Is this the Most Historic Gold Bull Market Ever?
I’m sure many of you are learning more and more about gold these days due to inflation fears, economic fundamentals and geopolitical events. In my opinion, each of these factors is making its case for gold. In fact, I believe we haven’t seen a bull market to this degree since the late 1970’s – early 80’s. Therefore, I thought this would be a great opportunity to write an article on the many basic ways an individual investor can participate in the current gold bull market.
Physical Gold / Gold Spot Market
Perhaps the most popular way to invest in gold is to purchase physical gold. Pros call this the “spot market.” Spot means cash price. This is the price at which an investor can buy gold today in the form of physical coins or bars, which can then be delivered to the investor’s house or banking institution. You have probably seen many new companies selling gold and silver. I used to work for one of these physical metals firms, and I must advise a word of caution when dealing with the spot market. Some unscrupulous firms use “bait and switch” tactics, so one must be very careful and perform due diligence. I recommend using the Better Business Bureau (B.B.B.) to check the reputation of a company prior to making a purchase. I also recommend utilizing basic coins like Golden Eagles, Vienna Philharmonics, or Maple Leafs for delivery. Moreover, I advise to not get diverted into rare coins or other products, as the selling firm will likely add a much higher premium to these products. Finally, be very careful with bank storage programs. From my understanding, some banks are being very difficult when it comes time to deliver!
Precious Metal ETFs
Another way to invest in gold is using gold ETFs. ETF stands for Exchange Traded Fund. There are many new ETFs out there, but one should seek to understand the tax implications and costs with gold ETFs prior to investing. Also remember these forms of investments are not backed 100% by the gold they display, so if you want delivery, this is not the correct vehicle for you. ETFs are simply a financial vehicle, not the physical product. Here is a short list of precious metal ETFs: GLD, SLV, GDX, DBB, IAU, GLTR.
Mining Stocks
A gold investing vehicle that may take the least amount of capital would be buying Junior Mining stock shares. These are more effectively exploratory companies or small time producers. I do know there are different tax implications with equities versus gold futures so one must consider this as well and consult a C.P.A.
Gold Futures
In my opinion, one of the best ways to invest in gold is through futures contracts. Futures can be perceived as much more complicated, but my personal belief is that there are many advantages along with the potential disadvantages. Gold futures contacts are traded in three sizes:
Contract Specifications:
| Contract | Symbol | Size |
|---|---|---|
| Gold Futures (Full Contract) | GC | 100 troy ounces |
| COMEX miNY Gold Futures | QO | 50 troy ounces |
| E-micro Gold Futures | MGC | 10 troy ounces |
The following example uses the Full (100oz) gold futures contract:
If the price of gold is $1,300.00 per ounce and you’re holding a full size contract the total value of that contract is $130,000.00. In terms of margin, you only have to invest $6,751 to control this contract. An important point to remember is that a $67 dollar move in gold can essentially wipe out your account if you are undercapitalized. My recommendation for new traders is to not use the minimum margin requirements as a guide to fund your account. I would personally use double to triple the amount required. Therefore, you have a lot more room for error and can potentially survive the volatility. Every $1.00 dollar move in gold futures equals $100 for the full size contract. Furthermore, I would always recommend gold futures versus other vehicles because of the transparency, available trading software, nightly statements, and regulation by the Commodity Futures Trading Commission (C.F.T.C.) and National Futures Association (N.F.A.).
Before investing in gold, I recommend that you call a Series 3 licensed broker who can listen to your objectives and then direct you to the right investment vehicle. Whether you want to trade or invest using managed futures, automated strategies, a broker-assisted account or a self-directed account, speaking with a knowledgeable commodity futures broker can help you to gain knowledge and comfort in the decision making process.
Complete Gold Futures Trading Kit
Take your knowledge of the Gold Markets to the next level. Our complete Gold Futures Trading Kit includes four insight guides that will help answer many of your trading questions.
Risk Disclosure
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.
