How Can Gold Be Traded?

Gold is one of the most widely traded precious metals instruments.  It not only represent a commodity but is also considered by many a currency that trades fluidly against the US dollar.  Gold prices fluctuate based on the supply and demand for the precious metal, as well as rising and falling inflation expectations.  Gold trades actively in the over the counter market as well as in futures format.  Gold prices are quoted in US dollars per ounce.

Gold prices gyrate as investors view a combination of inflation expectations as well as the strength of the US dollar. Inflation itself is the notion that a value of a basket of goods or services increases in value, decreasing discretionary income of consumers.  The most notable types of inflationary assets are food, metals and energy prices which are generally excluded from the core inflation reported by the Federal Reserve.  The bulk of core inflation includes rents, housing prices, and labor costs.  If the prices of gasoline increase by 25% over the course of a year, the ability of a consumer to purchase discretionary items will decline, if their ability to cut down on gasoline purchases is not elastic.

In an effort to defend against rising inflation expectations investors will naturally purchase an asset that will climb in value at a rate that is greater than inflation.  The most common assets to protect an investor’s portfolio against rising inflation are gold prices.

The most common and efficient way for investors to initiate position in gold is by using retail over the counter platform such as Easy-forex.  Gold in this instance may be purchased using a specific dollar amount as opposed to a volume amount.  For example, when you want to purchase gold you can buy $100 of gold as opposed to figuring out how much 100 ounces of gold will cost you to purchase.

A second way to purchase gold is to use the futures market.  This process is slightly more difficult as an investor will need to purchase a specific volume of gold based on the available futures contracts.  Generally each gold futures contract holds 100 ounces of gold.  The total value of each futures contract is 100 multiplied by the price of gold.  With gold prices near $1,200 per ounce, the notional value of a futures contract is close to $120,000. Futures contracts may be purchased using a margin agreement which allows investors to use leverage and only post a fraction of the money needed to buy physical gold.

Gold exchanges traded funds, trade like stocks and have provided investors direct access toward speculation on gold prices.  The creation of Gold ETF’s have increased the liquidity of gold, and increased the volume of gold traded throughout the globe. The American Stock Exchange (AMEX) is the primary trading exchange for Gold ETF’s.  Gold ETF’s contain assets which include gold futures contracts and physical gold.

Gold is one of the most liquid commodities to trade and provides investors with a natural hedge against rising inflation and can be traded at easy-forex

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