Quick tips in trading gold ETFs
Quick tips in trading gold ETFs
Gold-backed ETFs offer two options to investors. People can either invest in the price of gold, or trade ETFs related to gold producers. One of the best things about ETFs is they don’t expire, unlike options and futures.
Another great thing about ETFs is that they’re very liquid. The reason for this is because they’re much cheaper compared to investing in the physical metal. Investment site BullionVault points out that the high price and upkeep of maintaining gold investments kept private investors out of the Good Delivery gold market. These two are the main reasons that led to the creation of ETFs in 2003.
Here are some tips on how to invest in them.
Investing in gold-backed ETFs
The SPDR Gold Trust (NYSE: GLD) and iShares Gold Trust (NYSE:IAU) are two of the most popular “trusts.” They’re commonly called ETFs, but they’re actually trusts that own actual gold (hence, the term gold-backed ETFs). ETFs, in reality, are investments that allow people to capitalize in tracking the price of gold.
Both SPDR and iShares Gold Trust are two of the most popular trusts in the world since they hold the most physical gold in the ETF market. SPDR has about 5 million, and iShares has around 2 million in shares. The volume of gold that SPDR has makes it very favorable for trading during the day. Since iShares have smaller holdings, it usually has smaller trading movements in gold’s dollar-denominated price.
When is the best time to do day trading with Gold Trusts and ETFs
Gold’s prices are highly volatile, which is another factor that makes ETFs very liquid. The more gold’s prices fluctuate, the better the opportunity to make a quick profit from ETFs.
Gold mining shares are more volatile than trusts. Historical data shows that when gold’s spot price increases, mining shares skyrocket and vice versa. When the prices of gold are hardly moving, mining shares offer a better opportunity in ETF day trading.
Trading expert Cory Mitchell has a good rule for trading ETFs. According to him, the best time to trade ETFs and trusts is when gold is swinging at least 2% of its current price. Apply a 14-day Average True Range (ATR) indicator to a gold chart, divide the ATR by the ETF of your choice’s price, and then multiply it by 100. If the product of the formula is not above 2, then it’s not a good day for trading ETFs since the price movements will be very little.
Remember, check out for fundamental factors that would affect the market. Fear and inflation are variables that affect gold prices. When the prices of gold are stationary, traders should take a break from ETF trading.
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