How to trade in gold  

This web site is set up to be a resource centre and guide for small investors. Large investors largely invest in the following:  

§   Direct purchase of bullion bars. Because of the high cost of a bullion bar (most popular are bars of 400 troy ounces at current valuation about $350,000.00 each) this is an area used by major investors. The bars are stored in secure vaults. Many countries have produced their own bars and their prices are tightly linked to the fluctuations of the main gold market. The popularity of this form of investment increases dramatically when there is a serious economic downturn. This is an area best left to professionals although there are organizations that make life easier: 

 www.bullionvault.com  

§   Buying gold futures. Dealing in gold futures allows traders to state the amount and quantity of gold today with a settlement date in the future. This allows speculation in the intervening period and can be very profitable because of the leverage aspects of the trade; however, it is a sophisticated type of investment requiring a good relationship with a secure broker. It is not as easy as some ads will suggest and there are too many down-side risks for the inexperienced investor. 

For ordinary punters wanting an involvement in gold trading our advice is to go for one of the following three options:

1. Buy Gold coinage.

Because gold is a soft metal it is blended with other metals when used in coins. Standardization of purity has always been an issue in gold coinage and much counterfeiting has taken place throughout the centuries. Gold stopped being used as circulating currency in the 1930’s when it became the established international store of value – i.e. the gold standard. 

Gold coloured coins (not made from gold) have made a comeback in coinage and some countries still produce real gold coins as legal tender but these are sold as collector’s items and not as circulating currency.

Collector coins:  

There are many numismatists that collect as a hobby as well as an investment and some serious profits can be made through wise selection of coins. 

Many factors determine the value of coins particularly the rarity, number minted and the condition of the coin. Age is less important except in the case of coins that have significant historical connections.

Many countries still produce coinage for the collector market and some prices have reached into the millions of dollars for a single coin. The quantity of gold in the coin has relatively little influence on the market value.

Collecting and dealing in gold coins is an interesting hobby in its own right and the potential for profit makes it even more appealing.

Bullion coins:  

These are valued because of their gold content and they are used as a hedge against economic woes and as a store of value. Gold has long been the ultimate safe haven for investors and many people have some gold coins in their portfolios – most often lodged in secure bank vaults. 

The South African Kruggerrand was introduced in 1967 specifically for the private investor market and it is by far the most popular gold coin for “smaller” investments. It weighs exactly one troy ounce and is sold at only a small premium to the actual ruling price of gold.

Gold bullion coins are also minted at ½ oz, ¼ oz, 1/10 oz and 1/40 oz. The face value of the coins has little relationship to their actual market value. Bullion coins fluctuate in relationship to the world price of gold. There is a wealth of information about gold coins on many specialist web sites. For a good start look at:

www.atsbullion.com  

2. Spread bet on spot gold prices. 

Although spread-betting is undeniably a form of gambling it does allow the smaller investor to dabble in the ever fluctuating fortunes of the spot price of gold. Technically, what a client is doing when opening a spread bet is gambling on the spot price of gold increasing or decreasing in price over a specified period of time.   The betting agent takes his profit from the margin between the buying and selling prices.

For the gambler there are certain advantages in spread-betting on gold.

Ø  In the event of a profitable bet there is no stamp duty or capital tax to pay. Your profit is clear. 

Ø  Gold prices fluctuate dramatically but it is probably easier to plot long-term trends in gold that it is in shares. Consult some of the many professional chartists for details. 

Ø  Movements in gold prices are often dictated by world events and can sometimes be more readily predicted than Stock Market prices which obey different “rules”. 

Ø  The “spread” in gold prices – the difference between the buying and selling price is generally tight meaning that a relatively small change in the price of gold can lead to immediate profit (or loss!!).  

Ø  There are many date options for placing a bet – as future contract bets for months ahead can be made – as well as the daily wagers. In any event an immediate profit can be taken at any point that you “are ahead”. 

Ø  You can go “short” as well as “long” making a profit on a falling market as well as on rising prices. 

Spread-betting is a risky method of “investing” and you should take great care before plunging into this area. Most of the major betting companies give clear instructions on their web sites and many will even give you a free trial where you can practice with “non-money”. If you are going to bet, start in a small way as huge losses can be made by the reckless gambler.

www.igindex.co.uk  

3. Become involved in the scrap gold business. 

Many people become interested in the “world of gold” by trying to sell some scrap gold items. It is a good entry point and can be rewarding although there are many pitfalls. Many of these can be avoided by some research.

Most of us have some broken, worn or out of date items that are made from precious metals lingering in dusty drawers. The most common gold detritus is jewellery- rings, pendants, necklaces and watches that are out of fashion or not worth repairing.

Because of its history, gold content always has a value as it can be melted down, rejuvenated or re-invented.

So, how do you go about getting a fair deal for your scrap gold?

     You can try Ebay but you do have to give an accurate description beyond that covered by a mere picture. 

     If you have enough scrap gold items take them to an auction saleroom where they will be kept until a suitable sale date arrives. A good route to take. 

     Jewellers will often give a fair price for scrap gold – but just as often – not! At least, get a couple of quotes. 

     Pawnbrokers (sadly business is booming in this area) can be an outlet if cash is required immediately. 

     Trade fairs usually have a few dealers operating in the same location and this allows competitive valuations. 

     Newspaper advertising can be rewarding – either advertising personally or responding to a wanted ad. But do take care!! 

What information should you have before offering your goods for sale?  

It helps if you know whether your gold is 9, 14, 18, 22 or 24 carats? You probably have items that have a mix of these. Find out more:

www.scrapgold.org.uk  

Try to check out the provenance of the articles that you are selling. Some serious research (library or internet) can help to eliminate the real risk that the baubles you are about to part with can be valuable heirlooms or collectors’ pieces.

Make a detailed list (with photographs) of all items that you sell. Do not leave items (for example) at a sale room without establishing your ownership rights.