Techniques to profit in gold investment

Previously, we could get approximately 100g of gold with a capital of RM 16,000. As the gold price appreciates, we could potentially sell them at RM18,000. The problem arises after having profited RM2,000. How is it possible to acquire gold at a lower rate, like before?

How is it helpful when buying gold at a higher price when we get less than 100g?

This is the typical confusion seen among the gold traders.

Other tools like unit trust, mutual funds, and specific stocks might give out dividends, but gold savings do not yield dividends. Worse still, gold traders would be unclear when exactly to sell gold for profit realization. Selling too early would create a situation where they miss out on future gains. And getting the same amount of gold would not be possible once the gold price appreciates.

Decide on the position

Such conflicts occur not due to gold price movement but rather when we are unsure of our position in this journey. Are we on this journey as a gold saver? A gold trader? Or a gold business owner?

The gold savers typically focus on accumulating grams of gold, or even gold bars, for that matter. The gold investors, however, prefer monetary gain. There is no other way to capture both of these benefits than to be a gold business owner.

With that said, if you intend to be a gold trader, then monetary gain should be the priority, not the grams of gold. Do not get alarmed by the amount of gold utilised in the process. Instead, use the gold as a tool and focus on selling them once the price hits the target price point.

Focus on monetary gain

Let’s take a look at an example as described here. With a capital of RM 16,000, we acquire 100g of gold, and when the holdings reach RM 18,000 in value, we proceed to sell and profit RM 2,000 in the process (RM 18,000 - RM16,000).

So far, so good?

 Then for the second round, we utilize the original capital of RM16,000 and buy the gold at the current rate. We know that acquiring 100g would no longer be possible due to price appreciation. Maybe this time, we would get approximately 94g, which is perfectly fine. Hence, gold traders should not be alarmed with the amount of gold but should focus on hitting the target price point instead.

The best time to buy?

After addressing the conflict of gold price keep appreciating, the next conflict would be on the best time to buy gold for the second round after securing profit earlier. The typical strategy among the traders has always been ‘buy low, sell high.’ The question is, how high is high and how low is low, am I right?

This is where familiarising yourself with gold price technical analysis would be helpful. We would be exposed to chart reading techniques, and through this analytical process, we could identify potential entry and exit price points. Please bear in mind that this considers the relevant news in the financial world at any given time.

With this set of knowledge, we would be in a better decision-making condition as to buying or selling gold as part of our strategy. Without this knowledge, it is challenging because, as we all know, the gold price is very volatile in the short run.

Using the example mentioned earlier, after profit-taking, we are left with a capital of RM 16,000. Buying gold immediately might result in a much lesser amount of gold. So, identifying the ideal entry price point would be helpful. Based on the gold price chart, this price point is derived from the ‘support’ level (or floor price).

Support and Resistance

The gold price is analysed and is low if it is at the support level. If the gold price is currently at the support level of RM17,000, we can potentially utilise the capital earlier to purchase gold. Again, we must be aware that the amount of gold may not be 100g like before.

We should remind ourselves that gold is not the main issue when adopting this mindset. Our goal is to achieve the target price point and sell for profit-taking. We do not care about the grams of gold for long-term savings but are keen on leveraging price volatility.

The same is also true for selling.

The best time to sell?

Gold traders sell when the price is at a higher level. In the world of technical analysis, this price point is said to be at the ‘resistance’ level (or ceiling price). In other words, the gold price is considered high when the price point is at the ‘resistance’ level.

We should not hesitate to sell when this happens, as keeping our gold would no longer be profitable. Emotions must be kept aside and proceed with selling. If we have second thoughts on selling when such opportunities arise, perhaps we are thinking from a gold saver perspective, not a gold trader.

The best time to begin?

To those who wish to begin, waiting for the best price might seem logical, but it is counterintuitive, to be honest. Instead, I would suggest starting with a low budget to get a flavour of the system and set a benchmark for ourselves. Furthermore, we get to experience much sooner, and learning is more profound this way.

In other words, consider the first purchase as a learning process. Making a profit is not the main priority at this stage. The extent of our profit depends on how knowledgeable we are in a particular field or investment tool.

Perhaps, after making the first purchase, you will decide whether to embark on this journey as a gold saver or a gold trader. Or maybe there is another tool elsewhere that resonates better with your personality and financial goals.

To put it simply, we would be in a better thought process before making the subsequent purchase.

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Hope you find it useful.

Your buddy on gold investing,

Naresh G