Moving the trading industry online has opened it up to the world like never before, bringing countless assets closer to would-be investors and traders around the world. However, while all of these different assets are fully available, traders still view gold as one of the best investments they could possibly make, even among other precious metals.
In New Zealand, like anywhere else, gold prices tend to fluctuate and change on a day-by-day basis. Investing in gold is considered safe due to its high value and relative stability in comparison to other assets. With that said, the value of gold changes as well, and making a profit by trading it depends on your strategy, familiarity with the market, and a fair bit of luck.
Why do people trade gold?
As you may know, gold trades on public exchanges and its price goes up or down based on supply and demand. However, its popularity comes from a number of reasons. It doesn't corrode, it comes in limited supply — once again, when compared to other resources that the world offers — and it is universally accepted. It has been one of humanity's most valued resources for thousands of years.
As for why it is traded, sometimes, the reason can be nothing but speculation. Others trade it to acquire physical gold and preserve the value of their funds in highly-volatile markets. Recently, we have seen a meltdown of the global economy due to the coronavirus outbreak, during which many investors went for safer assets than stocks and bonds. Gold was among the top ones.
It is also worth noting that gold investments do not earn you interest. However, in some situations, you may end up having to pay the cost of the physical asset's storage or even insurance. Because of that, traders should do their research and make sure that they understand all the extra costs that come with trading or investing in gold. But, with that out of the way, let's talk about how to invest in gold in NZ.
How to buy gold in New Zealand
When it comes to purchasing gold, there are a few different ways you can go about it. For example, you can choose to buy physical gold or paper gold. But, what's the difference?
When it comes to physical gold, you get to buy gold bullions, which is basically gold that comes in the form of a bar, coin, or ingot. In NZ, you can buy these either online or from gold dealers directly. However, this is where those extra costs come in, as you need to pay for safe transfer, insurance, or storage.
On the plus side, bullion gold is the safest way of investing in the gold market, as you get to own the physical asset. You can be its sole owner, and its price will never drop to $0, which is not something that can be said about any other asset out there. Not to mention the fact that gold is accepted anywhere in the world, and it is portable, unlike real estate.
The downsides, of course, include the fact that it can be stolen, and that securing it adequately can be quite costly. Also, when you are buying it, you need to pay a price premium.
Gold CFDs are another option, and also one that is typically a bit more flexible than others.
CFD, or Contract For Difference, is a very popular financial tool and a form of trading derivatives. CFDs are used for trading all kinds of products, including commodities, shares, forex, cryptocurrencies, and of course, gold.
Trading gold CFDs means that you get to speculate on the price of gold. If they believe that the price will increase going forward, traders go long. Alternatively, they go short if they expect that the price will go down in the near future. The profits that traders earn are the difference between buying and selling prices.
Now, the biggest advantage of CFDs is that they don't come with an expiration date. In other words, traders can opt to close their position at any time and realize profits or losses, depending on the position and the market situation.
Opposed to that, you have paper gold. This means investing in gold-mining companies. Typically, whenever the price of gold goes up, these companies see a major surge in profits, as well as their share price. As an investor, you gain from the growth of their share price, as well.
This is pretty much stock investing where you focus on companies that rely on gold, but since the price of these firms' stock relies on how gold behaves in the market, you can still consider it gold trading.
Naturally, if there is an asset with a volatile price, there are futures contracts for it. Naturally, that also includes gold.
For those who do not know, futures contracts are basically agreements to buy an underlying asset — in this case, gold — at some previously specified future date.
So, if you expect that the price of gold will change in the future, you use these contracts to basically take a bet on the price behavior of the asset.
Many people prefer this approach, as you don't actually have to own the commodity. That eliminates the cost of storage, insurance, and transport, and it all revolves around the price.
When it comes to futures exchanges, gold moves in small increments of $0.10. This is called a 'tick,' and it is the smallest movement that a futures contract can make. Your trading platform will help you calculate your potential profit or loss, but you first need to know the tick value of the contract itself.
Typically, a tick value for a standard contract is $10, although you can also use micro contracts, whose tick value is only $1. However, if you wish to know the exact amount to day trade gold futures contracts, that will likely vary from one broker to another.
Yet another way to trade gold is to go for Exchange Traded Funds (ETFs)- Basically, there is a trust that owns gold reserves, and its value depends on the price of gold. These trusts trade exactly like any other stock, with the minimum price movement being $0.01. What this means is that traders would make or lose $0.01 per share whenever the price moves by 1 penny.
However, it is worth noting that you typically have to go for the so-called 'lots,' which are blocks that contain 100 shares each. That way, if you hold 100 shares, and a price moves by 1 penny, you get to make or lose $1, depending on whether the price went up or down.
The only issue here is that day trading of ETFs or stocks usually requires quite a large minimum balance, around $25,000. However, most traders are expected to have even more than that, depending on how much income they wish to generate, and leverage that they get to work with.
Things to keep in mind when buying gold
Lastly, you also need to know where to buy or trade gold, and that can be a major factor when it comes to the success of your trading or the amount you get to earn by trading gold or investing in it.
You need to take several factors into consideration when picking your New Zealand dealer or broker. Things to include are the location of a physical dealer, but also online options if you wish to buy gold from online dealers.
You should also know where your dealer got their gold from, and whether it was produced and refined by a recognized, established manufacturer.
Premiums and commissions are also a thing that you should keep in mind, but also the delivery method and cost. Lastly, make sure to compare the price of gold to New Zealand's own gold prices. That way, you can ensure that no one will trick you by selling you gold at a much greater price than its market value.
As for brokers, you should also check to see if the companies you may be interested in are licensed and registered with the authorities. Keep in mind that there are plenty of scammers on the internet, trying to take advantage of people who have money and the desire to invest or trade, but not much experience in the field.
Always remember the golden rule — if the deal is too good to be true, it's likely a scam.
Trading gold is a great way to make a profit once you are familiar with how the market works. You can buy and sell physical gold, or you can go for gold futures, ETFs, and similar alternatives.
Gold has always been a popular thing to invest in, and even today, it still acts as a store of value, providing a safe haven for investors when they need to preserve their fortune during volatile times. Gold price is by no means perfectly stationary, but as far as the safety of investment goes, gold is pretty much the top asset out there.
Author: Ali Raza - A journalist, with experience in web journalism and marketing. Ali holds a master's degree in finance and writes extensively about the financial markets and fin-tech industries.