Making money through gold trading
Many people think that gold buyers make money when gold prices increases and lose money when the price reduces. However, the gold market works in quite a unique way. The precious metals market is very volatile and many gold dealers are extremely risk averse.
How to protect yourself against price fluctuations
There are two types of gold dealers.
- Gold dealers stocking inventories and shipping in house
- Gold brokers drop-shipping gold from wholesalers
There are also some types of gold dealers who stock some products and drop-ship others depending on their main interest in operations.
In order to protect their inventory in the gold markets, gold dealers stocking inventories will hedge it. Therefore, dealers who expect the prices of gold to decline are protected from the fluctuation of prices in the market. Gold brokers usually charge customers a sport price similar to the price they bought it from the wholesale gold dealer. Therefore, the hedging responsibility is passed on to the wholesaler while the dealer makes money on the premium. The dealer is completely unaffected by the spot price.
What to consider when buying gold
There are already reputable brands of gold from well-established wholesale gold dealers. The gold market is very lucrative, and where there is a lot of success, you should also expect many vices. Dealing with well-established and reputable businesses is the only way to ensure that you are dealing with straightforward individuals and quality commodities.
Pay a low premium
Keeping in mind that gold dealers only make money on the premium, you should make sure the premium is low when buying the gold. You can shop around for competitive prices from other dealers but remember to keep it clean.
With gold being such a highly valuable commodity, it is important to find safe storage. Many reputable gold dealers have storage safes where you can trade the gold directly. You can also open a private vault to store the gold.
Stagger you purchases
When starting out in the gold business, it is advisable to start with small purchases just to get your feet wet. You need to develop a knack for analyzing the gold markets in order to be a successful trader and you do not want to start making huge losses before you understand market trends. Staggering your purchases allows you to take advantage of short-term price corrections and buy some gold at cheaper prices. It also allows you to build your profits for bigger business.
Do not rely on day-to-day prices
When you choose to invest in gold, consider it a long-term asset. Day to day prices are very volatile so do not panic and sell because you think the prices are falling. Gold has remained a valuable trading commodity for over 2,000 years and running. Therefore, take your time and make rational decisions based on long-term projections of market trends rather than relying on its daily price.
Lawrence Biggs is an experienced gold trader who shares his expertise with new traders through his blog. Visit www.buyandsellgoldsilver.com to know more about trading gold.