When I invest in gold, I buy gold coins and gold mining stocks. That’s pretty much it. Nearly every day, I’m approached by investors who read this blog and are curious why I don’t talk more about gold futures — so this is my response to them, published publicly for your benefit.
Gold futures trading is fun, I’ll admit. It’s exciting, I’ll concede. Doing good can cause my ego to swell like crazy, of course. But I don’t trade gold futures contracts, and there are several reasons why.
Let’s start with the most important:
Gold Futures Trading is Too Risky. I hate to sound like a boring party pooper here, but people lose their shirts when day trading. Futures trading in general is outrageously risky, because if you time the market wrong, or short gold when you should be going long, well, you just lost your shirt. For anyone but a brilliant, seasoned investor, this is financial suicide.
Gold Futures Trading Has No Dividend. I like dividend investing a whole lot. Like a whole lot. Dividend investing is a great way to get a steady income for life from a one-time investment. Investing in dividends is my security and retirement plan, and gold futures don’t have that built in.
Gold Futures Trading Is Too Volatile. This sounds like it’s the same as the risky reason listed above, but it’s at least a little bit different. When you’re investing in gold, you know that there are tons of variables in what makes up the price of gold. But gold futures are a little different — there’s less stability, there’s more speculation on future demand rather than observation on current demand, etc. If trading gold is volatile, then trading gold futures is even worse.
Gold Futures Trading Isn’t Physical. This is going to get some people to call me a paranoid old man, but I like to be able to go out and touch my investments. You can go out and touch a mine, but you can’t readily go out and touch a gold futures trade. I’m not a “paper shuffler” investor, and prefer to invest in the real stuff that exists, especially stuff that produces other stuff (like mining stocks). Old fashioned or not, that’s how I am.
However, in the cause of providing a well-rounded education on all things related to gold and silver, I’ll still be providing future updates on gold futures, silver futures, commodities trading, and other related topics — stay tuned.
Tags: gold futures contracts, gold futures trading, gold trading, trade gold