As an Indian, Gold is always an important part of our life and has a deep-rooted history and significance. According to the World Gold Council Estimate, Indian households own gold worth $1.50 trillion. Gold once purchased or inherited sits in the lockers of households, whose emotional value becomes much higher than its economic value. Selling gold is the last thing an individual or household does in financial distress. Gold has been a symbol of wealth since ancient times and even in the Information Age has managed to maintain its relevance as an investment.
Gold is one of the most sought-after metals due to its glitz, liquidity, investment benefits, and industrial uses. Gold doesn’t show any dramatic price fluctuations during inflationary periods and hence, is a great tool for hedging. It is important for an investor to know what is happening around other asset classes and how to take advantage of them.
Let us understand how trading both Equity and Commodity can give you a double advantage?
- As we know, Equity markets shut at 3:30 PM while the commodity markets are open till 11:30 PM. Assume an event that happens post 3:30 PM can impact the opening of equity markets the next day. As a trader, you still have the opportunity to trade post 3.30 pm. Let’s say there is some war in the Middle East, such an event has a negative impact on equity markets which will trigger Crude Oil prices to go up. Now, one can buy Crude oil (both Futures and Options are available) to take advantage of the price rise. The rise of crude oil prices helps companies like Hindalco, and Nalco as their profit margin improves.
- During the war and warlike scenarios, Gold and Silver prices go up. In such a situation, we should take advantage of the markets by trading in them. Did you know that you can trade in Gold and Silver on our online trading platform along with Equity, Futures, and Options?
- When FIIs sell in Indian markets, Rupee is likely to remain weak as there is pressure on the rupee because money flows out of the country. We are witnessing FIIs selling consistently for the last few months and the rupee has gone from 73 to 76. Here you can find trading opportunities to buy/sell USDINR on the Dhan App.
When the equity market tanks, gold prices rise. This is because out of fear investors choose safer investment options. Recent events in Russia and Ukraine made many equity F&O traders nervous and many had to book losses as markets fell. But do you know the same event helped many traders earn windfall profits who took advantage by trading in Commodities and Currency. Similarly, Gold appreciated by more than 10% from Feb 2022 to the 6th of April.
How can you take advantage of Gold?
Earlier trading in gold was tough due to its large lot size and huge premium. One lot of gold would cost nearly 50 Lakhs, which was huge. But recently MCX is introducing a Gold Mini which will be a lot size of 100 grams. This will help retail participants to take advantage of Gold price fluctuations.
How to trade Gold Mini Options?
Dhan gives users the opportunity to trade in Gold Mini Options & Futures contracts.
Let’s understand with an example – Assume you are bullish on gold and you believe gold will rise in the next two months. Gold is trading at Rs. 51,000 currently and you expect it to go up to Rs. 53,000.
Scenario 1
You can buy physical gold and wait till the price rises to book profits. But here the downside is you have to pay making charges and GST. Which will eventually reduce your profits.
Scenario 2
You can buy gold Futures and hold them till the expiry. Here the catch is if the markets are volatile your risk is very high.
Scenario 3
Gold is trading at Rs. 51,000 currently and you expect it to go up to Rs. 53,000.
For a retail user, Gold Mini Options gives an excellent advantage in terms of lower margin/capital requirement and also capping his/her losses.
Buying Gold 53,000 Call option suppose premium is Rs. 50. Total investment is Premium*Lot size (50*10) = Rs. 500. A retail user loses a maximum of Rs. 500. Suppose the price touches Rs. 53,000, then the premium would rise to say Rs. 200. This will help them directly pocket the profit of Rs. 2,000.
Here, as we can see, trading in gold Options can be a great opportunity for an individual. The Risk/Reward ratio and the lot size are suitable even for a beginner. Markets always give such amazing opportunities to trade in, you can find out such opportunities easily just by staying updated.
To Conclude
Parking your funds at a single place be it Equity, Real Estate or Gold is risky. But as an Investor to enjoy the gains of both worlds and to hedge your portfolio, you can diversify your portfolio with commodities. For this, you don’t have to research and look at the new trends or forecast the market and then buy a particular commodity. Instead, you can simply invest in commodities ETFs with a SIP and create wealth over the long term.
For Traders, we have specially launched the Options Trader App which will enhance your F&O trading experience. You can register for early access here.
You can also read about the HDFC and HDFC Bank merger to stay updated with latest market news.
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Happy Trading 📈
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
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