Many investors turn to gold when the world economy shows signs of weakening. Gold is an asset that preserves its value and when the price of stocks, currencies, and even real estate falls, gold still retains its financial strength.
Why is Gold Becoming Attractive for Investors?
Data from the U.S. economy hasn’t been positive in 2016. Companies have been hit by weak earnings reports and jobs created have fallen short of expectations in recent months. China has also shown signs of slowing its growth while it’s immersing itself in more and more debt as time goes by. The euro-zone doesn’t have a healthy outlook either. Thus, investing in gold isn’t only far-fetched, it’s a viable option for investors and people in general that want to have a “safe haven” to deposit a part of their funds in.
How to Invest in Gold?
There are different ways of investing in gold. The first one is to buy physical gold. The downside of this approach is that it’s risky to have the actual bullion at home. Another option is to invest in mining stocks. However, this also carries a risk since a company can go bankrupt for different factors besides gold price. For this reason, some people decide to invest in ETFs that group many of these companies instead of investing in a single one.
There are more ways to invest in this precious metal. In this article, we will be explaining how to invest in it with spread betting, a form of investing that’s becoming more and more popular among people in general.
Investing in Gold via Spread Betting
When investing in spread betting, you should adopt either a “long” (buy) or a “short” (sell) position on an asset which in this case is gold. If you think gold’s price will increase, then you should go “long”, and vice versa. Many investors think that gold will go up if the economy goes downhill. If you think this will happen, then you should go “long” on this asset.
Let’s suppose that gold is priced at 1,399/1,400 (sell/buy). In case you think it will go up, you would buy it at £1,400. There is a cost involved in this transaction. This is the spread and is the difference between the buying and the selling price. In this case, the spread is £1. Then, you would place a stake or bet for every point the price of gold moves. In this example, let’s say the bet is £5 per point.
Let’s say, that the economy got worse and the price of gold went up to 1,800/1,801. If you close your trade at this point, you would have a gross profit of £2,000. This is the bet per point (£5) times the difference between the initial buying price (£1,400) and the final selling price (£1,800). The net profit would be the gross profit minus the spreads of the two transactions. Thus, you would earn £1,998. The spread is £1 on each trade.
In case the price of gold goes down and you decide to close your position at a price of 1,300/1,301, you would lose £1,000. This is the bet per point (£5) times the difference between the initial buying price (£1,400) and the final buying price (£1,300). If we add the spreads, then the total loss would be £1,002.
Spread betting carries its risks but it also comes with huge rewards. If you are looking forward to investing in gold, spread betting may be a convenient way to do so.
At the CMC Markets website you can learn more about spread betting. Besides gold, you can place “bets” on other commodities and assets such as currency pairs, stocks, etc. Their platform is mobile-friendly and offers advanced features such as news reports from prestigious firms as well as tools to perform technical analysis on any asset.