How to Buy Gold Commodities

Gold is one of the commodities that most investors are already familiar with. All along with crude oil, gold is the most talked-about commodity in the world of finance. While investing in gold can be risky, especially compared to other asset classes such as stocks or bonds, it truly is a good idea for average investors to find a way to integrate some gold holdings into their portfolios. This How To will get you on your way to investing in gold commodities.

Things You'll Need

  • A brokerage account with a licensed commodities trading associate. These accounts are available both online and through traditional brokers.

Instructions

  1. How To Invest In Gold Futures

    • 1

      Know your investment. Buying a gold futures contract entitles you to the delivery of a certain amount of gold on a specified date. The price of gold is quoted by the ounce and each futures contract is worth 100 ounces. This means your contract is worth 100 times the price of gold. If gold is trading for $500, your contract is worth $50,000.

    • 2

      Pick a contract date. Gold futures trade similar to options in that investors can only purchase gold contracts up to three months out. For example, in February an investor can by a gold contract for February, March and April delivery, but no further. Once the February contracts have expired, and March becomes the current month contract, May contracts can be purchased and so on. The contract is not likely to be relevant to the outcome of the investment, but the investor simply must know when the contract expires or he may be forced to take delivery of gold that he cannot afford.

    • 3

      Buying a contract. The best way for investors to buy gold futures is to ask a broker to execute a trade on a Chicago Board of Options Trade gold futures contract. This will cost the investor 10 cents an ounce and $10 per contract. So if one contract is purchased, the cost should be $20 before brokerage commissions.

    • 4

      Use a stop-loss. Gold futures are incredibly volatile and as such, investors can lose a substantial amount of money rather quickly. To protect against losses than can wipe out an entire brokerage account, investors should use a stop-loss order, which will be triggered if the price of gold falls to a level where the investor previously determined that is where he wanted to be out of the trade.

    • 5

      Consider gold exchange traded funds (ETFs). There are two gold ETFs that track the daily price movements of gold futures, but are far less risky than investing in gold futures directly. The tickers are GLD and IAU and both trade on the New York Exchange. Their daily trading values are about 10 percent of the price of spot gold. Meaning if gold is trading for $700 an ounce, these ETFs will be trading for around $70.

Tips & Warnings

  • Talk to a financial planner and a commodities adviser to determine if gold futures have a place in your portfolio.
  • Investing in gold futures is not for everyone. Study the market before getting involved.
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References

  • http://www.marketwatch.com/story/how-to-buy-commodities

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