Saturday, May 06, 2006

Making Money From A Rising Gold Price

Gold is a physical asset that is a store of value which cannot be eroded in the same way currencies can, such as printing of paper currency. As such, gold is a hedge against inflation. The spot price is ultimately driven by supply and demand, including hoarding and dis-hoarding. Of late, gold has been enjoying a 'bull run' and as such, traders are more actively looking to leverage or 'gear' their positions by buying gold equities and trading with other financial instruments.

Here are 5 top tips to make money out of the gold price as it rises over time: -

1) Covered Warrants - Short term you can leverage the profit you can make as the gold price rises by buying covered warrants. This is a risky strategy but you can only lose your initial stake. Remember, the price can also go down ( incidentally you can also buy PUTS which banks on the price going down ). You can also buy 'long dated' covered warrants which gives you until the end of the year to profit from your position.

2) Paper Assets (Producers): Rather than buy physical gold, buy gold stocks already producing ( paper assets ). This will give you leverage as the companies employ gearing. The more gold goes up, the more they make bottom line ( and as such the share price rises too ).

3) Physical Gold: Purists may wish to purchase gold coins such as Kruggerands. There is a large selection available. The first decision is often whether to buy older coins or new bullion coins.

4) Paper Assets (Non-Producers): Some gold companies may not yet be producing but are sitting on potential world class gold resources with a certain amount of proven resource already. One example of this is Centamin Egypt ( CEY ).

5) Gold Futures: This is a professional market, more for a speculator than an investor. If you wish to play this market in gold, you will need to use a commodity broker.

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