How to trade or invest in the Gold markets

Readers should know by now that in times of market distress, investors buy gold. The yellow metal has always been the ultimate safe haven asset.

With the world economic outlook darkening, gold has risen from US$1,200 to US$1,300. Could this be the start of a sustained medium-term rally? If yes, how should one gain exposure to gold?

How To Gain Exposure To The Gold & Other Precious Metals?

1)  Physical precious metal bars or coins and store them in bank vaults (with annual charges, of course). There is an active market for these assets in the UK.

2) Precious metal stocks, such as:

  • Fresnillo (FRES – large-cap silver)
  • Centamin (CEY), Acacia (ACA), Hochschild Mining (HOC), Polymetal (POLY) – midcaps

You can compare stock brokers for buying gold stocks here

Do remember that precious metal stocks and precious metal prices may not move exactly. Stocks could vastly outperform or underperform the underlying metal.

3) Exchange Traded Funds (ETFs), such as:

  • ETFS Gold (PHGP)
  • ETFS Silver (PHAG)

Saxo Capital Markets, for example, offers a wide range of Gold ETFs. Note there will be an annual management fee for these ETFs and some will be US Dollar denominated.

4) Spread bet on gold/silver prices directly with a large number of spread betting firms, such as IG

Gold Price and Margins on IG

Note that spread betting gold prices is more speculative because the leverage is higher. Also, these prices are based on futures prices, which need to be rolled over at certain months.

Compare all spread betting brokers here

5) Options on gold/silver prices. You pay a premium to buy gold/silver at certain prices. This premium depends on price volatility, interest rates, and the strike price. You could win or loss a large amount of capital with options.

Compare gold options brokers here

Quick Look At Precious Metal Charts

Over the past five weeks, gold went up from $1,200 to $1,300. In terms of risk reward, gold is not too bad. This means that speculative froth in the gold market is not huge. A stampede to dump gold is unlikely because there is no huge leveraged positions (yet).

But, did you know that within the precious metal sector, the clear leader is not gold but Palladium? This metal is soaring because of high expected demand. It achieved parity with gold price late last year and has been racing higher ever since. It is now $40 more expensive than gold! Clearly, Palladium is near-term bullish but vulnerable to more volatile corrections due to its accelerative trend (see below).

The most under-owned precious metal is probably Silver. This instrument had a huge speculative bubble back in 2011 but has dropped off investors radar screen. It touched a low of $14 last year. Silver’s recent rally could be the start of a new medium-term rally – although be aware of $16-18 resistance range which might impede its advance for some time.

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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.

Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.

Jackson has a PhD in Finance from Durham University.