A Golden Way to Trade!
When it comes to trading gold, you have a few options…
Beyond owning physical gold bullion, you can buy or sell a gold (GLD) exchange traded fund or a futures contract.
Which one is best? Well, it all depends on your investment objectives…
Both investment methods will closely follow the cash price of gold. But these investments definitely have their differences.
- The GLD ETF: The GLD ETF acts like a stock and therefore has 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.
- Gold Futures Contract: Futures contracts trade 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 needed deposit.
For example, a $10 move in gold futures would mean a $1000 gain or loss in 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 best for you, figure out your risk tolerance and investment or trading timeframe.
If you like a longer term position that you can ride through ups and downs, the ETF may be your ideal play. While the more speculative short-term directional attack benefits from the payoff potential 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…
Bottom line: 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,
Chart of the Day: Is the Nasdaq Rolling Over?
Unless you’ve been living under a rock, you’ve probably noticed that the bears have taken many of the market’s darling momentum trades to the woodshed.
While the S&P and the Dow Industrials marched to new all-time highs last week, many of the tech momentum names continued to weaken. Software stocks, which attempted to mount a comeback along with semiconductors, are tumbling. IPOs are getting hit. In short, there’s some carnage under the market’s calm surface.
It may be a little premature, but we have to wonder if the Nasdaq is beginning to roll over.
Note the failure to take out February’s all-time closing highs, as well as the momentum divergence (RSI failed to even come close to cracking 70 during the April rally).
Of course, this is not to say a major crash is coming. But I do suspect we could be in for some more choppy action as May approaches. That means more false breakouts, along with the occasional shake out move to the downside.
You might want to consider tightening up your trading in this environment. Smaller position sizes and strict stop losses will help you stay in the game until trading conditions improve.
— Greg Guenthner