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December 31st, 2014, 2:49 am | By trader | Published in LUNCH IS FOR WIMPS | Comments on this postComments Off

Successful investing is basically about management risk and diversification. In much simpler terms, it means not having all of your cards laid down. Traders and investors are very much aware that the moment they are not diversified, the entire deck of cards can be wiped out.

Gold is an asset which is best known for its unique rarity and elemental near indestructibility and as a status of a universal currency. Individuals have used gold as a means to store wealth and as an insurance against the erratic depreciations and fluctuations of paper money and other similar macroeconomic and geopolitical risks.

In a globalised economy and increasingly incorporated economy investments in the precious element should be based on current macro-economic fundamentals. Despite the innovations in the financial markets which gave investors a variety of options to invest in this asset class, the same could not be predicted of the effects of an unstable economy.

The options available to the investment in terms of gold ranges from physical gold, bars, bullion coins, jewellery and even exchange traded funds. Investing in physical gold has its own perks and disadvantages. On one hand, physical gold ownership can involves several number of costs which includes storage and insurance costs along with transaction fees and mark-ups linked with purchases and selling the commodity.

Investors can also invest in gold by making use of financial products such as spread betting and futures. With these products, betting on the future movements in the price of gold price is much more convenient. Traders don’t physically own gold and they need not have the right to take possession of any gold for that matter.


All of these products provide traders the opportunity to leverage their investments. In other words, they can loan and augment the size of their respective bets. This in turn would bolster profit if the gold price goes in the right direction. However, it can also increase your losses should things go south. They could end up losing all of their preliminary investments and even possibly a sum much greater than their original investment.

Individuals who are considered “high-net worth” should all the more take extreme precaution in their exposure to gold futures instead than just the physical gold since it can be held in a dematerialised form. Since futures trade bolsters the leverage of the bet, it stretches the returns from the investment. In addition, benefits such as easier transactions and extended trading hours in commodity markets is the benefit that HNI investors can fully enjoy.

It is easy to jump start a short position or even a long position which provided participants a great amount of flexibility. This benefit would not have been possible with physical gold unless the investors owns physical gold and then later liquidate it.

All the records on investments in terms of futures of gold are presently electronically maintained with the broker whereas physical gold is either stored in the banks or in the home. This results in a higher holding costs and security risk. A note of caution is that there can be substantial profits for those who get involved in trading futures on both silver and gold. Futures trading is best left to traders who have the proficiency needed to succeed in these types of markets.

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