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Last updated on August 1st, 2022 at 04:44 pm
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Gold is and always has been considered one of the most precious metals on the planet. While previous eras traded coins and bars as currency, today’s market is all about investing. With the price of gold forever fluctuating, it is essential to stay up to date on current trends to make the most of your investment.
This article is here to help you understand everything related to gold prices, how and why they move, and the inner workings of making a wise investment. It also includes the latest on gold investment news to make your break into the market a favorable one.
Understanding Troy Ounces and Price
The value of gold is assessed in troy ounces. Unlike an ounce of sugar or grain which weighs 28.35 grams, the troy ounce weighs 31.1 grams. When looking at a spot price chart, which is covered in the next section, gold prices per ounce are displayed. There are multiple factors that contribute to the fluctuation in price, which changes every few seconds.
Current events, market speculation in gold investment news, and the usual supply and demand that governs the prices of other markets applies to gold. However, fiat currency values often have a more drastic effect on prices. The higher the value of USD, the lower the value of gold and vice versa.
Larger entities, such as governments with substantial buying power, also have a more significant impact on the gold market. When one of these entities buys a significant amount of gold, they profoundly affect supply and demand.
The price of a troy ounce is taken at multiple times in varying locations around the world. This means that the price will always be different, but you can use gold spot prices to determine the current value before deciding to buy or sell.
On the Spot
The spot price of gold is the base price of this precious metal without any markups. Spot prices vary by location, but buyers in the United States should pay attention to the current prices in New York and Chicago markets.
Just like stocks, spot values fluctuate up and down throughout the day based on the most recent futures contract traded on the futures exchanges. If you’re new to trading markets, futures contracts are agreements to buy specific quantities at a specified price during a specified time in the future. Unlike the stock market, trades at spot price occur two business days after a transaction agreement.
Both gold and silver prices, along with other precious metals, run on spot price markets. The most commonly referenced and largest of these future exchanges is known as COMEX or the Commodity Exchange. COMEX, combined with a number of other exchanges in other countries, update spot prices almost 24 hours a day except on weekends.
These exchanges allow traders to purchase and sell contracts for a fixed amount of gold, which are then delivered at a pre-determined date in the future. The current standard for a gold contract is 100 troy ounces.
How Contracts Are Used
Both manufacturers and those who produce raw gold utilize these contracts to plan for their business as well as prevent any uncertainty in price. To better understand how this works, imagine that a jewelry manufacturer purchases a contract for 5000 troy ounces of gold.
The manufacturer pays the current spot price per troy ounce, but the gold will be delivered in six months’ time. The individual selling the contract could be a gold miner looking to sell the precious metals they have unearthed but wants to receive the current spot price for each ounce.
While these types of physical exchanges do take place, most individuals purchasing contracts are not interested in receiving any actual gold. Instead, they utilize price speculations much like you would on the stock market to turn a profit. Day traders close out contracts at the end of each day, making or losing money on the difference in price.
How much you gain or lose is measured in ticks, which represent price movement. If you own a contract with a tick value of $10 worth 100 ounces, then the value increases by one tick, you’ve gained another $10. If the price increases ten ticks, you’ve made an easy $100.
Making a Leveraged Bet
When purchasing on price speculation alone, traders can make a leveraged bet. This is possible thanks to buyers only needing a small portion of the funds for a contract’s total price. You could purchase a contract for 100 troy ounces of gold, but only need to forward enough funds for 10 or so of those ounces depending on the margin allowed by the exchange.
These margin deposits are considered good-faith deposits, meaning that you will make good on the contract at a later date. Leveraged bets can yield incredible gains for investors, but they can also bring about immense losses.
Keep in mind that if the gold price rises, the owner of the contract benefits from the gains on all 100 ounces. If the price falls, then the owner has to accept their losses. Gold is far less volatile than silver, giving buyers and sellers the advantage of more easily speculated price changes.
Choosing to Purchase Securities
Gold investors may wish to purchase Exchange Traded Funds, or ETFs, on the regular stock market as opposed to the strictly precious metal exchanges. This can be done through the New York Stock Exchange, NASDAQ, and other exchanges.
Prices for ETFs are not the same as spot prices and do not entitle the holder to any physical gold. Instead, the fund you’ve chosen to invest in remains in control of the bars and only gives you a share in their value.
While this might seem like a better option if you are already an avid trader on the stock market, keep in mind that ETFs are susceptible to transaction and management fees. These can chip away at the share price, effectively lowering ETF prices below the actual market value of the gold held within the fund.
Those looking to profit on gold may also wish to invest in mining companies. This is a more complicated process that requires extensive consideration on the quality of a company’s mine if current management is beneficial to the company, and a slew of other factors that can make or break your investment.
Many mining company shares reach a zero value despite the current prices of gold, which means their value is not explicitly tied to the price of a troy ounce. Those looking to make the most on gold alone should focus on exchanges and spot prices, though investing in mining companies can be another way to see gains.
Whichever option you choose to invest in, it is crucial to keep up on gold investment news to avoid any significant losses. Just like any exchange, you will have to decide when the right time to sell your shares or contracts will be.
Ways to Buy Gold
When you buy physical gold, you have the options to purchase bullion coins, bullion bars, and bullion rounds. Bullion refers to bulk amounts of gold that have not yet been coined. Breaking things down further, bars can also vary in weight from grams to full kilos.
Coins, Bars, and Rounds
Bars are the exactly what you would expect to see in a Hollywood movie. They are gold struck into the shape of a bar by either a private mint or a sovereign mint that operates as an extension of a government.
Rounds are flat and coin-shaped, produced exclusively by private mints. They often contain both the emblem and name of the mint where they were formed.
Coins are very similar to rounds but carry with them an enforceable legal tender. These are created exclusively by sovereign mints and are often the kind found on television ads. Their face value varies, but each can be exchanged as currency.
Grams, Ounces, and Kilos
While coins are minted at specific weights, bars come in multiple sizes. Choosing different sizes when purchasing will affect the spot price, as well as how much you stand to gain when selling.
The smallest gold bar available weighs only one gram or 0.032 troy ounces. Smaller than a thumbtack, these bars carry a higher spot price since they are made using the same process as larger bars. However, they also allow you to sell off smaller portions of your total accumulated gold.
There are also 10, 20, 50 and 100-gram bars on the market. The higher the weight, the more economical buying a bar becomes. A single 50-gram bar would cost less than 50 one-gram bars, for instance.
The most popular option on the market is the one Troy ounce gold bar. They are roughly the same size as a military dog tag but are heavier as well as thicker. You can also find 10 Troy ounce bars, which are highly valued.
The good delivery bars traded on the COMEX are a whopping 400 Troy ounces. These can only be purchased in fractions with the use of contracts, and physical delivery is something that rarely happens due to the complexities and fees associated with it.
The largest option available for individual investors is the 1 Kilo gold bar, weighing in at 32.15 Troy ounces or 2.2 pounds. These are roughly the size of an average smartphone and are also highly economical. However, their selling prices are also lower due to their minting limitations.
A Note on Physical Gold
Choosing to buy any of the weighted bars, rounds, or coins above is believed by many to be a sound investment. Since this precious metal has always been considered valuable, holding onto it gives you the ability to have something others want no matter what the current economy may look like.
Others warn against this practice, insisting that contracts are far more profitable. The choice is ultimately yours, but this remains an option that a portion of gold buyers swear by.
Making the Most on Your Investment
Paying attention to current trends in gold investment news, much like you would stock, is an excellent place to start. However, there are a number of things to consider when purchasing and selling contracts to help you make the most on each investment. Here are some key tricks of the trade.
Spot, Ask, and Bid Prices
Moving away from physical ownership to contract ownership, the next aspects to look at are spot, ask, and bid prices. Ask prices are dealer quotes for investors to buy, while bid prices are quotes that investors would like to sell at.
It is possible to receive contracts at both lower and higher prices than the current spot price this way. Ideally, you would want to buy low and sell high, but keep in mind that these two ends of the spectrum do not deviate greatly from the spot price. Still, any money saved when buying could potentially add to your gains in the future.
Choosing the Best Weight
While you may find that larger weights are more economical, the amount of paper money saved is often minuscule. Smaller bars are also more easily traded on exchanges, making it easier to liquidate your assets and turn a profit.
More individuals prefer trading smaller weights than larger ones, which increases your pool of readily available buyers. It is also easier to accumulate gold over time this way, as well as sell only portions of your total amount to keep your portfolio up and running.
Choosing to purchase larger bars is a way to save on price per ounce or gram, but those savings apply when resold as well. It is also important to keep in mind that larger bars cannot be broken down into smaller units. So, purchasing a 10 Troy ounce bar does not allow you to sell ten individual one-ounce bars later.
Staying up to date on gold investment news is essential to the success of your investments. Purchasing gold is an excellent option for both immediate and long-term gains, but must be handled with care much like any exchanged investment.