a means of exchange, gold was reduced to a luxury rather than a functional commodity.
But the new world market scenario has new opportunities to invest in the yellow metal as a long term option and as a means of exchange.
• Bars: A traditional way of acquiring gold is by buying bullion gold bars. In Canada, Argentina, Austria, Liechtenstein and Switzerland, Gold Bars are bought or sold at the major banks.
• Coins: Gold coins are a common way of owning gold. Bullion coins are priced according to their weight and a small premium based on supply and demand.
• Exchange-traded products (ETPs): Gold ETPs represent an easy way to trade in gold without the inconvenience of storing physical bars. However, exchange-traded gold instruments, even those which hold physical gold for the benefit of the investor, carry risks and costs beyond those inherent in the precious metal itself.
• Certificates: Gold certificates allow gold buyers to avoid the risks and costs associated with the transfer and storage of physical bullion by taking on a different set of risks and costs associated with the certificate itself.
• Derivatives, CFDs and spread betting: Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter directly in the private market (riskiest way to invest in gold).
• Mining companies: These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise.
The utility of gold throughout the ages has witnessed various hues of transition, but never has gold been disregarded as a desired commodity.
Today, after years of attempting to look for alternative means to conserve and grow wealth, people are feeling compelled to succumb to the urge of the most primitive means of doing the same.
Jeff Opdyke said in an article (Rethinking Gold: What if It Isn’t a Commodity After All) in The Wall Street Journal, “If, however, you worry the U.S. balance sheet is irreparably damaged, then gold currently reflects the likelihood that a weak-dollar trend still has years to run as the U.S. struggles with its financial mess. Investors—and consumers—looking to preserve their purchasing power will gravitate toward gold, since its quantity isn’t easily manipulated.”
