Gold Trading Forex Trading
Forex trading currencies online
Forex trading currencies online
For over a decade FOREX. has been a leader in online currency trading. We are proud to offer traders of all types access to over 45 currencies, sophisticated trading tools, competitive spreads and quality executions.
Why trade currencies?
- Volatile markets presenting many trading opportunities in
rising and falling markets - 24 hour trading from Sunday to Friday (London)
- Most traded market in the world
- Tight variable spreads
- Look for someone who has been in the industry for ten years or more. Experience indicates that the company knows what it's doing and knows how to take care of clients.
- Check to see that the brokerage is regulated by a major oversight body. If your broker voluntarily submits to government oversight, then you can feel reassured about your broker's honesty and transparency. Some oversight bodies include:
- United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
- United Kingdom: Financial Conduct Authority (FCA)
- Australia: Australian Securities and Investment Commission (ASIC)
- Switzerland: Swiss Federal Banking Commission (SFBC)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
- France: Autorité des Marchés Financiers (AMF)
- See how many products the broker offers. If the broker also trades securities and commodities, for instance, then you know that the broker has a bigger client base and a wider business reach.
- Read reviews but be careful. Sometimes unscrupulous brokers will go into review sites and write reviews to boost their own reputations. Reviews can give you a flavor for a broker, but you should always take them with a grain of salt.
- Visit the broker's website. It should look professional, and links should be active. If the website says something like "Coming Soon!" or otherwise looks unprofessional, then steer clear of that broker.
- Check on transaction costs for each trade. You should also check to see how much your bank will charge to wire money into your forex account.
- Focus on the essentials. You need good customer support, easy transactions and transparency. You should also gravitate toward brokers who have a good reputation. [4]
Gulf markets, oil prices compared to Egypt's oil markets in light of the US dollar and the Swiss franc
Gulf markets, oil prices compared to Egypt's oil markets in light of the US dollar and the Swiss franc
Gulf markets may be stronger on Thursday as investor sentiment started to improve after oil prices advanced, but Egypt markets may stall due to investor concerns about the likelihood of higher interest rates or devalue the currency or both.
Brent crude oil futures rose to about $ 37 a barrel amid growing belief that oil prices may have reached their lowest possible level, supported by Saudi Arabia's decision to raise prices for Asia.
Also, indicators PMI announced on Thursday showed non-oil business activity in Saudi Arabia and the United Arab Emirates accelerated slightly during the month of February from its lowest level in several years in the month of January.
Dubai's index fell on Wednesday as investors has launched Arabtec shares rose after the daily limit its shares at 15% twice this week. Shares of Amlak Finance, and is an Islamic investment company, are also sold as the local traders to collect profits.
However, the decline in stock speculation may encourage rotation to preferred stock that the traders long periods rebuild their portfolios.
Egyptian Stock Exchange is facing difficulties, but in weak volumes. Egyptian purchasing managers' index for February showed a contraction of business activity there for the fifth
Today's recommendation for the USD / CHF
- Willingly 0.75%.
- Must deal execution day just before 17:00 pm London time.
1 purchase deal
• the purchase after an upward price movement inverse to the time frame of an hour immediately after touching 0.9950.
• Identification of stop-loss and one point below the lowest local seabed.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
2 purchase deal
• the purchase after an upward price movement inverse to the time frame of an hour immediately after entering the area between the levels of 0.9850 and 0.9820.
• Identification of stop-loss and one point below the lowest local seabed.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
1 sales deal
• Reseller after a bearish price movement inverse to the time frame of an hour immediately after touching the trend line currently located at 1.0070.
• Identification of stop-loss and one point above the bottom of the lowest local.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
2 sales deal
• Reseller after a bearish price movement inverse to the time frame of an hour immediately after touching 1.0110.
• Identification of stop-loss and one point above the bottom of the lowest local.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
Analysis of USD / CHF
The pair is still little change here, and the pair is still among the trends and responds well to the support and resistance levels, especially when they end at 50.00.
The only interesting thing that you should notice is that there is selling at 1.0000 and the price seems a little heavy, such as the level of 0.9950, but it would not surprise me to see a decline to below this level soon.
Analysis of USD / CHF
There are no news expected today on the Swiss franc. With respect to the US dollar, there will be the announcement of the Initial Jobless Claims 1:30 pm London time data, and then at a later time data for the ISM index of purchasing managers in the non-manufacturing sector at 03:00.
Currency USD / CHF pairs
Gulf markets may be stronger on Thursday as investor sentiment started to improve after oil prices advanced, but Egypt markets may stall due to investor concerns about the likelihood of higher interest rates or devalue the currency or both.
Brent crude oil futures rose to about $ 37 a barrel amid growing belief that oil prices may have reached their lowest possible level, supported by Saudi Arabia's decision to raise prices for Asia.
Also, indicators PMI announced on Thursday showed non-oil business activity in Saudi Arabia and the United Arab Emirates accelerated slightly during the month of February from its lowest level in several years in the month of January.
Dubai's index fell on Wednesday as investors has launched Arabtec shares rose after the daily limit its shares at 15% twice this week. Shares of Amlak Finance, and is an Islamic investment company, are also sold as the local traders to collect profits.
However, the decline in stock speculation may encourage rotation to preferred stock that the traders long periods rebuild their portfolios.
Egyptian Stock Exchange is facing difficulties, but in weak volumes. Egyptian purchasing managers' index for February showed a contraction of business activity there for the fifth
Today's recommendation for the USD / CHF
- Willingly 0.75%.
- Must deal execution day just before 17:00 pm London time.
1 purchase deal
• the purchase after an upward price movement inverse to the time frame of an hour immediately after touching 0.9950.
• Identification of stop-loss and one point below the lowest local seabed.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
2 purchase deal
• the purchase after an upward price movement inverse to the time frame of an hour immediately after entering the area between the levels of 0.9850 and 0.9820.
• Identification of stop-loss and one point below the lowest local seabed.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
1 sales deal
• Reseller after a bearish price movement inverse to the time frame of an hour immediately after touching the trend line currently located at 1.0070.
• Identification of stop-loss and one point above the bottom of the lowest local.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
2 sales deal
• Reseller after a bearish price movement inverse to the time frame of an hour immediately after touching 1.0110.
• Identification of stop-loss and one point above the bottom of the lowest local.
• Identification of stop-loss at 20 to achieve a profit point of the trading order.
• Take 50 percent of the profit when you achieve 20 points profit from trading and leave the rest of the deal is active.
Analysis of USD / CHF
The pair is still little change here, and the pair is still among the trends and responds well to the support and resistance levels, especially when they end at 50.00.
The only interesting thing that you should notice is that there is selling at 1.0000 and the price seems a little heavy, such as the level of 0.9950, but it would not surprise me to see a decline to below this level soon.
Analysis of USD / CHF
There are no news expected today on the Swiss franc. With respect to the US dollar, there will be the announcement of the Initial Jobless Claims 1:30 pm London time data, and then at a later time data for the ISM index of purchasing managers in the non-manufacturing sector at 03:00.
Currency USD / CHF pairs
Gold prices against the dollar prices
Gold prices against the dollar prices
Forecast gold prices in the month of March 2016
Gold prices forecast for the first quarter of 2016
Islamic forex accounts, according to Sharia
Transfer $ 10,000 to a million dollars in Forqs- Part III
Forex Jdidtalm on assets: Forex books for free download
WTI crude rose during the session Wednesday, and tested the $ 35 level. But there is a lot of noise at the top so that it is likely that this market eventually finds strong resistance enough to convert. In the meantime, it seems that their short-term traders will continue to pay for this market higher. For me, I will wait for the long-term Alyfrsh get short status in this market, which seems in a very descending pattern. I do not think that the upward pattern will begin until we break above the $ 40 level.
The reason that I think that the level of $ 40 will be almost impossible to get through it for any long period is that the US shale producers will become very violent at this level, and, of course, will continue to pay the value of this market down.
Jean-Victor
Jean-Victor is a technical analyst first class and the owner of more than 10 years experience in the forex market with the jurisdiction of the US market and the European intraday trading, and trading in the long term. It is the owner of certificates in technical and analytical advanced by the World Federation of local technicians. Adham trading specialist building for the long term, as well as to speculate on short-term strategies, and is considered an expert in financial markets and provides thousands of investors analyzes and comprehensive coverage of all major currency pairs and all the changes and fluctuations that occur in the market.
His practice includes interviews with investors in order to analyze their portfolios and a personal escort. In his analysis depends on candles, Elliott waves, analysis of support and resistance lines, and other Fibonacci levels
The Australian dollar hit earlier its highest level in two months with the continued rise in risk appetite in the currency markets. It has provided the JPY today some of the field, and also allowed the US dollar and the euro to compensate some of the recent declines. The markets await today's release of the latest American data to help predict the next step for the Fed. Investors are optimistic that the ISM non-manufacturing report will be serious, such as the Declaration on Tuesday for the manufacturing surveys, which showed an acceleration in production and new orders remain at high levels.
As reported at 10:53 pm (GMT) in London, the Australian dollar was trading pair / US dollar at $ 0.7329, this is a rise of 0.69%, just one point from their highest level of the meetings. It rose NZD / USD also to the level of $ 0.6998, which is higher by 0.475. The pair has ranged from a low level at $ 0.6658 and the peak at $ 0.6700. It was trading the euro / dollar pair at a level of $ 1.0877, and this is a rise of 0.10%.
Attention towards US data
Although it is clear that today's ISM report is important for the markets, but the main event this week will be announced tomorrow on employment data in the United States. This is a report, first of all, the main consideration for the Fed in determining the timing of the next raise interest rates. The labor market fully operational, along with price stability, is the mandate of the Federal Reserve Bank. Currently, the consensus of analysts indicates an increase in the number of jobs in the private sector for the month of February to 190 thousand. Despite promises by the Federal Reserve several increases in interest rates this year, any disappointment in employment in the non-agricultural sector report will affect the US dollar has postponed the timing of the next increase in interest rates.
The term foreign exchange
The term foreign exchange (or forex) to buy and sell currencies online in the foreign exchange market, any currency traded against each other in pairs, in order to make a profit.
Foreign exchange, or forex, is the world's largest market for international investment and trading in various currencies online. Without any actual physical location for buying and selling currencies, the forex market is characterized by a decentralized structure, investors can accessed through the Internet all over the world.
Forex market is that it has the highest liquidity in the world because of its ability to facilitate the purchase and sale of financial assets without causing drastic changes in asset prices. Today, the average daily turnover of more than $ 5 trillion, attributed more than 80% of this growth to the commercial activity of the financial institutions that the foreign exchange market works through it. This major markets include participation - as well as others and other institutions - major central banks, investment institutions (institutions that invest large sums of money in securities and other assets), speculators, governments, financial service providers (such as banks, credit companies, and companies insurance) and retail investors.
Unlike the stock market, the foreign exchange market integral to the different levels of entry, which includes interbank market at a higher level (which includes the largest commercial and central banks in the world such as Citi and Deutsche Bank and Barclays Investment Bank and UBS AG, HSBC, JP Morgan, and Goldman Sachs ). Just like the foreign exchange market, interbank market that is characterized by a decentralized and includes the largest commercial and investment banks, and nearly 40% of all transactions conducted by banks with a first class. This is followed by the next level, which includes medium-sized and small banks, hedge funds (open-private investment partnerships limited number of investors only), commercial companies, and electronic communications networks, retail (ECNs), and brokerage firms forex trading retail, and retail traders (traders and individual investors ).
With the advent of online trading platforms in 1996, the number of traders in foreign currencies increased retail individuals, who trade currencies and other financial instruments, have become even make up a large segment of the forex market in terms of importance and size
With broad geographic dispersion, the size of the huge trading and trading operations continued a 24-hour non-stop, with the exception of the weekend, the foreign exchange market is unique.
The forex trading currency pairs (ie pricing relative value of a currency relative to another currency), where the first currency is called the base currency, while second currency is called the quote currency. For example, if the pair EUR / USD rate is 1.2345, it means that the euro fixed price in US dollars, meaning that 1 euro equals US $ 1.2345. The most traded currency pairs include (also called major currencies) USD (US dollar), is EUR (Euro (, GBP (pound sterling (, is CHF (Swiss franc), JPY (Japanese Yen), CAD (Canadian dollar), and AUD (dollar Australian).
You can execute currency trading 24 hours a day, from 22.00 GMT GMT on Sunday until 22.00 GMT GMT on Friday, where currencies are traded among the major financial centers in London, New York, Tokyo, Zurich, Frankfurt, Paris, Sydney, Singapore and Hong Kong . Usually, there are three trading sessions is considered the main sessions characterized by a peak of activity, and also referred to as the strong positions of daily transactions: a European sessions, the Asian session, and the meeting of the North American
Promises of various factors and major events that have shaped the forex market and currency trading as we know it today to prehistoric times, when it was trading using swaps history (any exchange) of goods without the actual use of currencies.
He began to talk of foreign exchange by the year 1880, when the monetary system which uses the gold standard, which appeared a good alternative to compensate for the shortcomings of the old barter began. The most striking feature of this system is the stability of the exchange rate, where each state set the exchange rate of a currency other country, regardless of the means of exchange used (banknotes or coins). Not only will facilitate trading between two different currencies, but also helped to control the behavior of the currency and curb inflation.
20th century witnessed a rapid growth of foreign banks, especially in England, which included 40 brokerage firms for foreign exchange in London in 1922, and it was nearly half of the foreign exchange in the world in pounds sterling. At the time, New York, Paris and Berlin is known as the most active trading centers. After World War II, Bretton Woods Accord established the rules of financial relations, it restricted the currency fluctuation within the range of 1% of the nominal value of the currency. However, after the collapse of the Bretton Woods agreement fixed exchange-rate system gradually shift to a free-floating system. In the late seventies, it took the exchange of currencies dominated by the nation-state and is controlled by a major turning point, and gradually change to turn into a floating market
Today, currency trading seeks progressing rapidly towards the online trading by investors and traders from individuals and companies all over the world. It is the purchase and sale of various negotiable online financial assets such as securities city (banknotes or bonds), equities, or derivative securities (futures, options, swaps).
Since the end of currency trading in the nineties, who was traded to the currencies of the different countries against each other, trading has become a popular way of large-scale investment through an electronic network and usually with brokerage firms provide trading platforms via the Internet to allow investors to directly enter and intraday to global markets.
Before the advent of the Internet, the investment was possible only by placing orders via phone through brokers licensed to buy and sell stocks, bonds and other securities on behalf of individual and institutional clients. Included brokerage firms individuals professionals are employees legal where to put investors' orders in the stock market (such as London, Tokyo Stock Exchange Stock Exchange or the New York Stock Exchange), or outside the terms of trade (directly between two parties) for a commission or compensation for their services fees. We are dealing with all customer orders by intermediaries, who perform the role of mediator between investors and financial markets, where orders are placed in the brokerage firms, which are connected halls trading centers and the exchange systems.
1994 has seen significant growth in online trading. This year, the first brokerage firms began offering leading service changed the investment process over the Internet, is the possibility that investors put their orders directly online, and that the deliberate through electronic communication networks operated by computer.
Since that time, it has become the exchange of foreign currency, or currency trading, a common form all over the world to invest via the Internet, where it is practically anyone with internet access can. Usually this is done on the online trading platform provided by the intermediate company, where they are trading with just a few clicks by customers place orders, then the mediator These commands are passed to the interbank market, the highest level in the foreign exchange banks' market for the exchange of different currencies. Once the customer closes his deal, the mediator company shut down its centers in the interbank market in a matter of seconds and add balance to the client's trading account profit earned or loss realized deducted.
Today any investor can online direct access to global markets through the trading platforms online, and keep track of the time intraday price in the foreign exchange market (Forex continuous), 24-hour non-stop. Can be considered as trading platforms, the most famous MetaTrader 4, the essence of the trading process because it allows investors to buy and sell currencies, or any other securities, using for trading such as charts for technical analysis of integrated tools, flow rates in time intraday, newsletters, tests allocated to help trading to make sure profitable
Foreign exchange, or forex, is the world's largest market for international investment and trading in various currencies online. Without any actual physical location for buying and selling currencies, the forex market is characterized by a decentralized structure, investors can accessed through the Internet all over the world.
Forex market is that it has the highest liquidity in the world because of its ability to facilitate the purchase and sale of financial assets without causing drastic changes in asset prices. Today, the average daily turnover of more than $ 5 trillion, attributed more than 80% of this growth to the commercial activity of the financial institutions that the foreign exchange market works through it. This major markets include participation - as well as others and other institutions - major central banks, investment institutions (institutions that invest large sums of money in securities and other assets), speculators, governments, financial service providers (such as banks, credit companies, and companies insurance) and retail investors.
Unlike the stock market, the foreign exchange market integral to the different levels of entry, which includes interbank market at a higher level (which includes the largest commercial and central banks in the world such as Citi and Deutsche Bank and Barclays Investment Bank and UBS AG, HSBC, JP Morgan, and Goldman Sachs ). Just like the foreign exchange market, interbank market that is characterized by a decentralized and includes the largest commercial and investment banks, and nearly 40% of all transactions conducted by banks with a first class. This is followed by the next level, which includes medium-sized and small banks, hedge funds (open-private investment partnerships limited number of investors only), commercial companies, and electronic communications networks, retail (ECNs), and brokerage firms forex trading retail, and retail traders (traders and individual investors ).
With the advent of online trading platforms in 1996, the number of traders in foreign currencies increased retail individuals, who trade currencies and other financial instruments, have become even make up a large segment of the forex market in terms of importance and size
With broad geographic dispersion, the size of the huge trading and trading operations continued a 24-hour non-stop, with the exception of the weekend, the foreign exchange market is unique.
The forex trading currency pairs (ie pricing relative value of a currency relative to another currency), where the first currency is called the base currency, while second currency is called the quote currency. For example, if the pair EUR / USD rate is 1.2345, it means that the euro fixed price in US dollars, meaning that 1 euro equals US $ 1.2345. The most traded currency pairs include (also called major currencies) USD (US dollar), is EUR (Euro (, GBP (pound sterling (, is CHF (Swiss franc), JPY (Japanese Yen), CAD (Canadian dollar), and AUD (dollar Australian).
You can execute currency trading 24 hours a day, from 22.00 GMT GMT on Sunday until 22.00 GMT GMT on Friday, where currencies are traded among the major financial centers in London, New York, Tokyo, Zurich, Frankfurt, Paris, Sydney, Singapore and Hong Kong . Usually, there are three trading sessions is considered the main sessions characterized by a peak of activity, and also referred to as the strong positions of daily transactions: a European sessions, the Asian session, and the meeting of the North American
Promises of various factors and major events that have shaped the forex market and currency trading as we know it today to prehistoric times, when it was trading using swaps history (any exchange) of goods without the actual use of currencies.
He began to talk of foreign exchange by the year 1880, when the monetary system which uses the gold standard, which appeared a good alternative to compensate for the shortcomings of the old barter began. The most striking feature of this system is the stability of the exchange rate, where each state set the exchange rate of a currency other country, regardless of the means of exchange used (banknotes or coins). Not only will facilitate trading between two different currencies, but also helped to control the behavior of the currency and curb inflation.
20th century witnessed a rapid growth of foreign banks, especially in England, which included 40 brokerage firms for foreign exchange in London in 1922, and it was nearly half of the foreign exchange in the world in pounds sterling. At the time, New York, Paris and Berlin is known as the most active trading centers. After World War II, Bretton Woods Accord established the rules of financial relations, it restricted the currency fluctuation within the range of 1% of the nominal value of the currency. However, after the collapse of the Bretton Woods agreement fixed exchange-rate system gradually shift to a free-floating system. In the late seventies, it took the exchange of currencies dominated by the nation-state and is controlled by a major turning point, and gradually change to turn into a floating market
Today, currency trading seeks progressing rapidly towards the online trading by investors and traders from individuals and companies all over the world. It is the purchase and sale of various negotiable online financial assets such as securities city (banknotes or bonds), equities, or derivative securities (futures, options, swaps).
Since the end of currency trading in the nineties, who was traded to the currencies of the different countries against each other, trading has become a popular way of large-scale investment through an electronic network and usually with brokerage firms provide trading platforms via the Internet to allow investors to directly enter and intraday to global markets.
Before the advent of the Internet, the investment was possible only by placing orders via phone through brokers licensed to buy and sell stocks, bonds and other securities on behalf of individual and institutional clients. Included brokerage firms individuals professionals are employees legal where to put investors' orders in the stock market (such as London, Tokyo Stock Exchange Stock Exchange or the New York Stock Exchange), or outside the terms of trade (directly between two parties) for a commission or compensation for their services fees. We are dealing with all customer orders by intermediaries, who perform the role of mediator between investors and financial markets, where orders are placed in the brokerage firms, which are connected halls trading centers and the exchange systems.
1994 has seen significant growth in online trading. This year, the first brokerage firms began offering leading service changed the investment process over the Internet, is the possibility that investors put their orders directly online, and that the deliberate through electronic communication networks operated by computer.
Since that time, it has become the exchange of foreign currency, or currency trading, a common form all over the world to invest via the Internet, where it is practically anyone with internet access can. Usually this is done on the online trading platform provided by the intermediate company, where they are trading with just a few clicks by customers place orders, then the mediator These commands are passed to the interbank market, the highest level in the foreign exchange banks' market for the exchange of different currencies. Once the customer closes his deal, the mediator company shut down its centers in the interbank market in a matter of seconds and add balance to the client's trading account profit earned or loss realized deducted.
Today any investor can online direct access to global markets through the trading platforms online, and keep track of the time intraday price in the foreign exchange market (Forex continuous), 24-hour non-stop. Can be considered as trading platforms, the most famous MetaTrader 4, the essence of the trading process because it allows investors to buy and sell currencies, or any other securities, using for trading such as charts for technical analysis of integrated tools, flow rates in time intraday, newsletters, tests allocated to help trading to make sure profitable
ETFs that refer to the goods
ETFs that refer to the goods .
When most traders want to check on the recent performance or forecast the future direction of the commodities market they generally turn to mainstream media. There seems to be no end to the amount of commentary about where the price of gold, oil or other widely followed commodities are headed next. Rather than following the herd, one option, which is often neglected, is to check the chart of key tracking funds. For those who don’t know, a tracking fund is a basket of assets that is specifically architected by the fund managers for the purpose of being as closely correlated to an underlying index as possible. In the article below, we’ll take a look at the charts of a popular commodity tracking fund and other related assets to see where commodities could be headed next. (For more, see: Commodities: Introduction.)
DB Commodities Tracking Index Fund
As mentioned above, one of the most commonly used tracking indexes by those seeking to analyze the commodity markets is the DB Commodities Tracking Index Fund (DBC). This fund is comprised of futures contracts on fourteen of the most heavily traded and important physical commodities in the world. More specifically, overweight positions are held in Brent crude, gold, light crude and gasoline. Taking a look at the chart below, you can see that the bears have dominated the momentum over the past year. Notice how the nearby trendline and 50-day moving average have influenced the price and have prevented a sustainable move higher. Active traders will likely look to place a short order as close to the trendline to maximize the risk/reward of the trade. Stop-loss orders will likely be placed directly above the 200-day moving average, which is currently trading at $15.03.(For more, see: These 3 ETFs Suggest Commodities Are Headed Lower.)
iShares Commodities Select Strategy ETF
Another fund that many active traders have been turning in order to forecast the future direction of the commodities market is the iShares Commodities Select Strategy ETF (COMT) because of its focus on the broad market. This fund provides a great level of exposure to commodity producers and carries a reasonable expense ratio of 1.48%. The fund has total net assets of over $250 million and is currently comprised of 168 holdings. Taking a look at the chart, you can see that the downtrend line looks nearly identical to the one highlighted above, and it has also dominated the direction over the past year. Many active traders interpret this chart pattern to mean that the downtrend will likely continue for longer than many bulls are hoping.(For more, see: Commodities Are Set Up For A Continued Move Lower.)
PowerShares DB Multi-Sector Commodity Trust Metals Fund
One of the most lucrative segments of the broad commodities market is that of the base metals. As you may know, aluminum, zinc and copper are great indicators of the state of the global economy. Demand for these assets is strongly correlated to expansion and growth in key areas and nations around the world. Taking a look at the chart below, you can see that prices are up off the bottom and that they have some room to move before testing the resistance of the descending trendline. However, it is obvious that the trend is downward and given the five-year scale on the chart, it doesn’t seem like this trend is about to reverse anytime soon. (For more, see: The Downtrend In Precious Metals Is Poised To Continue.)
The Bottom Line
The news tends to be one of the most popular methods for most traders to get information about the performance and future direction of key commodities. Checking out the performance of select exchange traded funds that are specifically designed to track commodities, such as those listed above, is a lost art. Based on the patterns shown above, the outlook might not be as bright as some news stories might suggest. (For related reading, see: Commodities Are Pulling Brazil and Chile Lower.)
When most traders want to check on the recent performance or forecast the future direction of the commodities market they generally turn to mainstream media. There seems to be no end to the amount of commentary about where the price of gold, oil or other widely followed commodities are headed next. Rather than following the herd, one option, which is often neglected, is to check the chart of key tracking funds. For those who don’t know, a tracking fund is a basket of assets that is specifically architected by the fund managers for the purpose of being as closely correlated to an underlying index as possible. In the article below, we’ll take a look at the charts of a popular commodity tracking fund and other related assets to see where commodities could be headed next. (For more, see: Commodities: Introduction.)
DB Commodities Tracking Index Fund
As mentioned above, one of the most commonly used tracking indexes by those seeking to analyze the commodity markets is the DB Commodities Tracking Index Fund (DBC). This fund is comprised of futures contracts on fourteen of the most heavily traded and important physical commodities in the world. More specifically, overweight positions are held in Brent crude, gold, light crude and gasoline. Taking a look at the chart below, you can see that the bears have dominated the momentum over the past year. Notice how the nearby trendline and 50-day moving average have influenced the price and have prevented a sustainable move higher. Active traders will likely look to place a short order as close to the trendline to maximize the risk/reward of the trade. Stop-loss orders will likely be placed directly above the 200-day moving average, which is currently trading at $15.03.(For more, see: These 3 ETFs Suggest Commodities Are Headed Lower.)
iShares Commodities Select Strategy ETF
Another fund that many active traders have been turning in order to forecast the future direction of the commodities market is the iShares Commodities Select Strategy ETF (COMT) because of its focus on the broad market. This fund provides a great level of exposure to commodity producers and carries a reasonable expense ratio of 1.48%. The fund has total net assets of over $250 million and is currently comprised of 168 holdings. Taking a look at the chart, you can see that the downtrend line looks nearly identical to the one highlighted above, and it has also dominated the direction over the past year. Many active traders interpret this chart pattern to mean that the downtrend will likely continue for longer than many bulls are hoping.(For more, see: Commodities Are Set Up For A Continued Move Lower.)
PowerShares DB Multi-Sector Commodity Trust Metals Fund
One of the most lucrative segments of the broad commodities market is that of the base metals. As you may know, aluminum, zinc and copper are great indicators of the state of the global economy. Demand for these assets is strongly correlated to expansion and growth in key areas and nations around the world. Taking a look at the chart below, you can see that prices are up off the bottom and that they have some room to move before testing the resistance of the descending trendline. However, it is obvious that the trend is downward and given the five-year scale on the chart, it doesn’t seem like this trend is about to reverse anytime soon. (For more, see: The Downtrend In Precious Metals Is Poised To Continue.)
The Bottom Line
The news tends to be one of the most popular methods for most traders to get information about the performance and future direction of key commodities. Checking out the performance of select exchange traded funds that are specifically designed to track commodities, such as those listed above, is a lost art. Based on the patterns shown above, the outlook might not be as bright as some news stories might suggest. (For related reading, see: Commodities Are Pulling Brazil and Chile Lower.)
Gold as a tool to hedge against inflation
Gold as a tool to hedge against inflation
Rightly or not, gold is widely viewed as an inflation hedge — a reliable measure of protection against purchasing power risk. The precious metal may not be the best option for that purpose, though. Some gold investors fail to consider its volatility as well as its opportunity cost, while others fail to anticipate storage needs and other logistical complexities of gold ownership. For these and other reasons, some view U.S. Treasury bills as a superior safe haven alternative to gold. Both asset classes have their own sets of pros and cons; here's a look at them. (For more, see: How Much Disaster Can Gold Hedge?)
Slow and Steady vs. Gold Fever
Like any other investment, gold fluctuates in price. Investors may have to wait long stretches to realize profits, and research shows that the majority of investors enter when gold it's near a peak, meaning upside it limited and downside is more likely. Meanwhile, slow but steady Treasuries provide less excitement but reliable income. And the longer the gold is held over Treasuries, the more painful these opportunity costs can become, due to sacrificed compound interest.
An arguably lesser but no-less present worry: some gold investors also must contend with the chore of safely storing their investment, by vaulting it at home or by acquiring a bank safe deposit box. But in either scenario, bullion coins that are held for one year or longer are classified as “collectibles” — similar to artwork, rare stamps or antique furniture. Whether the precious metal is in the form of an American Eagle gold coin, a Canadian Gold Maple Leaf coin or a South African Krugerrand, its sale automatically triggers a long-term federal capital gains tax rate of approximately 28% — nearly double the 15% capital gains rate for typical stocks. (For more, see: Gold is a Great Hedge Today.)
All of that said, gold has fared better than silver, platinum, palladium recently, as well as most other precious metals. After hitting almost $1,900 per ounce in 2011, gold bottomed out at around $1,188 per ounce last December, and in March climbed to over $1,380 per ounce before leveling off at about $1,218 today. Gold's rise this year is at least partially due to the formidable defense gold and silver presents against the eroding value of paper currency. But in light of this trajectory, many believe gold’s future performance is uncertain, and favor a shift to Treasuries. (For more, see: Curbing the Effects of Inflation.)
The Case for Treasuries
The biggest draw in buying Treasury bonds instead of gold is that the former locks in certain returns on investment. Prescient investors who saw fit to buy $10,000 in 30-year Treasury Bills in 1982, would have pocketed $40,000, when the notes reached maturity with a fixed 10.45% coupon rate. Of course, the days of double-digit percent coupons may be long gone. In January 2014, for example, the U.S. Treasury auctioned another round of 30-year bonds with just a 3% coupon. Nonetheless, such bonds cans still comprise a key element to any risk-averse portfolio. (For more, see: How Safe are U.S. Bonds?)
Gold ETFs an Option
Depending on your income level, Treasury investments are typically more favorable tax-wise. But gold investors may level the capital gains tax playing field by investing in gold exchange-traded-funds (ETFs), which are taxed exactly like typical stock and bond securities. Within the ETF framework, there are three distinct ways in which investors may participate. The first, gold mining ETFs, benchmark against mining companies, appealing to investors who are not interested in actual commodity ownership. An example of such an ETF is the Market Vectors Gold Miners ETF (GDX). (For more, see: Top Tips for Day-trading Gold ETFs and Hedge Inflation with Gold ETFs.)
The next, gold ETF futures, gain exposure to gold through futures contracts. Because these funds hold a combination of contracts and cash — usually parked in Treasury bills — they’re able to generate interest income to offset expenses. An example is AdvisorShares Gartman Gold/British Pound ETF (GGBP). Finally, there are pure-play ETFs, which strive to reflect the performance of gold bullion by directly investing in gold trusts. Bullion bars are purchased, stored in bank vaults and insured. While pure-play ETFs may track the bullion more closely, they have the disadvantage of being taxed more heavily than other versions. An example is PowerShares DB Gold Short ETN (DGZ). (For more, see: The Gold Showdown: ETFs vs. Futures and The 5 Best-Performing Gold ETFs.)
The Bottom Line
Knowing when to bow out of gold can be a tough call. As a hedge against inflation (and geopolitical risk), gold has ascended to great highs over the past decade, due to liberal central bank policies, such as the Federal Reserve’s recent quantitative easing programs. From here, gold could rally or fall further; no one can predict which way it will go. On the other hand, Treasuries take speculation (as well as some excitement) out mix. Savvy investors should take a sober look at gold versus Treasuries in their portfolios and construct an allocation mix that best suits their temperament and time horizon. (For related reading, see: How to Protect Yourself from Rising Interest Rates.)
From ancient civilizations through the modern era, gold has been the world's currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk.
We'll cover many of the opportunities for investing in gold, including bullion (i.e. gold bars), mutual funds, futures, mining companies and jewelry. With few exceptions, only bullion, futures and a handful of specialty funds provide a direct investment opportunity in gold. Other investments gain part of their value from other sources. (For background reading, see Does It Still Pay To Invest In Gold?)
TUTORIAL: Commodities
Gold Bullion
This is perhaps the best-known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at FortKnox. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, etc., of any size. A serial number is commonly attached to gold bars as well, for security purposes.
While heavy gold bars are an impressive sight, their large size (up to 400 troy ounces) makes them illiquid, and therefore costly to buy and sell. After all, if you own one large gold bar worth $100,000 as your entire holding in gold and then decide to sell 10%, you can't exactly saw off the end of the bar and sell it. On the other hand, bullion held in smaller-sized bars and coins have much more liquidity, and is a very common method of holding bullion.
Gold Coins
For decades, large quantities of gold coins have been issued by sovereign governments around the world. For investors, coins are commonly bought from private dealers at a premium of about 1-5% above their underlying gold value.
The advantages of bullion coins are:
Their prices are conveniently available in global financial publications.
Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars.
Reputable dealers can be found with minimal searching and are located in many large cities.
Caution: Older, rare gold coins have what is known as numismatic or "collector's" value above and beyond the underlying value of the gold. To invest strictly in gold, focus on widely circulated coins and leave the rare coins to collectors.
Some of the widely circulated gold coins include the South African krugerrand, the U.S. eagle and the Canadian maple leaf.
The main problems with gold bullion are that the storage and insurance costs, and the relatively large markup from the dealer both hinder profit potential. Also, investing in gold bullion is a direct investment in gold's value, and each dollar change in the price of gold will proportionally change the value of one's holdings. Other gold investments, such as mutual funds, may be made in smaller dollar amounts than bullion, and also may not have as much direct price exposure as bullion does.
Gold ETFs and Mutual Funds
One alternative to a direct investment in gold bullion is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerage or IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.
Many mutual funds own gold bullion and gold companies as part of their normal portfolios, but investors should be aware that only a few mutual funds focus solely on gold investing; most own a number of other commodities. The major advantages of the gold-only oriented mutual funds are:
Low cost and low minimum investment required
Diversification among different companies
Ease of ownership in a brokerage account or an IRA
Require no individual company research
Some funds invest in the indexes of mining companies, others are tied directly to gold prices, while still others are actively managed. Read their prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy, and therefore have lower expense ratios. For the average gold investor, however, mutual funds and ETFs are now generally the easiest and safest way to invest in gold.
Gold Futures and Options
Futures are contracts to buy or sell a given amount of an item, in this case gold, on a particular date in the future. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. As this amount can be large (for example, 100 troy ounces x $1,000/ounce = $100,000), futures are more suitable for experienced investors. People often use futures because the commissions are very low, and the margin requirements are much lower than in traditional equity investments. Some contracts settle in dollars while others settle in gold, so investors must pay attention to the contract specifications to avoid having to take delivery of 100 ounces of gold on the settlement date. (For more on this, read Trading Gold And Silver Futures Contracts.)
Options on futures are an alternative to buying a futures contract outright. These give the owner of the option the right to buy the futures contract within a certain time frame at a preset price. One benefit of an option is it both leverages your original investment and limits losses to the price paid. A futures contract bought on margin can require more capital than originally invested if losses mount quickly. Unlike with a futures investment, which is based on the current value of gold, the downside to options is that the investor must pay a premium to the underlying value of the gold to own the option. Because of the volatile nature of futures and options, they may be unsuitable for many investors. Even so, futures remain the cheapest (commissions + interest expense) way to buy or sell gold when investing large sums.
Gold Mining Companies
Companies that specialize in mining and refining will also profit from a rising gold price. Investing in these types of companies can be an effective way to profit from gold, and can also carry lower risk than other investment methods.
The largest gold mining companies operate extensive global operations; therefore, business factors common to many other large companies influence their investment success. As a result, these companies can still show profit in times of flat or declining gold prices. One way they do this is by hedging against a fall in gold prices as a normal part of their business. Some do this and some don't. Even so, gold mining companies may provide a safer way to invest in gold than through direct ownership of bullion. However, the research and selection of individual companies requires due diligence on the investor's part. As this is a time consuming endeavor, it may not be feasible for many investors.
Gold Jewelry
Most of the global gold production is used to make jewelry. With global population and wealth growing annually, demand for gold used in jewelry production should increase over time as well. On the other hand, gold jewelry buyers are shown to be somewhat price sensitive, buying less if the price rises swiftly.
Buying jewelry at retail prices involves a substantial markup – up to 400% over the underlying gold value. Better jewelry bargains may be found at estate sales and auctions. The advantage of buying jewelry this way is that there is no retail markup; the disadvantage is the time spent searching for valuable pieces. Nonetheless, jewelry ownership provides the most enjoyable way to own gold, even if it is not the most profitable from an investment standpoint. As an art form, gold jewelry is beautiful. As an investment, it is mediocre - unless you are the jeweler.
Conclusion
Larger investors, who wish to have direct exposure to the price of gold, may prefer to invest in gold directly through bullion. There is also a level of comfort found in owning a physical asset instead of simply a piece of paper. The downside is the slight premium to the value of gold paid on the initial purchase, as well as the storage costs.
For investors who are a bit more aggressive, futures and options will certainly do the trick. But, buyers should beware: these investments are derivatives of gold's price and can see sharp moves up and down, especially when done on margin. On the other hand, futures are probably the most efficient way to invest in gold, except for the fact that contracts must be rolled over periodically as they expire.
The idea that jewelry is an investment is quaint, but naive. There is too much of a spread between the price of most jewelry and its gold value for it to be considered a true investment. Instead, the average gold investor should consider gold oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.
Rightly or not, gold is widely viewed as an inflation hedge — a reliable measure of protection against purchasing power risk. The precious metal may not be the best option for that purpose, though. Some gold investors fail to consider its volatility as well as its opportunity cost, while others fail to anticipate storage needs and other logistical complexities of gold ownership. For these and other reasons, some view U.S. Treasury bills as a superior safe haven alternative to gold. Both asset classes have their own sets of pros and cons; here's a look at them. (For more, see: How Much Disaster Can Gold Hedge?)
Slow and Steady vs. Gold Fever
Like any other investment, gold fluctuates in price. Investors may have to wait long stretches to realize profits, and research shows that the majority of investors enter when gold it's near a peak, meaning upside it limited and downside is more likely. Meanwhile, slow but steady Treasuries provide less excitement but reliable income. And the longer the gold is held over Treasuries, the more painful these opportunity costs can become, due to sacrificed compound interest.
An arguably lesser but no-less present worry: some gold investors also must contend with the chore of safely storing their investment, by vaulting it at home or by acquiring a bank safe deposit box. But in either scenario, bullion coins that are held for one year or longer are classified as “collectibles” — similar to artwork, rare stamps or antique furniture. Whether the precious metal is in the form of an American Eagle gold coin, a Canadian Gold Maple Leaf coin or a South African Krugerrand, its sale automatically triggers a long-term federal capital gains tax rate of approximately 28% — nearly double the 15% capital gains rate for typical stocks. (For more, see: Gold is a Great Hedge Today.)
All of that said, gold has fared better than silver, platinum, palladium recently, as well as most other precious metals. After hitting almost $1,900 per ounce in 2011, gold bottomed out at around $1,188 per ounce last December, and in March climbed to over $1,380 per ounce before leveling off at about $1,218 today. Gold's rise this year is at least partially due to the formidable defense gold and silver presents against the eroding value of paper currency. But in light of this trajectory, many believe gold’s future performance is uncertain, and favor a shift to Treasuries. (For more, see: Curbing the Effects of Inflation.)
The Case for Treasuries
The biggest draw in buying Treasury bonds instead of gold is that the former locks in certain returns on investment. Prescient investors who saw fit to buy $10,000 in 30-year Treasury Bills in 1982, would have pocketed $40,000, when the notes reached maturity with a fixed 10.45% coupon rate. Of course, the days of double-digit percent coupons may be long gone. In January 2014, for example, the U.S. Treasury auctioned another round of 30-year bonds with just a 3% coupon. Nonetheless, such bonds cans still comprise a key element to any risk-averse portfolio. (For more, see: How Safe are U.S. Bonds?)
Gold ETFs an Option
Depending on your income level, Treasury investments are typically more favorable tax-wise. But gold investors may level the capital gains tax playing field by investing in gold exchange-traded-funds (ETFs), which are taxed exactly like typical stock and bond securities. Within the ETF framework, there are three distinct ways in which investors may participate. The first, gold mining ETFs, benchmark against mining companies, appealing to investors who are not interested in actual commodity ownership. An example of such an ETF is the Market Vectors Gold Miners ETF (GDX). (For more, see: Top Tips for Day-trading Gold ETFs and Hedge Inflation with Gold ETFs.)
The next, gold ETF futures, gain exposure to gold through futures contracts. Because these funds hold a combination of contracts and cash — usually parked in Treasury bills — they’re able to generate interest income to offset expenses. An example is AdvisorShares Gartman Gold/British Pound ETF (GGBP). Finally, there are pure-play ETFs, which strive to reflect the performance of gold bullion by directly investing in gold trusts. Bullion bars are purchased, stored in bank vaults and insured. While pure-play ETFs may track the bullion more closely, they have the disadvantage of being taxed more heavily than other versions. An example is PowerShares DB Gold Short ETN (DGZ). (For more, see: The Gold Showdown: ETFs vs. Futures and The 5 Best-Performing Gold ETFs.)
The Bottom Line
Knowing when to bow out of gold can be a tough call. As a hedge against inflation (and geopolitical risk), gold has ascended to great highs over the past decade, due to liberal central bank policies, such as the Federal Reserve’s recent quantitative easing programs. From here, gold could rally or fall further; no one can predict which way it will go. On the other hand, Treasuries take speculation (as well as some excitement) out mix. Savvy investors should take a sober look at gold versus Treasuries in their portfolios and construct an allocation mix that best suits their temperament and time horizon. (For related reading, see: How to Protect Yourself from Rising Interest Rates.)
From ancient civilizations through the modern era, gold has been the world's currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk.
We'll cover many of the opportunities for investing in gold, including bullion (i.e. gold bars), mutual funds, futures, mining companies and jewelry. With few exceptions, only bullion, futures and a handful of specialty funds provide a direct investment opportunity in gold. Other investments gain part of their value from other sources. (For background reading, see Does It Still Pay To Invest In Gold?)
TUTORIAL: Commodities
Gold Bullion
This is perhaps the best-known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at FortKnox. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, etc., of any size. A serial number is commonly attached to gold bars as well, for security purposes.
While heavy gold bars are an impressive sight, their large size (up to 400 troy ounces) makes them illiquid, and therefore costly to buy and sell. After all, if you own one large gold bar worth $100,000 as your entire holding in gold and then decide to sell 10%, you can't exactly saw off the end of the bar and sell it. On the other hand, bullion held in smaller-sized bars and coins have much more liquidity, and is a very common method of holding bullion.
Gold Coins
For decades, large quantities of gold coins have been issued by sovereign governments around the world. For investors, coins are commonly bought from private dealers at a premium of about 1-5% above their underlying gold value.
The advantages of bullion coins are:
Their prices are conveniently available in global financial publications.
Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars.
Reputable dealers can be found with minimal searching and are located in many large cities.
Caution: Older, rare gold coins have what is known as numismatic or "collector's" value above and beyond the underlying value of the gold. To invest strictly in gold, focus on widely circulated coins and leave the rare coins to collectors.
Some of the widely circulated gold coins include the South African krugerrand, the U.S. eagle and the Canadian maple leaf.
The main problems with gold bullion are that the storage and insurance costs, and the relatively large markup from the dealer both hinder profit potential. Also, investing in gold bullion is a direct investment in gold's value, and each dollar change in the price of gold will proportionally change the value of one's holdings. Other gold investments, such as mutual funds, may be made in smaller dollar amounts than bullion, and also may not have as much direct price exposure as bullion does.
Gold ETFs and Mutual Funds
One alternative to a direct investment in gold bullion is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerage or IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.
Many mutual funds own gold bullion and gold companies as part of their normal portfolios, but investors should be aware that only a few mutual funds focus solely on gold investing; most own a number of other commodities. The major advantages of the gold-only oriented mutual funds are:
Low cost and low minimum investment required
Diversification among different companies
Ease of ownership in a brokerage account or an IRA
Require no individual company research
Some funds invest in the indexes of mining companies, others are tied directly to gold prices, while still others are actively managed. Read their prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy, and therefore have lower expense ratios. For the average gold investor, however, mutual funds and ETFs are now generally the easiest and safest way to invest in gold.
Gold Futures and Options
Futures are contracts to buy or sell a given amount of an item, in this case gold, on a particular date in the future. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. As this amount can be large (for example, 100 troy ounces x $1,000/ounce = $100,000), futures are more suitable for experienced investors. People often use futures because the commissions are very low, and the margin requirements are much lower than in traditional equity investments. Some contracts settle in dollars while others settle in gold, so investors must pay attention to the contract specifications to avoid having to take delivery of 100 ounces of gold on the settlement date. (For more on this, read Trading Gold And Silver Futures Contracts.)
Options on futures are an alternative to buying a futures contract outright. These give the owner of the option the right to buy the futures contract within a certain time frame at a preset price. One benefit of an option is it both leverages your original investment and limits losses to the price paid. A futures contract bought on margin can require more capital than originally invested if losses mount quickly. Unlike with a futures investment, which is based on the current value of gold, the downside to options is that the investor must pay a premium to the underlying value of the gold to own the option. Because of the volatile nature of futures and options, they may be unsuitable for many investors. Even so, futures remain the cheapest (commissions + interest expense) way to buy or sell gold when investing large sums.
Gold Mining Companies
Companies that specialize in mining and refining will also profit from a rising gold price. Investing in these types of companies can be an effective way to profit from gold, and can also carry lower risk than other investment methods.
The largest gold mining companies operate extensive global operations; therefore, business factors common to many other large companies influence their investment success. As a result, these companies can still show profit in times of flat or declining gold prices. One way they do this is by hedging against a fall in gold prices as a normal part of their business. Some do this and some don't. Even so, gold mining companies may provide a safer way to invest in gold than through direct ownership of bullion. However, the research and selection of individual companies requires due diligence on the investor's part. As this is a time consuming endeavor, it may not be feasible for many investors.
Gold Jewelry
Most of the global gold production is used to make jewelry. With global population and wealth growing annually, demand for gold used in jewelry production should increase over time as well. On the other hand, gold jewelry buyers are shown to be somewhat price sensitive, buying less if the price rises swiftly.
Buying jewelry at retail prices involves a substantial markup – up to 400% over the underlying gold value. Better jewelry bargains may be found at estate sales and auctions. The advantage of buying jewelry this way is that there is no retail markup; the disadvantage is the time spent searching for valuable pieces. Nonetheless, jewelry ownership provides the most enjoyable way to own gold, even if it is not the most profitable from an investment standpoint. As an art form, gold jewelry is beautiful. As an investment, it is mediocre - unless you are the jeweler.
Conclusion
Larger investors, who wish to have direct exposure to the price of gold, may prefer to invest in gold directly through bullion. There is also a level of comfort found in owning a physical asset instead of simply a piece of paper. The downside is the slight premium to the value of gold paid on the initial purchase, as well as the storage costs.
For investors who are a bit more aggressive, futures and options will certainly do the trick. But, buyers should beware: these investments are derivatives of gold's price and can see sharp moves up and down, especially when done on margin. On the other hand, futures are probably the most efficient way to invest in gold, except for the fact that contracts must be rolled over periodically as they expire.
The idea that jewelry is an investment is quaint, but naive. There is too much of a spread between the price of most jewelry and its gold value for it to be considered a true investment. Instead, the average gold investor should consider gold oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.
Divergence and Gold/Silver Ratio
Divergence and Gold/Silver Ratio
Gold and silver both started surging in January, but silver less so. Silver has also dropped in late February, while gold has held near its 2016 high. This is called divergence. There are a couple reasons for divergence between the movement of gold and silver prices. One is the gold/silver ratio, a method traders use to assess the value of one metal to the other. Another reason for the divergence may be more fundamental, involving the demand and applications of the metals of themselves.
Divergence and Gold/Silver Ratio
Gold and silver are thought to move together, and often they do, as can be seen on figure 1. Figure 1 also shows periods where the Gold Trust (GLD) and Silver Trust (SLV) move in opposite directions, and periods where one metal outperforms the other.
Figure 1. Gold Trust (blue) Versus Silver Trust (red), Percentage Scale (right)
Gold versus silver, percentage performance
Gold is currently outperforming silver, surging higher, and staying higher, while silver has surged less and has fallen off its recent highs. Such discrepancies occur, and are monitored by the gold/silver ratio. The gold/silver ratio shows how many ounces of silver it takes to buy an ounce of gold. Since 1975 the average is near 60; right now it stands near 83 ($1258 divided by $15.17).
Figure 2. Gold and Silver Price Ratio
Gold and silver price ratio
While gold out-performance--or silver's under-performance relative to gold--is very noticeable in early 2016, this has actually been going on for a long time. Figure 2 shows that gold prices have risen relative to silver prices quite steadily for years. This is mainly due to silver price weakness since peaking near $50 in 2011 (when silver outperformed gold).
Going back to 1995 the ratio has typically topped out near 80 and then reversed. This indicates silver may start to see greater strength (relative to gold) in the coming months, possibly catching up to and overtaking gold in terms of percentage performance.
Gold and silver do diverge, but why is it so pronounced right now?
Metal Uses, Demand and Supply
Gold and silver are traded markets. There is a multi-year trend where gold has outperformed silver. As with any market, sometimes extremes need to be reached before a reversal. The gold/silver ratio near 80 is reaching one of those extremes now.
Traders are emotional; they pile into what looks good and avoid what isn't performing as well. Eventually though what is forgotten (silver) is bought up, and what was favored (gold) eventually falls out of favor. What is occurring in gold and silver is a pattern that plays out over and over in all markets.
Supply and demand also play a role though. One key driver of gold's strength has been central bank bank buying, which in 2015 was near its highest levels in decades. Silver is missing that key demand group, and could be part of the reason it's slumped relative to gold over the last several years (aside from the ebb and flow of the gold/silver ratio).
Figure 4. Central Bank Gold Buying in Metric Tonnes
Supply and demand for gold and silver are also related to economic and industrial output. Gold is primarily esthetic, as 50% of the gold purchased in 2015 was for jewelry. Approximately 38% was bought as investment or by central banks. Only 8% of gold is used in industrial processes, according to the World Gold Council's 2015 Gold Demand Trends report.
For silver, industrial fabrication consumes more than 50% of silver supply, jewelry uses up 28% and investment consumes about 20%, according to the Silver Institute's 2015 report.
The chart and numbers show that investors and central banks tend to favor gold over silver right now. That could change though if investment in silver starts to creep up. A lot of industries require silver, and but have much less need for gold. When investor demand for silver creeps up that squeezes the supply, and the big industrial players are forced to buy at higher prices, helping to fuel more people into the silver investment as prices rise. This sort of process increases silver demand relative to gold, and the gold/silver ratios starts its multi-year trek back the other way.
The Bottom Line
The divergence in gold and silver prices are not anything new. The fluctuations between the two metals are tracked using the gold/silver ratio, which is currently near extreme levels. Near extremes, and possible reversal points, market participants often see the wildest swings. This could be why the spread between gold and silver performance is so pronounced in 2016.
Right now, investment in silver is steady, but not high. Since silver is used so much in industrial processes, any increase in investment demand has a magnified impact since the large industrial players have to buy no matter what. It all comes down to supply and demand. Right now demand favors gold, but if the gold/silver starts to slip lower market participants are showing that silver is becoming more favorable again.
Gold is highly misunderstood. Conventional wisdom says that it's a safe hedge against a bear market. However, this would only be true if there are inflationary pressures. It would be difficult to find inflationary pressures right now, and they’re not hiding under a rock and waiting to shout “surprise!” at some point in the near future. In other words, there is no rampant inflation in a low-wage, slow-growth economy. It’s not even a remote possibility.
Global Debt
The world is awash in debt. According to National Debt Clock.org, that total is $60 trillion. However, the real total is likely to be much higher. In the United States alone, government debt is north of $18 trillion and private debt is estimated to be approximately $45 trillion. Even if that estimate is high, if you look at data from the Bureau of Economic for 2014, you will see that private debt was at an all-time high and that it has likely increased since that time. (For more, see also: What Drives the Price of Gold.)
Interestingly, Japan’s private debt was at an all-time high in 1989, just prior to its infamous crash. What followed in Japan? Deflation. A similar pattern will take place in the United States. As massive deleveraging occurs, deflation will reign supreme. This will take down equities, lead to more defaults in the high-yield bond market, bring oil down even further than it is now, and send gold below $1,000 an ounce – likely much lower at some point over the next 1-3 years.
Short-Term vs. Long-Term
Here’s the tricky part. When markets begin to crater, investors rush to gold, which should send gold higher in the short term. This could make for a good trade, but you would need to have impeccable timing. When the rush of buyers cease and deflation is upon us, the U.S. dollar will continue to appreciate due to deleveraging and gold will begin its descent. If you don’t believe in this theory, then consider going back in time to witness a similar pattern. (For more, see: The Best Ways to Invest in Gold Without Holding It.)
Stoking Inflation
When the financial crisis hit in 2008, gold actually performed poorly. That’s because we had a short stint of deflation. When the Federal Reserve stepped in, it was to prevent deflation and stoke inflation, which then led to a bull market in precious metals. This bull run peaked in mid-2011. Over the past two years, gold hasn’t performed well because the Federal Reserve hasn’t been able to drive inflation like it had in the past.
None of this information factors in China – the second-largest economy in the world – where total debt to gross domestic product (GDP) is above 280%. Deleveraging will need to occur here as well, and deleveraging is deflationary. (For more, see: China's GDP Examined: A Service-Sector Surge.)
No Kryptonite for Deflation
If you want the simplest version: Gold did not perform well during the last deflationary crisis until the Federal Reserve brought out its economic bazooka. All the Federal Reserve did was prolong the inevitable and allow for debt-fueled growth, which has led to a bigger problem. Deflation will eventually win. It always does.
Trading Opportunities
If you’re looking for a gold trade on the long side, or if you don’t believe in this theory and you think gold will continue to appreciate during the next crisis, then the most liquid way to do so is with the SPDR Gold Shares (GLD) exchange-traded-fund (ETF). (For more, see: GLD vs. IAU: Which Gold ETF is Better?)
Key metrics for GLD:
Purpose: Tracks the price of gold bullion.
Net Assets: $23.75 billion
Volume: 5,690,160
Expense Ratio: 0.39%
Price on Feb. 1, 2008: $96.18 (pre-crisis)
Price on Oct. 1, 2008: $71.34 (midst of crisis)
Price on July 1, 2011: $177.72 (well after accommodative Federal Reserve policies)
If you’re looking for a trade on the short side and you don’t want to use margin while seeking liquidity, then look at the DB Gold Double Short exchange-traded note (ETN) (DZZ). (For more, see: Defend Against Deflation With Gold Short ETFs.)
Key metrics for DZZ:
Purpose: Tracks 2x the inverse performance of the Deutsche Bank Index – Optimum Yield Gold Excess Return.
Price on July 7, 2008: $24.55 (pre-crisis)
Price on Oct. 27, 2008: $39.52 (midst of crisis)
Price on Feb. 16, 2009: $18.99 (well after first Federal Reserve quantitative easing announcement)
Over the past year, GLD has depreciated 16.59% and DZZ has appreciated 35.78%.
The Bottom Line
Is shorting gold the best trading opportunity out there at the moment? Absolutely not. There are a myriad of opportunities out there that won’t be nearly as stressful. Gold should see a tug-of-war, which means it should be left to professional traders. I think gold will end up lower than where it is now one year from now, but please do your own research prior to making any investment decisions. As a side note, I have been bearish on gold for years. But I do think there will be an exceptional buying opportunity several years from now, when organic growth and inflation return. (For more, see: Has Gold Been a Good Investment Over the Long Term?)
Gold and silver both started surging in January, but silver less so. Silver has also dropped in late February, while gold has held near its 2016 high. This is called divergence. There are a couple reasons for divergence between the movement of gold and silver prices. One is the gold/silver ratio, a method traders use to assess the value of one metal to the other. Another reason for the divergence may be more fundamental, involving the demand and applications of the metals of themselves.
Divergence and Gold/Silver Ratio
Gold and silver are thought to move together, and often they do, as can be seen on figure 1. Figure 1 also shows periods where the Gold Trust (GLD) and Silver Trust (SLV) move in opposite directions, and periods where one metal outperforms the other.
Figure 1. Gold Trust (blue) Versus Silver Trust (red), Percentage Scale (right)
Gold versus silver, percentage performance
Gold is currently outperforming silver, surging higher, and staying higher, while silver has surged less and has fallen off its recent highs. Such discrepancies occur, and are monitored by the gold/silver ratio. The gold/silver ratio shows how many ounces of silver it takes to buy an ounce of gold. Since 1975 the average is near 60; right now it stands near 83 ($1258 divided by $15.17).
Figure 2. Gold and Silver Price Ratio
Gold and silver price ratio
While gold out-performance--or silver's under-performance relative to gold--is very noticeable in early 2016, this has actually been going on for a long time. Figure 2 shows that gold prices have risen relative to silver prices quite steadily for years. This is mainly due to silver price weakness since peaking near $50 in 2011 (when silver outperformed gold).
Going back to 1995 the ratio has typically topped out near 80 and then reversed. This indicates silver may start to see greater strength (relative to gold) in the coming months, possibly catching up to and overtaking gold in terms of percentage performance.
Gold and silver do diverge, but why is it so pronounced right now?
Metal Uses, Demand and Supply
Gold and silver are traded markets. There is a multi-year trend where gold has outperformed silver. As with any market, sometimes extremes need to be reached before a reversal. The gold/silver ratio near 80 is reaching one of those extremes now.
Traders are emotional; they pile into what looks good and avoid what isn't performing as well. Eventually though what is forgotten (silver) is bought up, and what was favored (gold) eventually falls out of favor. What is occurring in gold and silver is a pattern that plays out over and over in all markets.
Supply and demand also play a role though. One key driver of gold's strength has been central bank bank buying, which in 2015 was near its highest levels in decades. Silver is missing that key demand group, and could be part of the reason it's slumped relative to gold over the last several years (aside from the ebb and flow of the gold/silver ratio).
Figure 4. Central Bank Gold Buying in Metric Tonnes
Supply and demand for gold and silver are also related to economic and industrial output. Gold is primarily esthetic, as 50% of the gold purchased in 2015 was for jewelry. Approximately 38% was bought as investment or by central banks. Only 8% of gold is used in industrial processes, according to the World Gold Council's 2015 Gold Demand Trends report.
For silver, industrial fabrication consumes more than 50% of silver supply, jewelry uses up 28% and investment consumes about 20%, according to the Silver Institute's 2015 report.
The chart and numbers show that investors and central banks tend to favor gold over silver right now. That could change though if investment in silver starts to creep up. A lot of industries require silver, and but have much less need for gold. When investor demand for silver creeps up that squeezes the supply, and the big industrial players are forced to buy at higher prices, helping to fuel more people into the silver investment as prices rise. This sort of process increases silver demand relative to gold, and the gold/silver ratios starts its multi-year trek back the other way.
The Bottom Line
The divergence in gold and silver prices are not anything new. The fluctuations between the two metals are tracked using the gold/silver ratio, which is currently near extreme levels. Near extremes, and possible reversal points, market participants often see the wildest swings. This could be why the spread between gold and silver performance is so pronounced in 2016.
Right now, investment in silver is steady, but not high. Since silver is used so much in industrial processes, any increase in investment demand has a magnified impact since the large industrial players have to buy no matter what. It all comes down to supply and demand. Right now demand favors gold, but if the gold/silver starts to slip lower market participants are showing that silver is becoming more favorable again.
Gold is highly misunderstood. Conventional wisdom says that it's a safe hedge against a bear market. However, this would only be true if there are inflationary pressures. It would be difficult to find inflationary pressures right now, and they’re not hiding under a rock and waiting to shout “surprise!” at some point in the near future. In other words, there is no rampant inflation in a low-wage, slow-growth economy. It’s not even a remote possibility.
Global Debt
The world is awash in debt. According to National Debt Clock.org, that total is $60 trillion. However, the real total is likely to be much higher. In the United States alone, government debt is north of $18 trillion and private debt is estimated to be approximately $45 trillion. Even if that estimate is high, if you look at data from the Bureau of Economic for 2014, you will see that private debt was at an all-time high and that it has likely increased since that time. (For more, see also: What Drives the Price of Gold.)
Interestingly, Japan’s private debt was at an all-time high in 1989, just prior to its infamous crash. What followed in Japan? Deflation. A similar pattern will take place in the United States. As massive deleveraging occurs, deflation will reign supreme. This will take down equities, lead to more defaults in the high-yield bond market, bring oil down even further than it is now, and send gold below $1,000 an ounce – likely much lower at some point over the next 1-3 years.
Short-Term vs. Long-Term
Here’s the tricky part. When markets begin to crater, investors rush to gold, which should send gold higher in the short term. This could make for a good trade, but you would need to have impeccable timing. When the rush of buyers cease and deflation is upon us, the U.S. dollar will continue to appreciate due to deleveraging and gold will begin its descent. If you don’t believe in this theory, then consider going back in time to witness a similar pattern. (For more, see: The Best Ways to Invest in Gold Without Holding It.)
Stoking Inflation
When the financial crisis hit in 2008, gold actually performed poorly. That’s because we had a short stint of deflation. When the Federal Reserve stepped in, it was to prevent deflation and stoke inflation, which then led to a bull market in precious metals. This bull run peaked in mid-2011. Over the past two years, gold hasn’t performed well because the Federal Reserve hasn’t been able to drive inflation like it had in the past.
None of this information factors in China – the second-largest economy in the world – where total debt to gross domestic product (GDP) is above 280%. Deleveraging will need to occur here as well, and deleveraging is deflationary. (For more, see: China's GDP Examined: A Service-Sector Surge.)
No Kryptonite for Deflation
If you want the simplest version: Gold did not perform well during the last deflationary crisis until the Federal Reserve brought out its economic bazooka. All the Federal Reserve did was prolong the inevitable and allow for debt-fueled growth, which has led to a bigger problem. Deflation will eventually win. It always does.
Trading Opportunities
If you’re looking for a gold trade on the long side, or if you don’t believe in this theory and you think gold will continue to appreciate during the next crisis, then the most liquid way to do so is with the SPDR Gold Shares (GLD) exchange-traded-fund (ETF). (For more, see: GLD vs. IAU: Which Gold ETF is Better?)
Key metrics for GLD:
Purpose: Tracks the price of gold bullion.
Net Assets: $23.75 billion
Volume: 5,690,160
Expense Ratio: 0.39%
Price on Feb. 1, 2008: $96.18 (pre-crisis)
Price on Oct. 1, 2008: $71.34 (midst of crisis)
Price on July 1, 2011: $177.72 (well after accommodative Federal Reserve policies)
If you’re looking for a trade on the short side and you don’t want to use margin while seeking liquidity, then look at the DB Gold Double Short exchange-traded note (ETN) (DZZ). (For more, see: Defend Against Deflation With Gold Short ETFs.)
Key metrics for DZZ:
Purpose: Tracks 2x the inverse performance of the Deutsche Bank Index – Optimum Yield Gold Excess Return.
Price on July 7, 2008: $24.55 (pre-crisis)
Price on Oct. 27, 2008: $39.52 (midst of crisis)
Price on Feb. 16, 2009: $18.99 (well after first Federal Reserve quantitative easing announcement)
Over the past year, GLD has depreciated 16.59% and DZZ has appreciated 35.78%.
The Bottom Line
Is shorting gold the best trading opportunity out there at the moment? Absolutely not. There are a myriad of opportunities out there that won’t be nearly as stressful. Gold should see a tug-of-war, which means it should be left to professional traders. I think gold will end up lower than where it is now one year from now, but please do your own research prior to making any investment decisions. As a side note, I have been bearish on gold for years. But I do think there will be an exceptional buying opportunity several years from now, when organic growth and inflation return. (For more, see: Has Gold Been a Good Investment Over the Long Term?)
The concept of the quantity theory of money (QTM)
The concept of the quantity theory of money (QTM) began in the 16th century. As gold and silver inflows from the Americas into Europe were being minted into coins, there was a resulting rise in inflation. This led economist Henry Thornton in 1802 to assume that more money equals more inflation and that an increase in money supply does not necessarily mean an increase in economic output. Here we look at the assumptions and calculations underlying the QTM, as well as its relationship to monetarism and ways the theory has been challenged.
QTM in a Nutshell
The quantity theory of money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to QTM, if the amount of money in an economy doubles, price levels also double, causing inflation (the percentage rate at which the level of prices is rising in an economy). The consumer therefore pays twice as much for the same amount of the good or service.
Another way to understand this theory is to recognize that money is like any other commodity: increases in its supply decrease marginal value (the buying capacity of one unit of currency). So an increase in money supply causes prices to rise (inflation) as they compensate for the decrease in money's marginal value.
The Theory's Calculations
In its simplest form, the theory is expressed as:
MV = PT (the Fisher Equation)
Each variable denotes the following:
M = Money Supply
V = Velocity of Circulation (the number of times money changes hands)
P = Average Price Level
T = Volume of Transactions of Goods and Services
The original theory was considered orthodox among 17th century classical economists and was overhauled by 20th-century economists Irving Fisher, who formulated the above equation, and Milton Friedman. (For more on this important economist, see Free Market Maven: Milton Friedman.)
It is built on the principle of "equation of exchange":
Amount of Money x Velocity of Circulation = Total Spending
Thus if an economy has US$3, and those $3 were spent five times in a month, total spending for the month would be $15.
QTM Assumptions
QTM adds assumptions to the logic of the equation of exchange. In its most basic form, the theory assumes that V (velocity of circulation) and T (volume of transactions) are constant in the short term. These assumptions, however, have been criticized, particularly the assumption that V is constant. The arguments point out that the velocity of circulation depends on consumer and business spending impulses, which cannot be constant.
The theory also assumes that the quantity of money, which is determined by outside forces, is the main influence of economic activity in a society. A change in money supply results in changes in price levels and/or a change in supply of goods and services. It is primarily these changes in money stock that cause a change in spending. And the velocity of circulation depends not on the amount of money available or on the current price level but on changes in price levels.
Finally, the number of transactions (T) is determined by labor, capital, natural resources (i.e. the factors of production), knowledge and organization. The theory assumes an economy in equilibrium and at full employment.
Essentially, the theory's assumptions imply that the value of money is determined by the amount of money available in an economy. An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services.
Money Supply, Inflation and Monetarism
As QTM says that quantity of money determines the value of money, it forms the cornerstone of monetarism. (For more insight, see Monetarism: Printing Mone To Control Inflation.)
Monetarists say that a rapid increase in money supply leads to a rapid increase in inflation. Money growth that surpasses the growth of economic output results in inflation as there is too much money behind too little production of goods and services. In order to curb inflation, money growth must fall below growth in economic output.
This premise leads to how monetary policy is administered. Monetarists believe that money supply should be kept within an acceptable bandwidth so that levels of inflation can be controlled. Thus, for the near term, most monetarists agree that an increase in money supply can offer a quick-fix boost to a staggering economy in need of increased production. In the long term, however, the effects of monetary policy are still blurry.
Less orthodox monetarists, on the other hand, hold that an expanded money supply will not have any effect on real economic activity (production, employment levels, spending and so forth). But for most monetarists any anti-inflationary policy will stem from the basic concept that there should be a gradual reduction in the money supply. Monetarists believe that instead of governments continually adjusting economic policies (i.e. government spending and taxes), it is better to let non-inflationary policies (i.e. gradual reduction of money supply) lead an economy to full employment.
QTM Re-Experienced
John Maynard Keynes challenged the theory in the 1930s, saying that increases in money supply lead to a decrease in the velocity of circulation and that real income, the flow of money to the factors of production, increased. Therefore, velocity could change in response to changes in money supply. It was conceded by many economists after him that Keynes' idea was accurate.
QTM, as it is rooted in monetarism, was very popular in the 1980s among some major economies such as the United States and Great Britain under Ronald Reagan and Margaret Thatcher respectively. At the time, leaders tried to apply the principles of the theory to economies where money growth targets were set. However, as time went on, many accepted that strict adherence to a controlled money supply was not necessarily the cure-all for economic malaise.
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