Gold investing is one of the world’s most recognized investment asset classes amongst many instruments in this very big global financial market. Gold investing varies between Physical Gold Trading, Gold-backed Deposits, Spot Gold, Gold Futures, Gold Futures and Exotic Options, and funds whose underlying assets has Gold tied to them. I hope to express an overview on various types of gold investing.
1. On the investment of Physical Gold, people can invest into gold bars (999, 995 or many other grades), gold commemoratives, such as Coins or Collectibles issued by governments or major corporations, and many more. When investors invest in physical gold, they tend to pay attention on the specification and gold content, its casting and packaging, unit of measure for the gold bar (oz, gram or kilogram), the gold price and definitive channels to resell the gold asset. This form of investing in my opinion is better suited for investors who prefer stability, non-profit-seeking, and has no requirement for cash liquidity.
2. Gold-backed deposits. It is still a very popular form of deposit preferred by common investors. It works like a time deposit. Investors exchange their cash in exchange for a specific amount of gold with the bank. While keeping the money with the bank, some banks pay interest, while some do not payoff price differences in the form of interest, and in some emerging markets, some can exchange their deposit back into cash equivalent again right after the decide not to hold on to their gold. Thus making a profit or loss through Gold’s movement and through the price differential from the time you bought the asset from the bank, against international gold prices.
3. Spot Gold typically termed as a form of leveraged product is also known as Loco London Gold. This is well-known product typically used by Forex and CFD companies. It is a very widely traded financial instrument. Most investors use leverage to trade on the price differentials of this product. Individuals, who would prefer to commit lesser capital into an investment, typically would be involved in carrying out this form of trading. Many people like this investment mainly because they are able to perform Long (profit when prices go up) and Short (Profit when prices go down) trades. However, leverage is the thing that the new investors always have problem managing. Although you may make more money through leverage, you may lose a lot more with leverage as well. It is a double edged sword. There is no perfect form of investment.
4. Gold Futures. Comex Gold is one very popular that is listed through the CME Group, its underlying asset is Loco London Gold. For those in mainland China, Gold Futures is listed on the Shanghai Gold Exchange, and its works on the following T+D trading method. There are also gold contracts from ICE (InterContinental Exchange). Singapore Exchange used to have it, however in 2018, they pulled it down. When you trade Gold futures, you are buying or selling contracts at a certain price that will be delivered at a specified date. The size of a futures contract is pre-determined by the respective Futures Exchanges globally. On characteristic of Futures trading, the investor pays a good faith deposit (margin) typically 5% to 10% of the contract value bought or sold, in return for the amount of contracts. When the buyer and seller trades, they both enter into an agreement where they both have the right to buy a certain amount of the subject matter at a pre-determined agreed price.
5. On options, options is a very wide subject. There are exchange traded (like futures or stocks) and OTC (over the counter) options. OTC options can be offered by any counter party. Typically the most reliable choice of counterparty is the bank, especially if you are a high net worth or institutional level investor. For exchange traded options today, there could options on Gold futures or options on Gold ETFs. Amongst all, I prefer exchange traded for its transparency and clarity in data provided. The textbook explanation on what an option is (taken from Google Search) that it is a contract that gives buyers (meaning the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date; this depends on the kind of option traded. The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium. The seller has the corresponding obligation to fulfil the transaction – to sell or buy – if the buyer (owner) “exercises” the option. An option that conveys to the owner the right to buy at a specific price is referred to as a call; an option that conveys the right of the owner to sell at a specific price is referred to as a put. So if anyone found the above being too complex to understand, then do only what could be understood easily.
6. Funds that are listed with Gold as a tied or underlying asset base. The Gold ETF is a direct example of such a fund. It is something like a gold based mutual fund. Subject to where the fund is found, investing in funds relating to gold can be something direct or indirect. If it a Gold ETF, most people can just participate in it with just a securities account managed with your neighbourhood securities firm, then buy it off from the listed stock exchange. For other gold themed funds, it may involve investing in a mutual fund, you may need to find out about the background of the fund issuer, find out how easily you can repatriate back funds when you need cash, measure performances of their theme and understand how risky or conservative the fund is, what is their theme focusing on, and also about understanding the fees and charges involved.
Through my understanding, many people when they invest, they are mostly concerned only about whether the investment will eventually be making a profit or end up in a loss. Nonetheless, the mentality close to a trader is needed, however it is always good to have a definitive objective and understand what they are involved into throwing hard earned money into the market. Once the investor has sorted out the knowledge part of what they want to be involved in, then they move into learning how to make decision in a market where prices are fluctuating. There is risk in everything that we do, be it crossing the road, walking, anything. To reduce risk, before you cross the road you look left and right, that is what you do also when anyone consider putting money out into any investment. When you see the road is clear, you begin to cross the road. This is the part of walking towards your goal. Well, while crossing the road if a piano drops on you from nowhere, then you say oh my god, why didn’t I look up the sky? Haha.. I was just trying to be funny here. However if this is to happen, we know measures were made, however the accident happened. Everyone knows to make money work hard for you, you need to use money to make more money, however, most people need to understand that most people at a start only know about using their time to exchange for money, which is by default. That is why when most people invest in anything new for the first time, the tendency for failure is there. It is a norm; you can ask anyone about their failures. If they say life is a bed of roses, then you know it’s a lie.
Learning how to use money to make money is something acquired over time as well, it is like a baby learning how to walk again. There are never ending things to learn in life. What I did for myself previously was to be conservative and start small. Follow a plan. Keep records of how and why you reached here. Once I have fully understood what’s going on, then I get involved with small money. It is all about the will to accept falls and learn. When cash leaves me, I will not pre-anticipate for returns. I will pre-anticipate for failures to come, and at what point I need to cut my losses. If all the above is not suitable, keep the money in your bank, or put it in your pillow.
I know the above content is irrelevant to what I am going to introduce about my company, however I feel it is some general knowledge which I find interesting to share with others. My company is a solution provider to companies, entrepreneurs, established brokers, and other potential prospects in the financial industry. Relating to the content above, we do not provide any form of investment to any retail customers. We provide the e-platforms that brokers, banks or fund companies can offer their service to their customers. For leveraged FX and Gold Spot Trading, the commonly used trading platform is the Metaquotes offered MT4 and MT5 platform, however right now, we have a cheaper and more robust solution where the broker can offer brokerage services with a white label solution. This is done via our newly launched product, The Condor Trading Platform. It has advanced customer report features, advanced execution. For the broker’s Affiliates and looking to expand their Agency business, it has built-in MAM and Condor MAM /PAMM functions. The Condor API & liquidity portal allows FIX API to provide direct liquidity to any customer. Contact us to speak about CONDOR FX Pro 5.0.
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