What is gold trading

Of all the most commonly traded assets, gold are probably the most glamorous and least understood. Let’s look at some of the key aspects involved in the elusive world of gold investment.

Why do people trade in gold?

The most obvious ones are because gold is a beautiful, precious substance that is synonymous with wealth. These are all true, but as a trader you need to think more laterally than this; one word you need to bear in mind is DIVERSIFICATION. Any trading portfolio should include a range of assets to spread risk exposure evenly and avoid “putting all your eggs in one basket.”

What is the benefit of diversifying my asset portfolio with gold?

Along this line of thinking, an adequately diversified trading portfolio will include mixture of currency bonds, stocks and also some commodities just in case one or more of these assets suffer from sudden slump in the market. When you have diversified, your risk exposure is limited to the percentage loss of that particular asset, rather than your entire portfolio. Most traders agree that minimum allocation of around 10% in gold and gold-related commodities investment is reasonable.

Another reason is that gold is money. It is universally regarded as being a safe and stable asset and a great way to preserve wealth, particularly for inheritance purpose.

How do people trade in gold?

There are 3 main ways: direct, open market and deposited, and the on commodities market.

It depends if they are investors, collectors or speculators (traders). Investors in areas where gold has a higher cachet than other commodities tend to buy gold directly, and physically keep it. Another method is to buy on the open market, but have it safe in a depository, so it isn’t in one’s possession.

Investors generally buy gold as gold exchange traded funds or as certificates. The gold exchange traded funds are analogous to stocks and shares market. The benefit of buying gold certificates (much like currency bonds, to draw another parallel) is that the holder of the certificate can buy and sell gold in the commodities market, which is in a highly liquid form.

Bio: Corey Wilson works for Sunbird. He is a financial expert who specializes in gold and oil trading. During his free time he enjoys writing and spending time with his wife and 3 kids.