Trading gold online today – as if you hadn’t noticed – has gotten VERY expensive. If doesn’t matter if you’re trading gold ETFs or buying coins at the local coin shop – these days you are paying a stiff premium for the precious yellow metal.
(A quick note on buying gold coins – presume your local shop’s markup is 20%… that coin you might have picked up a couple of years ago for $120 – carrying a $20 premium – is now on sale for $360 – carrying a $60 premium – think you’re going to profit on that trade??? Don’t hold your breath)
Trading Gold Online Has Gotten REALLY Expensive
You probably should have figured this out from my initial paragraph, but trading gold straight up or on margin is very expensive right now. The equity capital needed to make trades on margin in the gold futures market is pretty hard to put up for the average trader (read some margin trading examples). A quick check of the margin requirements today tells me that a trader must put up an initial margin of $6751 for a single 100 troy ounce contract, basically in today’s terms that amounts to about 20:1 leverage with a maintenance margin of $5000 per contract, 28:1 leverage. The problem with being extended this way in a market as high as today’s is that it doesn’t take much of a drop to put you in margin call territory. Not fun. How little a price drop is enough to get you margin called? Try a drop from $1414 down to $1398. In other words, just a little $16 drop eats up your additional equity capital and knocks you out of the market.
Given we see swings like that a couple of times per week it really isn’t safe to go maximum margin on a long position in gold futures these days. But how else can a trader with a limited amount of capital get decent yield on investments in gold?
A High Yield Alternative to Trading Gold Online Directly
A method of trading gold online which is rapidly gaining popularity is by using binary options. Several binary options brokers have started to offer Gold, Silver, Oil, and in some cases Copper and Platinum contracts.
Why is this an attractive alternative for small investors? Well for starters trading gold online with a binary options broker only requires $100 in initial capital and possibly as little as $30/trade. A binary options trader can make 60 $100 investments (presuming they use $6000 of the $6751 initial margin above) each yielding 60-85% in as little as an hour whereas someone trading gold online in the futures market would need to see a price jump of $51.00 per ounce (at maximum margin) to achieve the same potential return (note: at today’s prices a $51 rise in price would put gold more than $20 over its all-time high of $1434 – it could happen but don’t hold your breath).
Listen, there are all kinds of investments out there. Trading gold online has paid off handsomely for those who were smart enough to be buying 2-3 years ago at below $500 an ounce (even better for those who bought at $250/ounce). We are WELL past those days friends, with way more downside than upside for trading gold online. Having said that, perhaps it’s good to have some gold ETF or perhaps some short gold ETFs exposure?
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Identica
I saw your article and thought this gold prices inflation chart would help re-emphasize your point about gold being expensive in dollar terms (and why).