How to choose different gold markets to play?

bobcat

Let us compare three different instruments for gold play,

1. Gold mining stocks (stock market),
2. Gold futures (futures market),
3. Spot gold (FOREX market),

based on the following considerations.

(a)  Tax  
For 2 and 3, 60% of the gain is taxed as long term,
regardless your holding period and regardless you long or short.

(b)  Leverage.

The leverage of 2 or 3 is much higher than 1.

(c)  Cost

The cost of buying stocks may vary from person to person, account to account.
Thus I will not discuss about it.
The ask-bid spread for 3 is in general larger than 2, and since you always trade
against the dealer, you always "pay" the spread; but there is no commission for the trade.
For 2, you pay a small commission. For the spread, since you do not trade against the dealer,
you may "gain" the spread, and therefore the cost of 2 in general is lower than that of 3.

(d) Trade or Hold (only for 2 and 3)
If you trade short term, because of what explained in (c) above, 2 is a better choice than 3
for lower trading cost. But if you plan to hold for a longer period of time, 3 is better
because you don't need to rollover to new contracts and therefore the cost is lower. In fact, my
own long play has always been 3.

(e) Interest
Most brokers nowadays don't pay interest for short proceeds.They pocket it themselves.
For 3, you get or pay an interest daily depending on your trading directions. However,
there is a small borrowing/lending spread charged by your broker against you.
For futures, the interest is built in and so there is no interest spread.

(f) Regulation Protection
Stock market is more regulated so that you are better protected for the failure of
the brokers or the clearing firms. Futures market is less regulated than stock market
but better regulated than Forex market.

(g) Correlation to the stock market (an important point)
I first make the assumption that you want to long gold regardless the stock market. Under this assumption,
if the stock market is strong, 1 has advantage because the gold mining stocks are more likely
to go up with the stock market. If the stock market is weak, 2 or 3 is a better choice.


You may also consider gold ETFs (for mining stocks or for gold commodity) for convenience.

xnz

thanks!

wnd4

thanks

coexist

谢谢

lwjnbtx

Thanks!

bobcat

The symbol for gold spot in FOREX is XAU/USD.