3 Things You Need to Know if You Want to Start Gold Trading
Have you considered gold trading as a lucrative side hustle? Gold derives its value as a hedge against inflation. Few assets rival gold’s demand and significance across the centuries. Companies come and go, but gold has always remained an essential resource within society.
Although gold does not appreciate similarly to a stock or bond in the long-term, it can rise or drop significantly in the short term. Those fluctuations create opportunities for gold trading.
If you want to start trading this timeless asset as a side hustle, you’re in luck. We’ll share everything you need to know about gold and commodities trading.
1. The Different Ways to Trade Gold
Commodities trading involves buying physical gold and selling it in the future. Gold bullion is available in various sizes, with one and ten-ounce bars among the most popular sizes.
Unlike stocks and bonds, you cannot buy fractional shares of physical gold. You must buy the entire bar.
Trading gold in this manner is expensive—each ounce of gold trades for over $1,700. A ten-ounce bar of gold will cost over $17,000.
Sites like www.bytefederal.com allow you to buy physical gold. Upon receiving the gold, you must store it in a physical location such as a vault.
Some investors and traders buy physical gold because of the tangibility and sense of control. They can keep their investment safe rather than trust another company to keep its gold supply safe. Some gold traders do not trade the physical asset because of the extra expenses.
Luckily for these traders, the physical asset is not required for gold trading. Many investors trade non-tangible assets such as gold exchange-traded funds. These funds give you the same benefits as physical gold trading without having to ship and store gold.
Gold exchange-traded funds give you access to gold mining companies. Gold is the backbone of these companies’ revenue and earnings. When gold rises, these companies grow too.
Some ETFs provide exposure to physical gold reserves. The SPDR Gold Shares ETF tracks the price of physical bullion. If gold rises, the ETF will also increase in value.
Some investors utilize derivatives for gold trading. Futures force you to buy or sell gold at an assigned price on a specific date. Locking in a price works well if gold moves in your favor, but you can overpay if gold does not move in your favor.
Options let you buy gold at a specific price at expiration. If gold falls out of the money, the option will expire worthless.
Some investors buy options without the intent of exercising them. This derivative allows you to see sizable gains if you correctly predict how gold prices will move before the option’s expiration.
2. Clarify Your Gold Trading Strategy
Gold is a volatile asset that generates dramatic price swings on world events. These price swings will lead to emotion-fueled trading decisions.
Trading gold with your emotions increases the likelihood of making a mistake. Before you start trading gold, clarify your strategy.
Determine your exit strategy for each trade. Will you leave a trade after achieving a 0.5% return or wait for a 1% return? Clarifying this part of your gold trading strategy in advance helps keep emotions out of your gold trading decisions.
Some gold traders diversify across bullion, exchanged-based gold funds, and derivates rather than relying on one trade. Some of these traders may also trade stocks and bonds, further fueling portfolio diversification. Each trader must decide how much of their portfolio gets allocated towards gold trading.
If you invest in gold mining companies, establish criteria to determine when to buy and sell those companies. Investors focus on various metrics such as dividend payments, price-to-earnings ratio, and revenue growth. Other traders rely on a “buy the hype, sell the news” strategy.
Gold derivatives provide the best opportunity for high returns, but they can also end disastrously. Consider allocating a smaller percentage of your proceeds towards gold options and futures contracts.
3. What Moves Gold Prices
Gold prices react to various news items. Knowing how current events drive gold prices can improve your returns from gold trading.
Gold is an inflation hedge because its supply remains unchanged. If countries pump out more money, inflation will rise. Investors will retreat to gold in response to a higher money supply.
This gold factor explains why many traders pay attention to Fed meetings and economic data. These resources give us a deeper insight into the state of the economy and a country’s currency. While each currency impacts gold, movements in the U.S. dollar have an outsized impact on gold prices.
Gold often outperforms in an underperforming economy. Any news that indicates a potential recession or correction should push gold prices higher. Many people buy into gold because they become fearful of the economy, the money supply, or another variable.
Gold, like any other asset, is influenced by supply, demand, and investor behavior. A waning supply of gold suggests rising prices for existing inventory.
Start Trading Gold
Gold trading gives traders numerous opportunities to make a profit. Creating a strategy beforehand will help you avoid emotionally charged mistakes.
Investors can trade gold through physical storage, mining companies, ETFs, and other means. Start with a small sum of money, so your risk is low. As you gain confidence, you can make more significant investments.
Soon enough, you’ll be a gold trading pro.
What do you think about gold trading? Do you plan to explore this side hustle? Let us know in the comments below.