How to trade gold in 2023
What you need to know to get started
Investing in gold is a great way to diversify your portfolio and provide a hedge against inflation, but what if you want to actively trade gold? There are several types of gold available for buying and selling, and different ways to trade gold through online platforms and in-person through a certified gold dealer.
But trading gold is a risky activity that requires detailed knowledge of the markets you’re trading in and is typically for experienced traders. If you’re new to the gold trading game, we’ll break down what types of gold you can trade, what platforms to use, how trading gold works in the real world, and what factors affect gold prices.
Key insights
- Gold is a popular asset for trading due to its high liquidity and scarcity.
- You can trade physical gold or paper gold assets (stocks, ETFs, derivatives).
- Gold is typically uncorrelated with the stock market and has its own “cycles.”
- Trading gold can be profitable for experienced traders but is very risky for beginners.
What is gold trading?
“Gold trading” refers to speculation and hedging in the gold market. This usually involves buying and selling physical gold or paper assets like gold stocks, exchange-traded funds (ETFs) and futures. Traders make a profit based on the price movement of gold or by buying and selling gold contracts.
While gold is typically a long-term investment, traders know that volatility in the gold market can present opportunities. Whether gold goes up or down in price, some trading strategies allow active traders to profit from either.
Investing in gold bullion allows you to physically own the assets, but it can be expensive to store and insure, and it’s hard to trade for a profit. Paper assets let you invest in gold without these concerns. Some people opt to purchase gold stocks, ETFs and futures and hold onto them long-term. Others buy and sell quickly, making profits from small increases in the value of the underlying investment.
And while trading gold can seem attractive, many experts don’t recommend it. Eric Muschinski, the founder of the online resource Gold Investment Letter, said: “I do not recommend trading gold and personally avoid leverage of any kind. … Gold is a foundational asset to protect my wealth and stack more of my savings in over time.”
» MORE: Best gold dealers
Types of gold you can trade
There are several ways to buy gold, both in its physical form and gold-related stocks, ETFs, and contracts. Here are the different types of gold you can trade:
- Gold bullion
- “Bullion” refers to precious metals of a certain quality, usually in the form of bars, ingots or coins. You can purchase gold bullion, store it (at your own location or in a specialized depository) and sell it when you want to cash in.
Bullion is often bought and sold through precious metals dealers. While you can’t really “trade” bullion in the traditional sense, you can buy and sell it for a profit through a certified gold metal dealer. But with markups and fees, this is the least efficient way of trading gold.
- Gold stocks
- Stocks are securities bought and sold on stock exchanges worldwide. However, purchasing gold stocks doesn’t mean you’re investing in physical gold assets. Instead, you’re buying shares of a company that deals in gold in some way. For example, this could mean you’re buying shares of a company that operates a gold mine.
You can trade gold stocks on the public exchange that carries them, such as the New York Stock Exchange. Many trading platforms offer varying levels of trading tools, from simple trading on an app like Robinhood to complex trading setups using TradeStation.
- Gold ETFs
- Gold exchange-traded funds (ETFs) offer another type of security. Gold backs gold ETFs, but like with stocks, you’re not purchasing actual physical gold with these funds. Instead, you’re buying a collection of gold-related assets. ETFs are flexible and may allow you to get involved with gold investing for less money than other options.
Trading gold ETFs is just like trading stocks, as you can find them on many public exchanges and can trade through most online brokers. You may also be able to trade small amounts, as some platforms allow you to purchase fractional shares.
» MORE: Physical gold vs. ETFs
- Gold futures
- Gold futures are contracts where the buyer agrees to purchase gold for a specific price at a specific point in the future. Buying and selling these at the right times can produce a profit, but there’s a fair amount of risk and leverage involved. You can buy gold futures on exchanges by working with a stockbroker or an investment advisor.
- Gold options
- Gold options allow you to hold gold contracts that collect profit based on the price movement of gold over a set period. You can also sell these options to collect a premium. Like trading gold futures, there can be a lot of risk involved in trading gold options, but you can limit the downside as you aren’t obligated to exercise the options contract (which is why they are called “options”). You can buy and sell options with an online broker that supports the New York Mercantile Exchange (NYMEX) or the Tokyo Commodity Exchange (TOCOM).
How gold trading works
Gold trading requires some knowledge of gold markets and where to buy and sell gold. You also need to pick a platform for trading and understand the risks and fees involved. Here’s how gold trading works:
Choose what type of gold to trade
There are several types of gold that you can trade, so you need to choose whether you want to focus on buying and selling physical gold, gold stocks, gold ETFs, or gold derivatives (such as futures and options trading). If you want to buy or sell physical gold, you’ll want to work with a precious metals dealer.
You can trade gold stock or ETFs through your favorite online broker. Additionally, futures and options trading requires a specialized platform that offers access to the NYMEX or other gold derivatives markets.
Choose a platform
Once you have chosen your preferred gold trading product, you’ll want to choose a platform that best suits your experience and preferences. Simple trading apps like Robinhood or Public.com let you buy and sell stocks and ETFs with low fees. More advanced platforms like TD Ameritrade’s “thinkorswim” platform or Tradestation lets you set up more advanced trading strategies with hundreds of trading tools and indicators available.
Do your research
Before you place any trades, you’ll want to research how to trade gold on your selected platform and what the current market says about the price of gold. You’ll also want to study technical indicators to understand how the market is currently faring. Some platforms also offer professional insights and expert analysis for further review.
Open a trade position
Once you have decided to place a trade, you can buy gold in whatever form you choose. This is known as “opening a position” and is the starting point for your trade. When trading stocks or ETFs, the goal is to buy at a low point and then sell when the price increases. Futures and options trading can be a bit more complicated, but you can make money when the price of gold rises and falls.
Monitor your trade
Using the platform app, monitor your trade position with charts and other interactive tools. You can control your trade future by setting limits on your trade, such as a stop-loss or take-profit order. These order types can help limit your losses or allow you to cash out some of your investment as it goes up (or down).
Most platforms let you set alerts on price movements, so make sure to create a few alerts to let you know what is happening with your trade even when you are not actively looking at charts.
Close your trade
When you’ve decided to complete your trade (sell), you can sell your current position(s) and close out the trade. It’s important to take notes in a trading journal of how it went and what you’d do differently next time. Over time, this can help you develop more skills in trading gold.
What drives the price of gold?
Gold is one of the most desirable of all precious materials, and its supply is relatively limited. The amount being introduced to the market every year from mining is small compared to the amount of gold already being traded.
The price of gold is dependent on many factors, though. For example, its price is still often dependent on demand. In times of economic instability, investors may surge to buy gold, which drives up prices since mines can’t easily introduce more gold to keep up with demand.
Other factors that affect the price of gold include:
- Political crises: Investors may flock to gold during times of political crises as a “safe haven” asset. This drives the price higher.
- Central banking policies: Central banks control the baseline interest rate for banks to borrow money, which also determines the rates for consumer and commercial debt. When rates climb, gold may become more in favor.
- Inflation (indirectly): High inflation can cause gold prices to rise, as many investors see it as a way to preserve buying power.
Trading gold successfully requires you to understand these factors and how they impact the value of gold over time.
Gold values often don’t correlate with the stock market. That’s one reason why gold is a popular investment for hedging against inflation and unrest. When economic conditions become troubling, traditional stocks tend to drop in value. Many investors then move into the gold market.
FAQ
When’s the best time to buy gold?
The best time to buy gold is when you have determined it’s part of your investment strategy. When there’s high inflation and high-interest rates, gold tends to thrive and rise in price. Also, the time of year matters, and early January, March, April, July and late June tend to be good times to buy. Historically, gold prices fall during the spring and summer months and rise again in the fall.
Can I trade gold as a beginner?
You can buy and sell gold stocks and ETFs through beginner investing apps like M1 Finance or Robinhood. You can also purchase gold bullion directly from the U.S. Mint if you want to hold the physical asset. But trading gold derivatives like futures or options trading requires advanced knowledge, and you can quickly lose your money if you aren’t familiar with how it works.
Is gold good for day trading?
Gold can be good for day trading as it’s relatively volatile, and experienced traders can take advantage of the price movements to earn a profit. Gold has known cycles and trends it tends to follow, allowing traders to set up profitable trades utilizing technical analysis. But not all investors that trade gold make a profit, as it’s just as easy to lose money trading gold as it is to make money.
How risky is gold trading?
Gold trading is risky, requiring an experienced trader to understand how to properly trade the price movement of gold and make a profit. Most new traders are unaware of how gold markets behave and can quickly lose funds. If you want to try gold trading, make sure you’re only using funds you’re willing to risk losing.
Bottom line
Trading gold can be profitable for knowledgeable traders that study the gold markets and understand how to set up trading positions properly. In addition, learning the cyclical nature of gold prices and how it moves based on economic factors can help you buy gold at the right time. But gold trading is also a bit unpredictable, and you may lose money while gaining experience trading gold.
Always consider your investing goals, risk tolerance, and available funds when looking to speculatively trade any asset.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- CME Group, "Gold Futures and Options." Accessed May 16, 2023.
- Japan Exchange Group, "Options on Gold futures." Accessed May 16, 2023.
- GoldSilver, "The Best Time of the Year to Buy Gold & Silver in 2023." Accessed May 16, 2023.
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