Posted December 21, 2020
By Alan Knuckman
The Best Way to Trade Gold
p>Beyond owning physical bullion, you can buy or sell agold (GLD)exchange traded fund or afutures contract.
Which one is best? That depends on your investment objectives
Both investment vehicles will closely follow the cash spot price of gold. But these investments have their differences. First, the GLD ETF acts like a stock and therefore had limited trading hours. GLD represents 1/10th of an ounce of gold. Itis also prone to gaps up or down when it restarts daily.That translates into less efficient risk control for traders of GLD.
On the other hand, a gold futures contract trades nearly 24 hours a day to adjust to global factors. As with other futures, the deposit is often just five to ten percent of the contract value. That gives you a leverage of 25 to 1.
The powerful payoff in futures is balanced by risk. If the position goes against you,more funds are required to maintain the required deposit. For example, a $10 move in gold futures would mean a $1000 gain or lossa futures contract.Long-term staying power is challenged because small dollar moves are amplified both for and against you in futures contracts.
To decide which method is right for you, figure out your investment or trading timeframe.A long-term position more suited to ride through ups and downs may find an ETFideal. The more speculative short-term directional attack benefits from the powerful payoff in futures, since it can make or lose money more quickly.
The Gold futures contracts offer the best payoff with the increased leverage while the more modest profit/ loss swings in GLD are more forgiving to play a longer-term trend. The choice of how to play gold should be largely determined by your outlook and risk tolerance. If prices move in a straight line you will want the performance of Gold Futures. While a slow but steady trend may benefit from the staying power of GLD ETF
Keep it In the Money,
Alan KnuckmanEditor, In-The-Money
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