How to Track the Gold Price
Gold has become a very hot item in recent years. More people have learned of the stability and ease in which they can invest some of their funds into various forms of gold.
However, there is a fundamental question that needs to be analysed before undertaking any type of investment; how do you track the price of gold? After all, gold is not a stock it is a precious metal.
There are two basic ways for tracking the price of gold and making decisions on when to buy and when to sell.
The first method is to look at gold in the commodities section of the futures market. The futures market is an investment arena similar to the stock market and bond market. Most financial papers and online sites that carry stock market data will likely have a place for the commodities. The futures market usually deals with options.
Options are a way in which people can pay a small sum of money for the opportunity to buy something at a set price. For example, someone buys an option for gold priced at $80. This means that the person has the right to buy gold for $80 per troy ounce up until the option expires.
How does this help the investor? Suppose the option expires November 1st. The investor checks the gold price ticker symbol daily and on October 25th he sees that gold has jumped to $88 per troy ounce. This would allow the investor to buy at $80 and sell at $88 and make a tidy profit. The futures market is trying to project what the price will be by gauging the input from buyers.
The second way to monitor gold price is through the use of the spot price. This refers to the price of gold right now. The London Gold Fixing determines the spot price. This is done through the time honoured tradition of five daily phone calls from the world’s five largest gold suppliers.
When a call comes in and places a price it is called a “fix.” When investors agree to buy gold they agree to pay the price of the upcoming fix. This means that deals are agreed to without knowing the full price. When the fix comes in too high at the beginning of the day, people are generally reluctant to purchase. This means when the next fix comes in the price will be set lower in order to attract buyers.
The Gold Fix
However, the suppliers have to be careful not to move the price too low as to avoid a loss. At the same time, when the fix comes in really low a lot of buyers start making deals. So the next fix usually adjusts accordingly upward to try and profit on the surge in deals.
Without a doubt this is definitely a balancing act that must be monitored very closely for some time in order to get a real good feel for the process.
Tracking the price of gold is key to developing a strong portfolio and making sure that financial goals are also met.