If you’re thinking of investing in precious metals, but do not have the capital to buy physical gold just yet, then you don’t have to worry about it. Many people would prefer to own precious metals completely. However, you also have the option to trade it through the equity, options and futures markets. You don’t need as large amount of capital to begin, and you also get to measure your risk.
One of the reasons why participants in the gold market find it so hard to take full advantage of the fluctuations that occur in the price of gold is that they haven’t taken the time to learn about the characteristics of the global gold market. The Money Metals Exchange gives four steps you can take to start investing in gold immediately.
Learn About the Movers of the Price of Gold
Gold is one of the oldest currencies on the planet, and so it is an intimate part of the financial world. It seems as if every financial expert has something to say about gold, but gold itself only reacts to a few things. There are a few pairs of forces that determine where gold is headed at any given time:
- Fear and greed
- Deflation and inflation
- Demand and supply
As a market player, you will face the most risk when you don’t know which force is driving the price action of gold at any given time. These forces always play out in some combination that moves the world markets, establishing both short-term and long-term themes that determine the direction of gold.
Know the Crowd
Many investors are attracted by the yellow metal. There are those who collect physical gold in the form of bullion and coins. These are the people who are in it for the long haul. They are the ones who ultimately do better financially compared to those who are only in it for the short term. They also add plenty of liquidity to the market while providing continuous buying interest for gold stocks and futures.
There are also those who are in it to hedge their risk. These are known as institutional players. They create baskets of currencies for both growth and safety and trade these baskets using fast algorithms.
Learn the Long-term Trends of Gold
You should take some time to learn about the history of the gold trading charts, which go back as far back as 100 years. There have been trends in the metal’s price that lasted for decades, both rallying and falling trends. This kind of analysis can help you identify the price levels you should watch closely if the metal ever comes back to them.
Choose Your Trading Venue
Finally, you need to pick your market. Are you going to trade gold in the futures, options or equity markets? Liquidity is high when gold is moving sharply up or down. It tends to be less when the price remains stagnant. This effect is more strongly felt in the futures markets than the equities markets because of a higher participation rate in the latter. There are plenty of futures contracts available as well as different exchange-traded funds (ETFs) and stocks related to gold in the equities markets that you can trade. Choose what works for you, such as whether you want to take advantage of intraday movements or want to hold your investment for the longer term.
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