Category: futures

How to Invest in Gold

How to invest in gold and key price drivers

Article updated on May 20,2020

How to invest in gold and key price drivers

LONDON (Reuters) – Gold surged to a record above $1,500 an ounce on Wednesday as dollar weakness and a rise in oil prices added to fear-driven buying on the back of uncertainty over eurozone stability and U.S. growth.

The following are key facts about the market and different ways on how to invest in Gold.

 

HOW DO I INVEST?

SPOT MARKET

Large buyers and institutional investors generally buy the metal from big banks.

London is the hub of the global spot gold market, with more than $26 billion in trades passing through the city’s clearing system each day. To avoid cost and security risks, bullion is not usually physically moved and deals are cleared through paper transfers.

 

Other significant markets for physical gold are India, China, the Middle East, Singapore, Turkey, Italy, and the United States.

Find Out Why Countries & Governments Are Buying Gold

 

Russia continues to official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should be no doubt that Russia views gold as an important monetary and strategic geopolitical asset.

 

FUTURES MARKETS

Investors can also enter the market via futures exchanges, where people trade in contracts to buy or sell a particular commodity at a fixed price on a certain future date.

The COMEX division of the New York Mercantile Exchange is the world’s largest gold futures market in terms of the trading volume. The Tokyo Commodity exchange, popularly known as TOCOM, is the most important futures market in Asia.

China launched its first gold futures contract on Jan. 9, 2008. Several other countries, including India, Dubai, and Turkey, have also launched futures exchanges.

 

EXCHANGE-TRADED FUNDS

Media coverage of high gold prices has also attracted investments into exchange-traded funds (ETFs), which issue securities backed by physical metal and allow people to gain exposure to the underlying gold prices without taking delivery of the metal itself.

Gold held in New York’s SPDR Gold Trust, the world’s largest gold-backed ETF, rose to a record high of 1,320.436 tonnes in June 2010. The ETF’s holdings are equivalent to nearly half of global annual mine supply and are worth some $59 billion at today’s prices.

Other gold ETFs include iShares COMEX Gold Trust, ETF Securities’ Gold Bullion Securities and ETFS Physical Gold, and Zurich Cantonal Bank’s Physical Gold.

 

BARS AND COINS

Retail investors can buy gold from metals traders selling bars and coins in specialist shops or on the Internet. They pay a premium for investment products of 5-20 percent above spot prices, depending on the size of the product and the weight of demand.

 

KEY PRICE DRIVERS:

INVESTORS

Rising interest in commodities, including gold, from investment funds in recent years has been a major factor behind bullion’s rally to historic highs. Gold’s strong performance in recent years has attracted more players and increased inflows of money into the overall market.

 

FOREIGN EXCHANGE RATES

Gold is a popular hedge against currency market volatility.

It has traditionally moved in the opposite direction to the U.S. dollar as weakness in the U.S.

The unit makes dollar-priced gold cheaper for holders of other currencies and vice versa.

This link sometimes breaks down in times of widespread market stress, however, as both gold and the dollar benefit from risk aversion.

Their ratio turned positive in late 2008 and early 2009 after the crisis following the Lehman Brothers failure.

Despite another drop in the usual strong correlation between gold and the euro-dollar exchange rate, the currency market still plays a major long-term role in setting gold’s direction

 

Analysts say gold’s strong performance last year was largely driven by concerns over the stability of all currencies, though primarily the dollar, as major economies have moved to dampen strength in their currencies to safeguard exports.

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Hedging Silver

Silver – like gold – has enjoyed a high-octane surge. But what now? How do you keep chasing the profits that inflation is sure to bring without risking the loss of those profits should silver prices reverse? Well, options expert Larry D. Spears last week showed investors how to hedge against a possible decline in the price of gold – and this week he’s back to do the same ….

Why you should Buy Rice Futures

The world is finally waking up to the fact that global grain prices are destined to head higher – much higher.

Nasty weather in key agricultural markets around the world has savaged the global grain crop, meaning worldwide supplies can’t help but be squeezed. Australia, for instance, is experiencing additional flooding in areas that were already battered by the torrential rains of November, December and January.

And as if the supply-related increase in agricultural commodities wasn’t enough, there’s also the U.S. dollar – and the so-called “race to the bottom” – to contend with. Make no mistake: The endless devaluations in the greenback are having a worldwide impact on agricultural commodity prices. Since commodities are priced in dollars, these devaluations translate into higher prices for grains and other food-related commodities.

Short supplies and rising prices are bad enough, but concerns about these first two realities are creating an additional catalyst that completes a trifecta for higher agricultural commodity prices.

And that third catalyst is panic buying – especially with rice, which is a basic table staple in Asian markets. For instance, The Saudi Gazette last week reported that Bangladesh recently tripled its rice-import target and Indonesia just purchased 820,000 tons of Thai rice, nearly five times the volume initially sought.

“This is only the start of the panic buying,” Ker Chung Yang, a commodities analyst at Singapore-based Phillip Futures, said in The Gazette report. “I expect we’ll have more countries coming in and buying grain.”

For global investors, there are five reasons why it’s definitely time to buy rice futures.

Wheat Trading

Wheat is the second-largest commodities crop in the world, behind only corn. Wheat is one of the world’s most important cereal crops grown for human consumption. Investing in wheat futures allows traders to participate in the agricultural markets without holding a physical market position. Investing in wheat futures also provides growers with a risk management tool to protect the price of their expected purchase or sale of physical grain. The United States is one of the world’s largest wheat producing countries. Japan is one of the largest importers of wheat in the world, with imports originating from Australia, Canada, and the United States. Exportable wheat supplies are also available from Argentina, Europe, Ukraine and other areas of the world, depending on crop situations. This makes wheat a truly global market and allows traders to enter into a global environment to create a broad trading strategy using wheat alone or in combination with other grains.