People have been investing in gold through the ages. It is a tried and trusted asset class that is highly preferred by investors for diversification. The spot market for gold is an avenue that is frequently used by investors, both individual and institutional so as to profit from the volatility in prices. Another attractive aspect of spot gold trading is that similar to futures trading, there is no need to hold the physical metal – a paper suffices here.
What is spot gold price?
Spot price of gold represents the current rate at which the yellow metal can be purchased or sold at a specified place and time. This rate defines the explicit value of gold in marketplaces.
What are spot markets/exchanges?
Spot markets are where spot gold is bought or sold for almost immediate settlement. These markets don’t actually have a physical location, rather they are more of a distributed market consisting of bullion market traders from all over the world who trade gold within a common set of guidelines.
Spot exchanges are electronic marketplaces where large quantities of commodities including precious metals, oil, steel etc. are traded. The commodity sellers store the goods in warehouses that are operated by the exchange. The quality of the commodity is checked in these warehouses and subsequently a receipt will be issued if the quality of the commodity is as indicated.
This receipt will then be posted on the exchanges where buyers across the country can bid for it. Possession of the receipt denotes entitlement over the commodities. With this setup, sellers are more empowered to sell their goods to a larger market instead of being limited by a physical marketplace.
The buyers can submit the receipt to the warehouse and take ownership of the commodity as per the receipt details.
Where to trade spot gold in India?
There are three major commodity spot exchanges operating in India,
- National Spot Exchange Ltd (NSEL): This is the largest by overall value of trade conducted and was instated by Financial Technologies.
- National Commodity & Derivatives Exchange (NCDEX): This is another online marketplaces established in 2003.
- Reliance Spot Exchange: This was founded by Reliance Capital, owned by billionaire Anil Ambani.
All three spot exchanges are based out of the commercial hub of India, Mumbai.
What is spot gold trading?
Spot gold trading allows you to diversify your portfolio to hedge against inflation and market volatility. Gold has always been a preferred mode for diversification by investors and the spot exchanges in the country help them achieve this purpose.
Spot gold markets allows you to purchase and sell gold in Indian Rupees (INR). Prices are usually quoted for 10 grams of gold at 24 karats. When you buy gold bullions in the spot market, you are in a position to profit from rise in rates. For instance, you bought gold at Rs.26,000 today and sold it the very next day when prices were Rs.26,500. You have potentially made a profit of Rs.500 on every 10 grams of gold purchased on the spot exchange. If prices go down, you may hold the receipt for longer to minimize losses.
The settlement of purchased commodities can be done by selling the purchased quantity to a different investor or get the physical gold from the warehouse.
In spot trading, you don’t have to pay the full amount to purchase a commodity, you can also own the quantity by paying an initial margin as ‘good faith deposit’. The deposit is usually a small percentage of the overall contract value.
Spot gold trading has several other benefits and the trading techniques can be customized according to your risk preference.
You can place buy orders or ‘Ask’ or sell gold ‘Bid’ in the spot exchanges. If you feel that prices of gold will appreciate, you can buy the commodity at ‘Ask’ prices and make profit if prices do go up. Similarly, if you feel that gold value will depreciate, you can sell it at ‘Bid’ price. If prices do go down, you stand to make a profit.
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