There’s no secret that people are fascinated with gold. From its shimmery elegance to its association with being wealthy, people covet this precious metal. For those who cannot possess it, oftentimes the next best thing is investing in its value.
There are several trading options when it comes to gold. Gold bullion is physical gold, often in the form of coins or bars. Owning physical gold requires additional costs such as transaction fees, storage costs, and insurance. Gold certificates are similar to the old-time banknotes of the 17th century and they represent ownership. Unlike these tangible forms, another option is gold futures. These are contracts that agree on a fixed future amount at a designated date in the future. They are traded on exchange platforms, which are marketplaces where financial instruments are traded in a fair and orderly manner.
Within the trading universe, there are several different types of trades. Gold contracts for difference (CFDs) are short-term orders with a set expiration date to buy or sell a fixed amount of gold. Gold exchange-traded funds (ETFs) are usually purchased from a broker or stock exchange and give you the option to buy a pool of securities without having to purchase individual assets. Gold swaps are custom contracts traded over-the-counter (OTC), which means transactions take place directly between two parties, without the supervision of an exchange.
Before you dive in, take the time to study the history of gold trading. There are people who are just interested in short-term gains and there are others who purchase physical gold and then pass it down through generations, cherishing the long-term investment. It’s also important to be aware of familiar traps that people tend to fall into, such as following the crowd during a panic to sell or buy based on perceived price catalysts. Supply and demand, inflation and deflation, and greed and fear are often the impetus for misguided reactions my the marketplace.
There are also different trading exchanges to choose from. Depending on whether you want to trade futures or actual gold, you will have access to certain markets. The three most important gold trading centers around the globe are the US futures market, the London OTC market, and the Shanghai Gold Exchange (SGE).