Mar

31

Gold Stock Trading

Posted In: Investing Tips

Gold stock trading takes two major forms these days: Gold ETFs and gold futures contracts.

ETFs, or Exchange Traded Funds, are one inexpensive way for investors to get into gold stock trading. An ETF tracks an underlying bundle of stocks from which the fund derives its value. They are like an index fund but they get traded just like an individual stock. You can sell gold short, buy it on the margin, and even buy just one share. You usually command only the value of just a fraction of an ounce of gold per share. This makes it a lot more affordable for the average person to get in on the action, instead of having to invest directly in gold at its full spot price. You can get in on one of these funds if you have only a few hundred dollars of investment capital.

Gold stock trading with ETFs means you can get in on the action of buying and selling gold without having to take physical delivery of any gold bullion, since what you actually own and trade is the derived value of the gold reserves that the particular find has ownership of. Gold ETFs were first introduced in 2004.

On the other hand, In August 2008 the SPDR Gold Trust fund was the number one traded gold ETF, and at that time it had accumulated gold reserves equalling 659 tons, according to the website ExchangeTradedGold.com. In comparison to the world’s total gold reserves of 120,000 to 140,000 tons, that’s precious little; but, the SPDR Gold Trust is widely regarded as the most liquid of all gold ETFs.

There are some other flaws with doing gold stock trading using ETFs. For one thing, they can be taxed as collectibles, even though there is no investment in gold coins or gold for numismatic or jewelry value. There is no ownership of actual gold by the shareholder, either. But this is what the IRS said in 2008–how surprising, huh? For another thing, there is risk to you the shareholder which has to do with company risks rather than the actual price of gold on the open market. And, there are a lot of fees in these funds–you may like your gold ETF is being nickeled and dimed to death.

So, you can look to doing your gold stock trading with gold futures. Futures have low expenses–you pay an up-front premium to buy a type of contract which will, for a temporary period of time, enable you to either buy or sell gold on demand (but you don’t have to take physical delivery of gold; your monetary results simply show up in your margin trading account). The contract is for command of a certain amount of underlying gold; the premium you pay is non-refundable, but the amount of gold you can temporarily control is far, far more than what paying that same premium in the form of an ETF investment would buy you, meaning you have far greater upside profit potential for the same money. The downside of gold futures is that you can possibly lose money if you don’t know what you’re doing.

Gold stock trading is big these days as the Dollar is being devalued. It could be for you!

Check out my site if you want to learn more about How To Buy Gold and Silver and take a look at the best gold stocks.

Article Source: Gold Stock Trading