How to Invest in Gold

Jun 25, 2012, 05:00 ET from Capital Spreads

LONDON, June 25, 2012 /PRNewswire/ --

Gold has always been powerful stuff, ever since its discovery people have placed it in extremely high regard and have gone through extraordinary efforts to obtain it. Gold has been mined and traded for centuries and has historically been a symbol of affluence and prosperity, used to build religious sculptures, as a currency and more recently commercially. If you are interested in how to invest in Gold, please read on.

Gold has seen a meteoric rise over the last dozen years which has seen its price quintuple and popularity skyrocket.

It seemed everyone had joined the gold rush, wanting their own cut of the yellow metal, and nowadays it's become exceedingly expensive. So how can you get your stake without putting up a huge amount of capital?

There are a few ways people can invest in or trade the price of gold, and spread betting is one of them. As spread betting is a derivative, you do not actually own the physical underlying asset, but you can profit from rises and falls in the price of gold via a spread bet. Gold has become one of the most traded markets and is an attractive investment for many Capital Spreads clients.

Trading with Capital Spreads you can bet on whether you think the price of gold will rise, or alternatively, that it will fall.  If you are correct and the price moves in your favour, you will make a profit of your stake multiplied by the number of points that the market has moved. If you are wrong and the price of gold moves against your bet, you will make a loss of your stake multiplied by each point that the market has moved.

Some investors view gold as a so-called "safe haven" commodity and traders traditionally buy it for one of two reasons. Firstly it is seen as a hedge against inflation and it is also favoured during times of market volatility and economic turmoil.

Like most commodities gold is driven by supply and demand as well as speculation. However, unlike other commodities such as gas and oil, possession of gold is more significant than its consumption, and so many traders perceive gold to trade more like a currency than your traditional commodity. Although there's not enough of it in the world to function as a currency, gold trades in a very similar fashion. For example, when the Federal Reserve announced that it would keep interest rates low through 2014, gold rallied.

Traditionally gold is traded as a hedge against inflation due to its perceived ability to generate higher-than-inflation returns, despite downturns in the market. However this hasn't been the case recently. During the current slump in stock market prices gold has joined the party, recording its biggest May loss in three decades, which begs the question - is this the end of the historic gold rush?

The fall in gold over the last few months has told us that what goes up must come down, and it seems that bull markets can very quickly become bears. So make sure you do your research and get some practice by applying for a Capital Spreads demo account to try out gold trading with no risk. To learn more about spread betting visit the Capital Spreads Learn Centre.

Spread betting and CFD trading carry a high level of risk to your capital and you can lose more than your initial deposit. These trading products may not be suitable for all investors so seek independent advice.

Capital Spreads is a trading name of London Capital Group Ltd (LCG) which is authorised and regulated by the Financial Services Authority.

SOURCE Capital Spreads