Put or Call Options on Gold – The Intelligent Guide to Trading

Gold is the world’s premier safe-haven asset. It is the one commodity that everybody flocks to when equities sour. It shines brightest when geopolitical uncertainty and economic turbulence is most volatile. For many investors, gold is an indispensable component of their financial portfolio. In fact, financial analysts are of the opinion that up to 20% accommodation should be made for gold. The problem with the financial markets is that stocks go up and down with little or no prior warning. Economic analysis typically acts as a barometer of likely movement, but the stock market itself is as volatile and unpredictable as the variables that constitute it. The reason for this is simple: stock markets are a gamble.

Gold Meets the International Standard

The factors that affect gold are national and international in nature, and sometimes they are caused by acts of God. Investing is a long-term strategy that is geared towards generating returns in excess of the original investment.

Naturally, the real-money returns must be greater than the nominal value thereof. What’s great about gold is that it is one of those commodities that is limited in quantity. There is only so much gold in the world, and the more we consume the rarer it becomes. Gold has multiple applications in everyday life from jewellery to electronics, store of value and the like. While gold stocks are volatile and typically tank over the long-term, physical gold stores or GLD are valuable additions to a financial portfolio.

Interest rates, gold and the greenback

With inflation adjustments in play, stocks have proven to be a winner over time, but there are no guarantees. The dramatic swings that take place in the stock market necessitates safeguards. These come in the form of a diversified portfolio of assets. The portfolio should include bonds, stocks, gold, cash and other fixed-interest-bearing investments. Modern-day inclusions in a financial portfolio encompass CFDs, and nonconventional options like binary options trading. The latter option is interesting in that you don’t need to take ‘ownership’ of an asset to profit off it. You can simply speculate on price movements in gold bullion. Portfolios should be protected with a mix of speculative stocks, high yield stocks and growth stocks. Other options include geographical stock and gold. The benefit of gold in a financial portfolio is that it acts as insurance against degradation of equities, currency holdings and economic downturns.

Gold is inversely correlated with the strength of the USD. As the dollar rises, the price of gold becomes relatively more expensive to foreign buyers. This decreases the demand for gold bullion and eventually adds downward pressure to the price of the metal. In much the same way, interest rates are inversely correlated with gold. When rates rise in the US, the dollar strengthens and the demand for gold declines. The analogy between owning insurance policies that pay out fixed amounts with fixed premiums and owning gold is all too common. If gold doesn’t appreciate, and retains its store of value status, that is sufficient to hold onto it.

How has gold performed over time?

When investors or traders dabble in gold, it is not necessarily physical gold bullion that is traded. Gold can be traded directly or indirectly. Several options are available in gold coins, gold exchange traded funds (ETF), gold stocks, and futures markets. Over the past 16 years, gold has performed solidly. It has gained 390.89% or $1037.80 per ounce. Over the past 5 years, gold has declined by 27.23%, owing to the bullish performance of Wall Street indices. Over the past 1 year, gold has been exceptionally bullish with gains of 19.80%, or $215.40 per ounce. As we narrow the timeframe to 6 months, gold has appreciated by 2.98% – approximately on par with the S&P 500 index, with gains of $37.70 per ounce.

Over the past month, gold has appreciated by 3.64%, or $45.80 per ounce. Currently, the gold price is $1,276.09 per ounce, down 0.17% or $2.21. Gold shines when markets are in turmoil. We saw a spike in the price of gold in the lead up to the Brexit referendum on Thursday, June 23, 2016. Likewise, demand for gold rose as Donald Trump’s poll numbers started to increase with the Hillary Clinton email saga. The political and economic fortunes of global superpowers have a direct impact on the price of precious metals like gold bullion. The percentage annual change in the gold price in US dollars in 2016 is 22.9% for the year-to-date. This is the first year since 2012 that gold has generated a positive annual percentage change. Since 2001 however, the cumulative total return on gold is 380.7%.