subject: Trading The Gold Markets To Rise And Fall [print this page] It has taken a while but gold has finally broken out of the $1080-1142 trading range.
The price of gold is now back to where we were at the beginning of the year. Note that the January 2010 rally hit $1162.
Gold could of course continue skywards. Or given that a lot of the more recent gains have also seen US Dollar weakness it could break below the $1132/34 support. As always with the Gold market, if the Dollar strengthens then you need to be prepared for the gold market to weaken.
As Angus Campbell of Capital Spreads recently commented, Interestingly, the Chinese Yuan revaluation chatter has supported gold. If the Chinese currency is strengthened then the metal will see further support from Chinese investors.
Some also see gold as a hedge against inflation. Chinese inflation worries and increased demand for the metal from the countrys ever increasing wealthy middle class are the stock arguments for higher prices.
So what to do if you want to trade the gold markets? Personally I prefer spread betting.
With any form of investment, such as property investment, stock trading, or investment funds, there is a possibility of losing money. Spread betting is no exception. With this style of trading it is possible to lose more than your initial stake.
However Gold and spread betting go well together. Naturally, you can spread bet on markets to go up but you can also spread bet on them to go down. If you think gold will fall you can speculate on that.
As mentioned, any form of speculative investment does have its risks but there are a few steps you can take to reduce your level of risk. Keeping small stake sizes is a useful risk management technique. Also, adding a Guaranteed Stop Loss to your trade can help to reduce the risks. If you start losing money on a gold trade and the price continues to move away from your position then your spread bet will be closed.
So whilst you will have lost money on the trade, you won't lose any further funds even if the price of gold continues to move against your original trade.
There are a number of regulated spread betting firms and they tend to offer thousands of international markets. Of course, companies like FinancialSpreads and IG Index offer all the normal benefits of spread trading including no brokers fees and no commissions. They also let you trade gold outside market hours.
Before you trade with real money it is also worth having a look at a spread betting practice account. Demo Accounts like the one with FinancialSpreads.com are generally free. If you are new to this form of trading, or perhaps you would like to test your theories on specific markets, then some practice may help you understand the risks and rewards as well as the various types of trading order, market volatility etc.
Whatever you do, note that spread betting carries a high level of risk to your capital. Before trading, please ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks involved. Where necessary, seek independent advice.
