You must have a gold trading strategy in place that you use religiously if you want success as a gold trader. Your gold trading strategy will save you from turning to raw emotion (greed or fear) as your decision making impetus. Also, it will make it so that you aren’t just gambling as if you’re in a casino. Even though there is always risk involved in any trading decision, you will be making informed decisions and taking calculated risks. Trading gold to grow your wealth is a brilliant idea! However, without a gold trading strategy, you aren’t going to be trading wisely. Unwise trades, with gold as with any other asset or commodity, result in losses, not profits.
So, how can you put a gold strategy in place that will result in your getting the profits through wise trading instead of blowing all of your investment capital through unwise moves? Let’s look at some of the most basic things that you should be doing to put together a sound gold trading strategy.
While this may sound self-contradictory, you don’t want to buy too much gold. Now, why is that, when gold is the commodity (and the currency) that people flock to, along with silver, whenever the fiat currencies that we use these days start losing their value because of inflation? How can you own too much gold? The answer is that gold has intrinsic value. This is both its strength and its weakness. The real value of gold (in terms of Dollars), as far as its market value, has barely risen, if at all, since 1802! The market price of gold is what rises (or falls). You see, since gold has intrinsic value and that value cannot be affected by inflation or the indebtedness of a government, its true value is really just always going to be about the same. Therefore, the time to hold a lot of gold is when equities are in trouble. The longer equities stay in trouble, the more gold you should buy, but proceed with caution. The market price of gold is often volatile.
There is a corollary to the above aspect of a gold trading strategy, which of course is: don’t be afraid to sell gold when the time is right. If you think that equities are on the rise,if you think that fiat currencies are making a comeback, then you may want to buy up some extra gold with the full intention of quickly selling it. The bottom line? Experienced investors say that you should not have more than 5% of your total investment capital or asset holdings invested in gold at any given time.
Also understand that if you’re going to hold some riskier equity investments by tendency, you want to hold more gold, while you also are mindful of that approximate 5% ceiling rule of thumb. Gold is the world’s greatest hedge against inflation and equity volatility. Just because you should not hold too much…doesn’t mean that you should hold none!
Next, if you want to get serious about trading gold, the core of your gold trading strategy ought to include using gold ETFs as your vessels. An ETF is an exchange-traded fund. The funds of a gold ETF are backed by physical gold, which makes them unique among exchange-traded commodities where futures contracts are the underpinning. ETFs are used by gold investors much as stock index funds and options are used by equities and commodities traders. In other words, they tend not to be used as buy-and-hold instruments. This is great for the gold investor who wants to capitalize on short term gains in the price of gold.
Along with ETF gold funds you can invest in binary options that use gold as their underlying asset. This is another way of profiting from very short term price fluctuations of gold, and you can profit whether gold is moving up or down if you know what you’re doing and understand basic binary option trading.
In contrast to the ETF or the binary options contracts, you can choose to hold physical gold. You can invest in raw gold or gold bullion held in vaults for you. This is a very, very safe investment, untouchable by inflation. However, it’s difficult to liquidate physical gold. There are also relatively high transaction fees when opening the account and when selling the gold. Some procurement companies don’t charge any storage fees, however, and in the long run this makes them ultimately less expensive to use than ETFs, which have ongoing management and brokers’ fees. So, if you do want to buy and hold gold, simply research specialist providers with gold vaults, then sit back and watch as your gold holds its intrinsic value while traders dump fiat currencies and everyday people watch the prices of their groceries and utilities go up!
Finally, don’t hesitate to take the “back door” way to investing in gold: buying shares in actual gold mining companies. As the world demands more gold, it’s going to have to come from somewhere, and the gold mining companies can turn big profits, which will be reflected in their share prices.
So, your gold trading strategy should take much into consideration. Just as your portfolio should be diversified, your gold trading strategy should also be diversified in its total number of options.
Gold Trading Strategy