A Golden Choice - GLD Exchange Traded Fund vs Gold Futures - Investing Shortcuts

A Golden Choice – GLD Exchange Traded Fund vs Gold Futures

Beyond the bullion itself, gold can be controlled by buying or selling a gold (GLD) exchange traded fund or a futures contract.

Both investment vehicles will closely follow the cash spot price of gold but differ in a few ways. First, the GLD ETF acts like a stock and therefore had limited trading hours. GLD represents 1/10th of an ounce of gold, so a $110 price is equivalent to $1100 an ounce.   It is also prone to gap up or down movements when it restarts daily.  That translates into less efficient risk control for traders of GLD.

A Gold futures contract on the other hand, trades nearly 24 hours a day to adjust to global factors. As with other futures, the deposit is often just five to ten percent of the contract value. For example, buying 100 ounces of gold only requires a deposit of $4000. That’s a leverage of 25 to 1 if your $1100 purchase yields a value of $110,000.

The powerful payoff in futures is balanced by risk. If the position goes against you, more funds are required to maintain the required deposit. or example, a $10 move in gold futures would mean a $1000 gain or loss a futures contract. Long term staying power is challenged because small dollar moves are amplified both for and against you in futures contracts.

To decide which method is right for you, figure out what time frame you want to invest for. A long term position more suited to ride through ups and downs may find an ETF ideal. The more speculative short term directional attack benefits from the powerful payoff in futures, since it can make or lose money quicker.

The Gold futures contracts offer the best payoff with the increased leverage while the more modest profit/ loss swings in GLD are more forgiving to play a longer term trend.

The choice of how to play GOLD should be largely determined by your outlook and risk tolerance.  If prices move in a straight line you will want the performance of Gold Futures. While a slow but steady trend may benefit from the staying power of GLD ETF.


Alan Knuckman

Author Alan Knuckman

Alan Knuckman is the Founder and Chief Market Strategist for www.BullsEyeOption.com a subscription trading service for his inner circle members. He has over 25 years of market experience that began in the pits of the Chicago Board of Trade as a runner and progressed to a Treasury Bond speculator. Each trading day Alan is the video host of the Morning Market Stir from the CME Group and the Pre Market Pulse on CBOEtv. He is also a frequent financial commentator appearing on television regularly with CNBC, CNN, Bloomberg, and Fox Business Network.

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