How to Invest in Gold with Binary Options

BinaryOptionsNow | Published on August 10, 2011 at 9:53 am

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As you may know, binary options allow one to invest in commodities such as oil and gold by speculating on which direction the value of the asset will move, for example: up or down or within or without a certain range of values.

In wake of the current turmoil in the global financial markets, gold is currently one of the most exchanged assets on international markets. The question is: Is the Gold Rush over ?

Gold soared to a record $1,700 an ounce on Monday after Standard and Poor’s downgraded the US credit rating for the first time. With gold rising 30 percent this year and nearly 400 percent over the past decade, it’s reasonable to wonder when the gold fever might relent.

Recently, gold has been a hot commodity as investors seek a safe haven investment to turn to in order to escape the volatility elsewhere in the financial markets.

“People who weren’t talking about it even six months ago are heavily interested in gold today,” says Frank Trotter, president of EverBank Direct in Jacksonville, Florida, which holds nearly $500 million worth of precious metals in the form of hard assets for clients.

Gold purchases leaped to more than 18 million ounces over the past month — from 8.4 million for the entire year up to July, according to data from the Commodity Futures Trading Commission.

People are betting gold will come through the present debt crisis shining. In the depths of the 2008 financial crisis, gold dropped by 20 percent — but the metal was hurt as the US dollar became the safe haven of choice. In the debt showdown this year, the dollar has suffered and gold leaped.

The Bullish Case

Financial adviser Jeffrey Sica of Sica Wealth Management in Morristown, New Jersey, says it’s not too late to profit from the gold fever — he sees 20 to 25 percent upside in the glittery stuff.

“What we are seeing is the tip of the iceberg in terms of the downgrade,” says Sica, a self-described stock market bear who forecast Standard & Poor’s downgrade in a blog post to clients back in March. He said gold’s value has grown due to central banks’ inability to contain the debt crisis.

“The fundamentals to invest in gold have not changed,” argues William Rhind, managing director of ETF Securities, which manages $4.2 billion in exchange-traded fund assets. “The only thing that has changed is that the investment case is stronger – the world’s best credit, the US government – has been downgraded. It’s no longer as safe as it was.”

Nor is gold overvalued at these levels, Rhind said, since it hit $873 in 1980. Adjusted for inflation, the equivalent would be just over $2,391 today. That’s about the level JP Morgan Chase told clients the spot gold prices could hit this year. It said in a note $2,500 per ounce is possible.

Others are Skeptical

Among doubters, though, are people like Pat Dorsey, Morningstar’s former director of equity research and now vice chairman of Sanibel Captiva Trust Company, which has $500 million under management.

“I’ve never been a fan of gold. I am in the camp of that thinks it generates no income and has no utility (like copper), so the valuation is based on the opinions of other people,” Dorsey says.

Others cite its volatility as a negative factor, since the gold price is affected by fast-money traders lured by the leverage of commodities contracts. The price can tumble just as quickly as it rises. Still, even some conservative managers recommend a small allocation in gold as part of a balanced portfolio. EverBank’s Trotter puts his own account at 5 percent to 10 percent.

Source: Reuters

HOW TO INVEST

If you want to invest in commodities and, more specifically, in Gold, our advice is to compare option brokers and decide which is the best for you. If you want to practice before investing real money, then you should open a Free Demo Account first.

  • For a beginner, OptionBit.com is a good place to start: Their selection of assets is rather limited compared to many other trading platforms, but they make up for it with high returns and three types of binary options: Above/Below, Range and Touch options.
  • For a more experienced trader, OptionFair.com is a good fit because of  their high payouts and sophisticated trading platform. Indeed, this option broker offers one of the highest – if not the highest – payouts in the business, at 85% of your investment. OptionFair also offers a 10% refund on losses.

 

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