How to Trade Gold

Today's investors have more options than ever when investing in gold. From the traditional allure of physical bullion to the modern convenience of digital platforms, gold investment has evolved far beyond coins and bars. Whether you seek hands-on ownership through digital gold apps, market exposure via ETFs and mutual funds, or strategic plays using futures and options, each method offers unique advantages and risks. This article explores how to trade gold, helping you understand the tools, platforms, and strategies available to choose the best fit for your financial goals and risk tolerance.   

To start, below are the first steps you should take to start trading gold:   

1. Decide your strategy: Short-term trading vs long-term investment.  

1. Choose your instrument: Physical, ETF, stocks, futures, etc.  

1. Open an account: Choose a brokerage or platform that supports your chosen method.  

1. Monitor the market: Gold prices are influenced by inflation, supply and demand, interest rates, geopolitical risks, the U.S. dollar, and more.  

Digital Gold   

Digital gold is a form of precious metals investment that allows individuals to buy and sell gold online without a brick-and-mortar storefront. When digital gold is purchased, real, 24-karat physical gold can be bought and stored securely in a vault by a custodian on your behalf.

Most digital gold providers use third-party vaults that are regularly audited, and the gold is either allocated or pooled. Allocated gold means the gold is fully owned by the person who bought it in specific increments, and it cannot be seized in the event of a bankruptcy. Because they have title, there is no confusion about who owns the gold. Allocated gold is preferred because it gives investors added confidence that their holdings are traceable and redeemable at any time. The value of the assets fluctuates with real-time gold market prices, and you can typically redeem your digital gold for cash or physical delivery (like coins or bars) once you meet a minimum threshold. Vaulting with OneGold is considered very secure, as all holdings are allocated, insured, and regularly audited.  
 
If gold is unallocated, this means it’s part of a pool, and the vault provider can use it for things like lease agreements. This is considered a less secure form of investing, because in the event of a default those gold holdings show up on the vault company’s balance sheet as a liability, and can be seized. The increase in counterparty risk makes unallocated gold a larger risk, though some vault companies offer a yield in exchange.  

Some accounts require a KYC (Know Your Customer) Verification to comply with anti-money laundering (AML) and regulatory laws. You'll usually need to provide a government-issued photo ID, proof of address, and other details. This is a simple process that takes little time. 

Gold ETFs  

A gold ETF, or exchange-traded fund, is an investment fund traded on stock exchanges. They aim to track the price of gold by holding physical bullion or stock in gold mining companies. Gold ETFs are ideal for trading gold without physically holding any. Gold ETFs like GLD (SPDR Gold Shares) generally track the spot price of gold and are backed by physical gold. Others, like GDX (VanEck Gold Miners ETF), invest in a basket of mining companies, introducing equity risk in addition to gold price movements.  It's important to note that gold ETF investors do not hold the actual gold, and ETFs can charge annual fees that can affect returns over time.   

You can check how much the annual fees are in a gold ETF by looking up the expense ratio. This is how much is deducted annually from your account, and the price can vary greatly by ETF. The most recent expense ratio for GDX was 0.51%, which compared to gold storage fees (0.12% on OneGold) is excessively high. Many of the ETFs also underperform the base metal, and some trade on low volume, making it uncertain that you can sell to get out of the investment when the time is right at the price you want. ETFs are generally considered very liquid and safe as an investment, and have the added convenience of accessibility from your brokerage account. However, it’s possible for an ETF to shut down, forcing liquidation of the underlying assets. Investors can take a small loss in this process, as well as incur a taxable event.  

Gold Futures  

A gold futures contract is a legal agreement to buy or sell a specific amount of gold (typically 100 troy ounces) at a predetermined price on a future date. Gold futures allow traders to participate in the market almost 24 hours a day, five days a week. In these contracts, traders can control larger positions with less invested money, potentially increasing efficiency. 

However, this leverage comes with significant risk. Even small changes in market prices can lead to substantial losses, and it is possible to lose more than the amount initially invested. Therefore, gold futures are unsuitable for every investor, especially those unprepared to handle financial risks.  

Gold Options  

Gold options are contracts utilizing physical gold or gold futures as their underlying instrument. These give you the right, but not the obligation, to buy or sell a gold futures contract at a specific price before a certain date.   

Types of gold options:   

1. Call gold options: Right to buy gold futures.  

1. Put gold options: Right to sell gold futures.  

A gold option shares some similarities with a gold futures contract. Both involve predetermined terms such as price, expiration date, and contract value. However, unlike a futures contract, a gold option gives the holder the right, not the obligation, to execute the trade.  

Trading Gold and Taxes 

Gold investments are taxed differently in the U.S. depending on the type of asset. Physical gold, digital gold (if it represents ownership of physical gold), and ETFs backed by physical gold, such as SPDR Gold Shares (GLD), are typically classified as collectibles by the IRS. As a result, profits from selling these assets after more than one year may be taxed at a maximum long-term capital gains rate of 28%, higher than the standard capital gains rates applied to most other investments. 

Gold futures and specific gold options are treated differently under IRS rules. These fall under Section 1256 contracts, which are taxed using a 60/40 split. 60% of the gain is taxed at the long-term rate and 40% at the short-term rate, regardless of how long the position is held. This blended tax treatment can benefit active traders. Because tax rules vary by asset type and investment structure, it’s important to consult a tax professional to ensure you understand your specific tax obligations.  

Always consult a tax professional to understand your specific obligations, especially if you’re dealing with large transactions or trading through multiple platforms. 

What's the Next Step?  

Gold remains a versatile and time-tested investment, with several ways to gain exposure depending on your goals and risk appetite. Gold ETFs and mutual funds offer convenience and diversification without holding physical metal. At the same time, futures and options provide more advanced traders with leveraged opportunities, though not without significant risk. View the table below for special requirements needed to invest in the investment types listed above to trade gold.  

Gold Trading Account Requirement Table  

Among these choices, digital gold stands out for its blend of simplicity, security, and real ownership. With platforms like the OneGold Mobile App, investors can access real-time prices, set up auto-investments, and enjoy 24/7 trading on the go. For those seeking a modern, flexible way to invest in a historically stable asset, digital gold offers an ideal balance of innovation and tradition.