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Trading Gold during the Sovereign Debt Crisis

The gold market is constantly hitting new highs. Yes after hitting the next high it may drop as much as $75 or even $100 but the metal soon finds its way again and looks to new highs.

No doubt the world will continue to buy gold but investors should beware the talk that it can only move in one direction.

There is a Sovereign Debt crisis surrounding Europe and not surprisingly investors are moving their funds out of risky asset and into ‘quality'. This flight-to-quality in the Government bond markets has seen the German Bund reaching new all time highs. UK Gilts and US Treasuries also experiencing massive rallies.

As Simon Denham of Capital Spreads commented, "Normally a flight-to-quality move by investors also boosts the gold futures market. During the Sovereign Debt crisis, bonds have done well but this has not translated into a flight to Gold as well".

All good investment websites and articles will tell you that when speculating on the financial markets you need to understand that there are risks. Whether you use spread bets, ETFs or simply trade shares, you can lose money.

But what options are there for those wanting a convenient, flexible investment option which also provides access to thousands of international markets as well as certain tax advantages*? For many UK, European and Australian investors the solution is spread betting.

As we have just seen, the risks are always something to bear in mind and before we proceed it should be pointed out that with spread trading and you can lose more than your initial stake.

There are a couple of other pointers which the following warning suggests you consider, ‘Spread betting carries a high level of risk. Ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks. Where necessary, seek independent advice'.

Nevertheless, the simple range of markets makes spread betting an investment option that is worth considering. Most spread betting companies offer thousands of international markets including shares, stock market indices, gold, silver, oil and even minor currency exchange rates.

There is wide range of benefits with spread betting including a variety of risk management tools. Other benefits include the fact that you are opening positions directly with a spread betting company so you don't pay broker's fees.

Also, unlike traditional share trading, you are able to sell a market. Financial spread betting offers you the option of trading in either direction. As a result, if you think that Gold will go up, you can spread bet on it to increase. Conversely, if your research makes you think that the price of gold will weaken then you can spread bet on it to fall.

Finally, don't forget the tax free advantage. You do not buy or sell any actual assets or rights; instead you are just spread betting on the future value of a market. Spread betting is not liable to stamp duty, capital gains or income tax (based on current UK and Irish tax law. Tax laws may vary if you live outside of the UK or Ireland and can vary from time to time).

About the Author

The writer is a veteran financial author offering strategic and tactical trading views on the spread betting markets.

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