Gold Traders, Gold Investors and Gold Collectors

There are three types of individuals involved in today’s diversified gold market: gold traders, gold investors and gold collectors.

Ironically, gold collectors are probably the most successful of the three at making a profit.

We will explain why that is so in this article.

Gold Traders

Gold traders are individuals who buy and sell gold futures contracts. The gold futures market is a very volatile market but it is one in which individuals can participate to take advantage of price swings in gold.

Traders do not participate in the gold market for safety and security purposes. They strictly look to earn a profit—quickly. Many "play" both sides of the market, hoping to score big when the price goes up, or when the price goes down. The leverage involved in futures contracts ensures that the opportunity for big profits is there.

But that same leverage also ensures that the threat of losing your entire investment looms close by as well. And those losses can come just as rapidly as the sought-after profits.

Gold Investors

Gold investors have a very different motivation as compared to gold traders. They usually take a longer-term perspective and very often their motivation has less to do with making profits and more to do with preservation of capital.

As Will Rogers once said,"I am less interested in the return on my money as I am in the return of my money."

These investors buy gold as a financial insurance policy, hoping that they actually never have to use it for that purpose. Gold has provided people with a safe haven during tough times and crisis for literally thousands of years. Nobody wishes for tough times, but we all need to be prepared. That is why investors keep gold on hand. Gold is that asset of last resort to provide instant liquidity when financial assets are failing us.

But, what if the price of gold soars higher? What does the gold investor do in that circumstance? Most gold investors do have some level of profit motive behind their investment in gold. Should gold move sharply higher, they will liquidate a portion—or perhaps even all—of their gold holdings and reap the rewards.

Now, the profit potential for gold in this instance is not comparable to the profits generated by a highly leveraged futures contract, but the risk of loss is not comparable either.

Someone trading gold futures contracts risks losing his or her entire initial investment. Physical gold, on the other hand, has never been worthless.

Finally, we come to the gold collector.

Gold Collectors

The gold collector is an individual who collects rare gold coins. But in the modern era, the line between collector and investor has become quite blurred.

Some collectors start off as investors and develop a collector interest over time. Other collectors start off with a strict collector motivation but develop an investor interest over time as they see the value of their rare gold coin collection rising.

The reason that collectors develop an investment motive and investors start to think like collectors is because coin collectors have often earned the most handsome long-term profits of all rare coin buyers.

This is because collectors have a reason for every coin that they buy. Their collections are far more than just a pile of rare coins, they are carefully created entities in and of themselves and their value is usually greater than the sum of their parts.

When a collector adds a gold coin to his collection, he does so with the intention of enhancing the value of the gold coins he already owns.

Over the long-term, this has proven to be one of the most successful ways to earn profits from gold.

For example, two notable collectors that have realized extreme profits for their collections are Harold Bareford who amassed a collection for $13,832 in the 1950’s and sold it at auction for $1.2 million in 1978, and Louis Eliasberg who built his collection for $300,000 and sold it for $12.4 million at auction in 1982. This is why it is believed that those individuals that build carefully, collections with quality and rarity, can achieve profits more substantial than anyone else.