Posted July 22, 2011 at 2:17 am
by Brad Wajnman
Gold is often thought of as a hedge against inflation and a safe haven in times of crisis, but did you know that you can capitalize on gold’s short-term moves?
I’m not talking about speculating in small cap gold stocks or ETFs (Exchange-Traded Funds) that move in lockstep with the stock market. Their share prices are always at risk of dropping anytime the stock market tanks.
Instead, you can use a special kind of brokerage account that’s directly linked to the actual spot price of gold rather than equities.
But just having one of these accounts isn’t enough. You still need a proven strategy if you want to profit from gold in the short term.
A long-time industry contact of mine developed a super simple system that’s generated an average of 100% annual returns from gold since 2008. The system makes it easy for anyone to create cash-flow through speculating in gold and only requires a maximum of 5 minutes per day to maintain.
It was specifically created for busy ‘non-trader’ types who like to take an active role in their own investment decisions, but who don’t have the time or inclination to become a skilled trader.
One of the reasons this system has been able to outperform just about every exchange traded asset class that exists is because it uses a leveraged brokerage account.
When used properly, leverage has the power to magnify your upside potential and put more money in your pocket.
If you’re trading stocks for instance, the maximum leverage you’re allowed to use is 1:1.
This system on the other hand allows you to buy units of gold at 5:1 leverage.
This means that if you have a $10,000 account (or equivalent in another currency) then you can essentially control up to $50,000 worth of gold.
To understand how this works in real life, let’s compare two scenarios, starting with $10,000 in risk capital:
Scenario 1: You buy bullion at $1500/oz, but the price of gold drops to $1450/oz putting you behind on your initial outlay. The price later rises to $1650/oz and you sell your bullion.
You realize a 10% gain in dollar terms (less costs). At the time you sell, your dollar holdings have increased, but you can still only buy back the same amount of gold you just sold. So all you’ve really achieved in this scenario is a hedge against the devalued dollars.
Scenario 2: You open a leveraged brokerage account to buy bullion at $1,500/oz. The price of gold drops to $1,450/oz, but in this case, you use the broker’s money to buy another $10,000 worth of bullion. The price later rises to $1,650/oz and you sell the gold you first bought at $1,500/oz.
You realize a 10% gain in dollar terms (less costs) and you still have another $10,000 worth of gold that you paid only $1,450/oz for. That batch is also worth $1,650/oz, which works out to a $200 per ounce profit (or just shy of a 14% gain).
In both scenarios, you would have bagged a $1,000 profit, but with scenario 2, you would also own another 10+ oz’s of leveraged gold in your account.
Gold is like a barometer of confidence in the financial system – the more economic uncertainty, the higher the price of gold. Experts say the big moves in gold are still ahead for many years to come and as gold rises, you’ll be in a position to profit using this system.
Even if gold is the same price a year from now (which is unlikely), there’s still an opportunity to make a great return on your money due to the constant fluctuations in price.
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