Gold is usually the preferred asset of most traders whenever the market is on a bearish trend. In fact, it is considered as a safe haven asset during times of volatility and high inflation even on online investment platforms like eToro. Trading gold with eToro is possible in the form of CFDs or contracts for difference and it’s a very popular commodity that are followed by investors. But one question remains foremost on the mind of an average trader: just how do these stocks of gold reach the warehouses and gets exchanged?
How the COMEX work is very simple. Although still referred to in its original name, it was bought by the CME Group- the largest gold futures exchange in the world. Many commodities, one of which is gold, are traded in this exchange.
From Physical Gold to Warehouses
Gold makes its way to the warehouse via a lengthy process. It starts from either mining gold or recovering it from scrap jewelry or other products, such as gold coins and bars at a refinery. The CME Group upholds standards and specifications for the refiner to adhere to and then produces the gold bars.
These gold bars may be owned by the refiners themselves, or some may belong to the refiner’s customers who bought and owned the gold. These customers hire the very same refinery to make the yellow metal into saleable gold bars adhering to the CME standards.
From the refinery, the gold bars are then transported to the warehouses via carriers that were approved by the exchange. Some of the most notable carriers are IBI Armored Inc, Brinks Inc. and Via Mat International. Also, gold gets moved around between COMEX-approved warehouses only, such as those operated by Brinks Inc., HSBC or Scotia Mocatta Depository. There is no other way that gold is transported into the exchange other than the ones mentioned.
None can enter the gold market outside this refining loop. Once gold is removed from exchanged-approve warehouses, there is no way for the CME exchange to vouch for the bar’s quality and guarantee its integrity.
…and Now to Gold Futures
When the gold bars are brought into the exchange-approved warehouses, it becomes eligible for the exchange and warehouse receipts are created. At this time, the gold bars become registered stocks, meaning that this inventory exists and is set aside as backup against gold futures contracts.
Trading Gold with CFDs
With CFD (contracts for difference) trading, there is no physical settlement of stocks certificates as investors speculate on gold prices. What’s important is that the number of physical gold in the exchange can affect the price of gold. Although extremely volatile, it offers high price variants in a relatively short time. According to research, gold prices fluctuate at an average of 30%, which provides a profitable system to investors. It is the best time to trade gold via CFDs.
Responding to the volatile nature of gold involve adapting a trading strategy that will lead you to determine the right direction of gold prices. Take special interest in setting the appropriate strike price and date of expiration. Remember to consider the strike price to be within range and is not above the resistance point.