Gold Speculation And Trading
Gold continues to benefit from an almost perfect storm of weak currencies
, minimal interest rates, fears about future inflation and fears about financial stability.
None of these worries look like going away any time soon and so gold marches higher. Not only this but some of the big commodity traders are apparently long of gold.
The problem for investors is that gold is subject to wild swings. The price is susceptible to a sharp correction if, all of a sudden, the bulls run for the exit.
Recently we saw eleven up-days in a row culminating in a $27 surge. While it is difficult to be negative in the face of such committed buying across the globe, this does not mean that the moves are permanently one directional.
Gold is trading almost pip for pip versus the Dollar index. That is mainly the Euro and Yen component of Dollar Index as dealers try to gauge the pressure release on assets of the Dollar/Yuan currency fixing.
Gold remains the purchase of choice for many as a quasi Dollar hedge versus the Yuan, Yen and Euro. This state of affairs is difficult to forecast.
Having said that, if you wanted to trade the gold market, and gain access to speculating on the price to go up or down, then you could spread bet on it.
For example, on visiting a spread trading site like
Tradefair, you would currently see a spread betting price of $1,177.5 - $1,178.0.
Therefore, you can spread trade on Gold to go higher than $1,178.0 or to go lower than $1,177.5.
When you spread bet, you bet on every unit the market goes up or down. In the case of the Gold market, a unit is $0.1 of gold's price movement.
So, you might decide to trade 3 for every $0.1 Gold increases or decreases. Although we are trading in Sterling in this example, you could just as easily trade it in US Dollar or Euros.
If you want to spread bet on Gold to go up you would buy at $1,178.0. If the metals price then went up then the market might become $1,182.7 - $1,183.2. If that were to happen, you could choose to close your spread bet for a profit by selling at $1,182.7.
Profit/Loss = (closing level of the market - opening level of the market) x stake per $0.1
Profit/Loss = ($1,182.7 - $1,178.0) x 3 per $0.1 stake
Profit/Loss = $4.7 increase x 3 per $0.1
Profit/Loss = 141 profit
However, if the market decreased to $1,173.6 - $1,174.1, you might decide to close your bet to restrict your losses. Therefore, you would sell the market at $1,173.6.
You would do this with the same 3 per $0.1 stake:
Profit/Loss = (closing level of the market - opening level of the market) x stake per $0.1
Profit/Loss = ($1,173.6 - $1,178.0) x 3 per $0.1 stake
Profit/Loss = -$4.4 decrease x 3 per $0.1
Profit/Loss = -132 loss
Before you trade the
Gold Spreads though, note that spread bets carry a high level of risk to your capital so you should only speculate with money you can afford to lose. You can lose more than your initial stake. Like the adverts say, before trading, please ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks involved. If necessary seek independent advice.
by: Adam Jepsen
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