Gold buying confusion typically results from the wide variety of options available. Once these choices are understood, however, and integrated into one’s investing strategy, buying and selling gold and gold equivalents becomes a manageable, and often, profitable activity.
Gold Investment Options
The many different choices for gold investing include:
- Gold coins
- Gold bars
- Gold certificates
- Gold-backed securities
- Gold futures
- Gold accounts
- Gold funds
Confused yet? Don’t worry. All of these are good options. Instead of confusion, use these options to construct a gold-related portfolio of those types that work for you. The consistent and continually strong popularity of gold generated this extensive option menu to satisfy the varied demands of the investing public.
Choosing the Best Options
Clear the blackboard and consider three subjects before making gold investment choices.
- How do the different options react to market volatility, global economic conditions, stock market “moods”, and inflation status? While a gold price is relevant, different types of investments (coins, bars, certificates, etc.) may react differently in world markets. Some may be more popular than others at different times. Learn how these options typically react and how they are currently responding.
- Analyze the current and projected trends in gold prices. Unlike most stock prices, that depend on an industry’s or company’s performance, gold has long been the most valuable precious metal and its volatility tends to be more emotional. For example, at times when stocks are down, money leaves the market and goes to gold, which typically drives the price up. Conversely, an up stock market attracts funds, which often come from former precious metals investors, resulting in a gold price decline.
- Where do your personal preferences reside? For example, is your view of precious metals investing having gold bullion (bars) that you can physically see and touch? Is your mental picture more focused on elegant gold coins? Or, does your love of trading excitement create a preference for easily purchased/liquidated gold certificates or securities? Some people may love having gold bars in their homes or in safekeeping facilities, while others find this annoying. Personal preference should dictate your choice of gold options.
Comfort with Gold Options Does Not Equal Profit
Regardless of one’s choice for the type of gold investment, all the due diligence and evaluation requirements of successful investing still apply. While it’s true that the long-term price projections are typically positive, shorter-term volatility is also a possibility. Should one need cash and liquidate gold holdings at the wrong time, the seller could become very unhappy.
For example, investing in gold futures (potential prices of gold in the future) can be very profitable-or result in big losers. Investing in futures is neither for the faint of heart nor most beginners. Conversely, gold accounts and funds are sometimes more secured and stable.
Understanding the gold options, gold prices and trends, and one’s investing strategy are keys to investing successfully. One’s stress level will decrease, the comfort level will increase, and knowledge and skills are typically rewarded handsomely.
How to Profitably Buy and Sell Gold or Silver
The business of buying and selling gold and silver, more commonly known as being a bullion trader, or gold trader, is one of the oldest businesses around. Probably the second oldest business! Making gold and silver trading profitable depends on the timing of the trades. Buying gold or silver when prices are screaming higher and everyone seems to want gold coins or silver coins, will assure only loses. There are several key strategies to getting in the gold trading business and making the fattest margins.
Timing in Buying Gold or Selling Gold is Everything
Where every real estate investor chants “location, location, location” as the mantra for successful real estate investing, the key for gold and silver investing or trading is “timing, timing, timing.”
- Seasonal patterns show that both gold and silver tend to rise starting in September and generally continue rising through January or February. This is partly due to the Indian buying season. There are other factors such as buying habits of jewelry fabricators, and commodity traders getting more active when they return from holiday breaks.
- Commodity trading patterns can be a great help for deciding when the top for the gold or silver price – or any other commodity market for that matter – is close. These same reports indicate bottoms in the silver and gold market even more precisely. Not an exact science, reading the trading reports published by COMEX is more an art based on understanding the players in each market and how concentrated long and short positions are. Commodity trading services will deliver analysis that includes interpreting the COMEX Commitment of Traders report which shows the trading activity level for the large and small speculators, commercial hedgers, and the small investors.
- Throughout recorded history, gold and silver has traditionally traded at a ratio of 12:1 up to 16:1. Meaning, 12 ounces of silver equaled the value of 1 ounce of gold, or 16 ounces of silver could be traded for 1 ounce of gold. In dollar terms, 12 or 16 x $silver price = $gold price. Today, gold trades for over 63 times the price of silver! There could be a fortune made with understanding this ratio. What the gold to silver ratio is revealing, is that either silver is very undervalued, or gold is very overvalued. Silver has one major strike against it currently that might be keeping this ratio in golds favor. The strike against silver is that the 16:1 ratio was in effect when silver was used as money. Now, nowhere in the world, does silver regularly circulate as money.
Example of How to Profitably Trade Gold and Silver
During the September and October price run up in both gold and silver, an investor – call him Lazy Buck – has a position with both gold and silver and decides to consider selling and locking in profits.
He first checks the seasonal pattern. Since it is late October, it means there are still at least 3 months for both gold and silver in their strong part of the year.
The Commitment of Traders report shows the big players – all 4 of them – are working together to push the prices lower by going very short both gold and silver. Strike two against both gold and silver.
With two of the three key indicators telling L.B. to sell some of his position, he decides for locking in profits on silver and sells 200 ounces in the form of 100 ounce generic bars. With the spot price at $17.62, Lazy gets a bid for $17.12 and takes it. Within days of Lazy locking in the sell price and his 3 fold profit – since he bought silver at $4.25 per ounce, the silver and gold prices begin to drop significantly.
Chalk one up for Lazy Buck and the three key strategies for spotting tops and bottoms in gold and silver prices!