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Gold Trade Options


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Gold is a very valuable commodity. Used by jewelers and others it is resistant to corrosion, will conduct electricity, and is used in the high tech industry. Some of these users along with investors trade gold options. Obviously the users of the metal want the price to be stable or go down. They are hedging against a rise in prices so they can take delivery at a lower price.

On the other hand the investors or speculators taking the other side of the trade want the price to go up. It take two to tango. The investors in gold as a pure commodity are also hedging. They are hedging their bets that gold will go up as the dollar drifts lower and loses its value, what we call inflation. Gold to them is only valuable when the dollar is low or there is an inherent decay in the economy. They cannot eat the gold in times of starvation, but might bargain for items to keep them alive in such times. Most of this group buys gold in quantities and denominations that can be transported and kept close by.

The aforementioned trades can be made on the COMEX. Gold futures and gold options trading, will take place there and in other markets worldwide. Here they trade gold options trying to get the best deal for their purposes. You must buy a contract that you can take delivery or not take delivery of for 100 troy ounces per contract.

Now with gold stabilizing around $950 a troy ounce, it comes out to 100x $950 or almost $100.000 per contract. The contract is usually the closest month with the most activity, although there are contracts farther into the futures. The options aspect is your right to buy and sell. Gold contracts usually move in the opposite direction of the dollar and equities, but not necessarily.

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