The Best Way to Trade Gold

p>Beyond owning physical bullion, you can buy or sell a gold (GLD) exchange traded fund or a futures contract.

Which one is best? That depends on your investment objectives…

Both investment vehicles will closely follow the cash spot price of gold. But these investments have their differences. First, the GLD ETF acts like a stock and therefore had limited trading hours. GLD represents 1/10th of an ounce of gold. It is also prone to gaps up or down when it restarts daily. That translates into less efficient risk control for traders of GLD.

On the other hand, a gold futures contract trades nearly 24 hours a day to adjust to global factors. As with other futures, the deposit is often just five to ten percent of the contract value. That gives you a leverage of 25 to 1.

The powerful payoff in futures is balanced by risk. If the position goes against you, more funds are required to maintain the required deposit. For example, a $10 move in gold futures would mean a $1000 gain or loss a futures contract. Long-term staying power is challenged because small dollar moves are amplified both for and against you in futures contracts.

To decide which method is right for you, figure out your investment or trading timeframe. A long-term position more suited to ride through ups and downs may find an ETF ideal. The more speculative short-term directional attack benefits from the powerful payoff in futures, since it can make or lose money more quickly.

The Gold futures contracts offer the best payoff with the increased leverage while the more modest profit/ loss swings in GLD are more forgiving to play a longer-term trend. The choice of how to play gold should be largely determined by your outlook and risk tolerance. If prices move in a straight line you will want the performance of Gold Futures. While a slow but steady trend may benefit from the staying power of GLD ETF

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Tesla’s in the S&P 500

Greg Guenthner

Back in July when the averages were roaring off their pandemic lows, I wrote about how Tesla Inc. (NASDAQ:TSLA) was unable to hold onto its post-earnings gains as the popular stock dropped more than 5% after opening at fresh all-time highs.

Looking back at the year Tesla’s had, it seems foolish that I was once worried about this ugly reversal…

TSLA

Tesla is easily one of the most polarizing stocks on the market. Any mention of Tesla or Elon Musk by the financial media will attract hordes of Tesla fans and detractors to the comments section to fight over the latest revelations.

But the bulls have been the clear winners. Tesla has captured investors’ imaginations and become one of Wall Street’s darling tech stocks, rising almost 700% this year.

On Friday, Tesla was (finally) added to the S&P 500. It’s been a crazy year. But anyone who has stuck with Tesla is laughing all the way to the bank.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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