An Introduction to Trading Spot Gold
As we mentioned in “Why Trade Gold—Instead of Investing in Gold,” some of the best ways to trade gold are trading gold futures and gold options, or trading spot gold. In this article, we’ll provide an introduction to trading spot gold.
Trading gold futures and gold options are appealing ways to speculate on the price of gold or to hedge risk. But trading spot gold has the added benefit of bringing the U.S. dollar into the mix.
When you trade spot gold, you take a long or short position in gold at the same time that you take the opposite position in the U.S. dollar. (That, incidentally, is similar to the positions you would when trading forex pairs.)
Spot gold trades globally in an over-the-counter (OTC) market. The market is available 24 hours a day, from Sunday at 6:00 p.m. Eastern time until Friday at 5:00 p.m. Eastern time, making it ideal for traders around the world.
You can trade spot gold online via a number of forex trading sites. Prices fluctuate based on supply and demand (although the twice-daily gold fix in London helps set a reference point for prices). The price of gold in the spot gold market—called the “spot price”—is the price quoted for the spot gold, including delivery, to be paid two days following the date of the actual transaction. This day is called the settlement date. Settlement for spot gold is similar to forex settlement, which we talk about more in “How To Trade Spot Gold.”
The best time to trade is when European market hours overlap with New York market hours, which essentially amounts to four hours of morning trading for U.S. traders.
Note that you can also trade other commodities in addition to spot gold—including silver and oil—using online forex trading platforms. It works much the same way as trading spot gold: You take a long or short position in silver or oil at the same time that you take the opposite position in the U.S. dollar.
For more information about trading spot gold—including information about pricing—please see “How To Trade Spot Gold.”