A Guide to Buying Gold Online

For thousands of years, gold has served as one of the original stores of wealth and mediums of exchange. If you have some trading experience and think you want to trade gold online, keep in mind that the broker you select and the online trading platform you use can have a significant impact on your potential profits.  

Steps for How to Buy Gold Online

Buying gold is a straightforward process. Following these steps can help you acquire the precious metal and construct an investment strategy. 

Step 1: Define Your Goals

Have a basic trading or investment plan in mind and know why you want to operate in the gold market (or really any market).

Decide whether you want gold as economic insurance by physically possessing the metal, keeping it as a store of wealth or taking advantage of market moves to make profitable trades. This helps you determine the best way to invest in gold.

Physical Possession

If you plan to invest in gold as a hedge against volatility, as a store of wealth, as an inflation hedge and/or as an alternative form of hard currency, then taking possession of physical gold may be your best choice. It incurs 0 counterparty risk. You don't have to trust anyone to hold up their part of the deal.

There are two main downsides of physical possession. The first is that it's just a bit more difficult and you may have to pay extra for shipping and handling. The second is much more important for many investors. You wouldn't be able to hold the gold in a precious metals IRA, losing out on the tax benefits it provides. U.S. law requires gold (and silver, platinum and palladium) in IRAs to be stored at IRS-approved trustees or banks.

Gold ETFs and Securities

You can still buy and sell physical gold, but If you want to trade gold actively and are based in the United States, you might need to open a commodity account to trade gold futures and options. You can also use a stockbroking account to trade gold ETFs or gold mining company shares that have prices that tend to reflect changes in the value of gold.

Gold ETFs give investors diversified portfolios that consist of mining companies. Some ETFs give investors exposure to multiple precious metals, such as gold coins, silver bars, and others. Some gold ETFs give investors direct exposure to gold's face value. These ETFs trade in the stock market which means more liquidity and share price volatility. They are less complicated to buy and hold than physical gold since you do not have to worry about storage.

Build Wealth Over Time

U.S.-based brokers that offer trading in the gold market will often also let you trade in gold shares and ETFs. You can invest in gold by purchasing gold mining company shares or exchange-traded funds (ETFs) with good future prospects. This gives you a choice about how you prefer to trade in the market. Keep in mind that gold mining shares, in addition to reflecting movements in the price of gold, also have their own corporate dynamics and can be affected by general stock market moves.

Speculative Purposes

If you qualify, you can also trade gold purely for speculative purposes, which generally involves buying and selling gold futures on the Comex for U.S.-based gold traders. However, due to the Dodd-Frank Act, trading in leveraged and spot precious metals in the United States has been prohibited since 2011, so U.S.-based traders cannot use contracts for difference (CFDs) to trade gold.

Step 2: Develop a Gold Trading Strategy

Once you’ve defined your goals, you can work out a viable gold trading strategy for your needs.

Buying physical gold or purchasing gold for savings purposes doesn’t take much strategy. You generally just wait for a sell-off in the gold market and purchase the amount you wish to invest in.

Short Term Strategies

Trading gold futures for profit requires considerable strategizing. Short-term strategies such as day trading and scalping can be viable choices with a competent discount broker, although you may be required to make a substantial initial deposit. It could also be used to gain unique exposure to certain economic factors. For example, some traders like to invest in gold when they predict that fear in the markets is about to increase. Warren Buffet, who is usually not a fan of investing in gold, agrees that it can be a good way of "going long on fear."

Historical gold price charts and the ability to perform technical analysis on them can be invaluable to short-term traders. Other important considerations when trading in the gold futures market consist of the amount of open interest in the front month and activity in subsequent futures delivery dates.

Medium and Long-Term Trading

Medium and longer-term trading also requires strategic considerations, such as the underlying fundamentals of gold, including production figures and the overall supply and demand for the metal. Long-term gold investors carefully consider demand in the commodity market, changes to interest rates, and monetary policy when assessing gold's long-term potential.

Gold can strengthen an investment portfolio during periods of inflation. The asset tends to become more valuable as fiat currencies lose value.

Unless you’re purely a technical trader, your trading strategy will probably take all of these fundamental factors into account.

Market Sentiment

Geopolitical events often influence the precious metals market. Gold and silver have traditionally been economic safe havens, which means that when unrest in the world occurs, people generally buy gold since it represents a form of hard currency. Events such as the outbreak of war, U.S. interest rate changes, announced central bank gold reserve shifts and elections in gold-producing countries can often influence world gold prices. Silver's price movements often correlate with gold's but it can be more sensitive to factors influencing the metal's supply and demand.

Market sentiment can also be an important directional indicator, so the Commodity Futures Trading Commission’s (CFTC’s) Commitment of Traders (COT) report can be useful in that regard for the gold market. This report is released every Friday at 3 p.m. CST by the CFTC and provides a breakdown of the open interest in gold futures and options on futures further broken down by trader type and separated into long and short positions. Open interest consists of the amount of outstanding futures and options contracts that have not been liquidated and excessive imbalances in open interest can signal market reversals.

Step 3: Pick a Gold Broker

Once you’ve defined your objectives and have developed an appropriate strategy for meeting them, you can find the best online brokerage for your needs and test your trading plan in a demo account. If you plan to invest in and possess physical gold, you can obtain bullion or gold coins from a dealer who specializes in selling metallic gold.

The brokers highlighted below are some of the best gold and silver dealers on the market. They all support direct delivery purchases as well as precious metals retirement accounts. You can rollover your IRA in a matter of minutes with platforms like Advantage Gold and Red Rock Secured.

Step 4: Test Your Strategy

After you develop a viable trading technique and select a broker, backtest your strategy using historical data to see how it would have performed. If your strategy works well when tested on past data and you want to confirm your strategy further, you can open a demo account with the broker you’ve selected (or a different one) to verify that your strategy would also work in a real-time trading situation.

The online broker you select will ideally have a trading platform you can use to access historical data and backtest your strategies in a demo account. The popular MetaTrader platform includes a useful backtesting function.

If you have a problem developing your own trading plan, you can research other people’s trading plans and either follow the same system or develop your own using the other plan as a base strategy. Trading without a plan of action is much like sailing without a compass or a map and is one of the main reasons that the majority of traders lose money. You can also explore social trading to copy a more experienced operator’s trades.

Step 5: Start Trading

After you have successfully tested your strategy in a demo account, you’re ready to trade real money. Keep in mind that you may react emotionally to making or losing money, which is the reason you should develop the discipline needed to stick to your trading plan.

Implement sound money management principles and position sizing techniques appropriate to the amount of money you have in the account and your risk tolerance. The use of stop-loss orders and other risk management techniques is also recommended.

Adding Gold to Your Trading Strategy

Gold is one of the original commodities traded in markets and it generally trades in broad sweeping moves. This is why many investors incorporate gold into their portfolio diversification efforts. Traders use investment vehicles like futures contracts, ETFs, and individual stocks to get more exposure to gold.

Day trading and scalping strategies are also viable for gold in some cases, but these active styles usually involve paying more in commissions. Once you feel comfortable with gold trading, you may even decide to trade other precious metals, such as silver coins and copper. Your trading strategy will ultimately determine the time frame for your trades and may influence your choice of broker.

Frequently Asked Questions