How To Profit From Gold and Silver Spot Trading

This article discusses spot market trading and how it can be applied to forming gold and silver trading strategies in the spot market for those assets. I’ll focus on spot trading in the futures market and through digital trading platforms.

What is spot trading? 

Spot trading involves buying and selling financial instruments, such as commodities, currencies, or securities, for immediate delivery. 

Spot trading is a method of buying or selling assets at the current or «spot» price. The primary purpose would be to take immediate delivery of the target asset without paying the cost-premium of the futures contract that expires in a later delivery month. However, spot trading can also be used for short or long-term investments or to day trade a financial asset or commodity to capitalise on intraday market volatility.

What is precious metals spot trading?

The «spot» market for gold and silver can be traded in physical form, in derivatives form via electronic marketplaces (Comex futures, LBMA forwards) or in its digital form through online trading platforms like Kinesis. Spot trades are executed at the spot price of gold or silver from real-time market trading activity. 

Spot prices are used as reference points to, or an input for, a range of other prices used by traders and investors. Spot prices also relate to strike prices, futures prices and a range of other market prices and valuation tools, which are explored in this article.

The spot price of gold and silver is set at the LBMA morning and afternoon price fixings. Trading in LBMA forwards and Comex futures key off those prices and the market action sets the current or spot price based on the last trade. 

Typically trading gold in physical bar form requires enough capital to settle the trade immediately. The buyer takes delivery of the bars and either safekeeping the metal in exchange-operated custodial vaults or removes the metal for private safekeeping. 

How to start with gold and silver spot trading

Trading futures requires having an account with a broker/dealer that offers access to futures trading. If you plan to trade current month futures in the month the contract expires, the account must be fully funded because a delivery notice for the underlying gold or silver bars could be issued on the day of the trade. 

On the Comex, this can be done with either the standard futures contracts. Each standard gold contract represents 100 ozs of gold and 5,000 ozs of silver, respectively. Alternatively, the Comex offers «e-mini» gold and silver contracts. Each contract represents 50 ozs of gold and 2,500 ozs of silver, respectively. 

Most retail investors and traders who want to trade and invest in gold and silver will find that online trading platforms like Kinesis offer the easiest way to spot-trade gold and silver. Moreover, the digital gold and silver currencies are fully backed by fine physical gold and silver of which the account holder can take delivery and physical possession. 

Discover how investors and traders can benefit from a Kinesis precious metals account here.

Strategies for spot trading gold and silver profitably

Spot trading strategies are very similar to a trader’s strategies when trading stocks or stock options. As with trading equities, it’s important to develop a trading plan that incorporates the rationale for entering the trade and the amount of capital the trader is willing to risk on each trade.  Develop a strategy based on research and analysis – both fundamental and technical analysis and the expected timeframe for the trade to either work or fail.

Determine Entry and Exit Points

From there, determine a point at which to exit a losing trade. Using a stop-loss order is a good way to take the emotion out of the trade. You can also set a profit goal for the trade, particularly if it’s a day trade. A stop order can be employed again to take the emotion of the sell or short-cover decision out of the trade.

Gold and silver spot market day trading is taking a speculative long or short position based on analysing the factors that might drive gold/silver higher or lower on a given day to close out the position before the market closes. Typically a day trade will be based on speculating the outcome of the economic reports released during the day or expectations for the direction in gold and silver will move intraday based on the movement in other markets for which gold and silver are correlated. 

Gold Versus US Dollar (USD) Price

As an example, precious metals and the U.S. dollar tend to be negatively correlated. If the trader expects the dollar to decline on a given day, it might be possible to execute a successful spot market day trade by going long gold or silver. 

Day trading successfully requires acute discipline and a willingness to bail on a losing trade to preserve capital. Similarly, it’s important to take greed out of the equation which means a willingness to sell a long position once a profit goal has been achieved. This type of discipline is particularly important in day trading because losses can mount or profits can disappear quickly. Sell stops are an import tool for profitable day trading in the spot gold and silver markets. 

Swing Trading & Long-Term Investment 

Swing trading and longer-term investing in the spot market are weighted more toward a view on the directional movement of gold and silver based on fundamental factors. A swing trade typically lasts a couple of days, weeks or months. The goal is to take advantage of news or events that could push the prices of gold and silver higher or lower over the intended duration of the trade. You can keep up to date on the latest gold news and silver news published on the Kinesis website every week. 

Using the MACD technical indicator to enter and exit a trade can be helpful to the decision process for both swing trades and longer-term investment positions.

Finally, as with trading and investing in any market, the probability of a successful trade or investment in the spot gold and silver markets requires determining an intended duration for the trade, monitoring the factors that led to a trading or investment decision and the willingness to unwind the trade if the variables that led to the decision to go long or short change.