Those interested in Gold Trading watched intently as the price of gold reached an all time record high,at that time, of $1,546.50 on May 3, 2011 (It has since gone higher.) Shortly, after that, on May 26, 2011, the breaking news story published by Futures and Commodity Market News said that the price of gold was likely to fall due to the effect of the fears related to the Greek debt. Spot gold prices at NY close stood at $1,525.32. Analysts at Futures and Commodity Market News added, however, that the drop in prices might possibly have represented a pause before moving higher, rather than being a signal of an oncoming reversal.

This is the kind of information that can be confusing for a layman wanting to enter the world of gold trading. This is also the kind of information that a gold trading company can use to its benefit to guide its clients on when to buy or sell. Therefore, if you are new at gold trading or are thinking of venturing into this domain, consider hiring the services of a reputable gold trading company and read on to gain some insight into the common traps that people tend to fall into.

Common Mistakes in Gold Trading

Like any other commodity or iten associated with the stock market, gold too can experience price volatility, which can sometimes be confusing when an investor is looking to make a decision. Although using the services of an experienced gold trading company can be the best solution to such problems, it is wise to learn about the common mistakes, so that you can avoid them.

1. Peer pressure – Many people get unduly influenced when there is a huge rise or dip in prices or when they see what other traders are doing. Do not get taken in by any trading frenzy. Identify the time line of your investment and remember the reasons why you acquired gold in the first place before you decide to trade.
2. Overpaying for gold – While investing in gold bullion, you should not pay more than 5% higher than the wholesale price. Coins are usually minted at a 4% markup and the retailer’s margin usually ranges from 1% to 5%. Premiums, however, can rise up to phenomenal rates of 75% or more.
3. Choosing the gold stock – Many analysts believe that gold stocks are a good investment because they offer a 3:1 leverage to the spot price of gold. The down side is that gold stocks tend to follow the stock market as opposed to following the spot peice of gold. While making a choice regarding the right gold stock can be a difficult one, the safest route is to choose gold stocks of companies that to have exhibited a good management team. Also, make sure their mines are in geopolitically safe regions, can produce gold cheaply, has strong reserve growth and their long-term inventories have a good correlation with the gold price. Investors also make the mistake of buying the wrong amount of stocks. Experts suggest that owning about 10 different gold stocks is a good idea. Experts usually also suggest that an investor diversify his portfolio with stocks, ETFs and physical gold, in the form of bullion or coins.
4. Owning Gold ETFs are a paper gold product – A few different gold ETFs in the US are, SPDR Gold Shares (GLD), iShares Comex gold Trust (IAU) and ETFS Physical Gold Shares (SGOL). However, what one needs to remember is that these funds hold the gold and issue shares. So, what an investor owns is the paper representation of the gold held by the fund and not physical gold.

Once you know where the pitfalls lie, it is easier to navigate the gold market. However, as a lay person, your best bet still is to enlist the services of a gold trading company that can guide you through the process of gold trading.