Hello friends, I'd like to present an idea for commentary. I've tried this before (when we were only FX factory) but now that we have a dedicated metals site, with some seriously good talent here...I'd like to present this idea and ask for your comments:
Idea for wealth building (using only gold):
Lets say you have x dollars (Euros, Pounds, Yen, what ever) that you wish to set aside and use it exclusively for building wealth. This is apart from your normal trading activity and/or savings for emergency (which BTW I NEVER trade with). So lets say this amount is $10,000 (or what ever you wish to dedicate).
My proposal is this...place 1/2 of those funds in physical gold at the market price and hold. Use the other 1/2 of those funds to trade gold (either futures or spot). Then every 6 months re-balance the funds to maintain the 50/50 ratio. Here is how it would work...(I'd like to believe).
You buy (as I did) physical gold at 1308. And if price goes (or is) below that price you balance your position with a short in the cash market (assuming your trading method makes this appropriate). You would trade this like a "normal short" and assuming price drops to 1100, you collect the 208 pt drop (which actually works out to 20,800 pips). Because this account is leveraged you'd only have to use approximately 25% of your "liquid" funds to trade this and recover the cash value lost in your physical position. But that's not all...
Lets say while price is very low, you close your shorts...collect the cash, and then place a long (again assuming your trading method provides the appropriate signal). Now your physical gold position recovers lost value, AND your trading position, is gaining value up to the point of your original position. So now, you have not only recovered the value of your physical gold position (which would normally be just break even), but you also have the profit gained from the short --> long trading. So that little tip just profited you (considering how you trade) twice the distance your original physical position devaluation...and viola...you've made a very nice profit on your entire gold portfolio, when the physical position was just break even.
Are you confused yet? But wait there's more. Lets say Gold prices rise, and your physical position is gaining value. You start switching to "buy the dips" in your trading strategy...and now you entire gold position is creating double the profit (depending on your leverage).
So every 6 months or so...assuming there is profit...you re-balance the "portfolio". You take extra cash...buy more physical gold, and then calculate your new aggregated position price. Depending on how the market is moving this price may rise or fall...but it always has you buying at the lows and selling at the highs. All the while, accumulating physical gold to build wealth. In this way your portfolio is always creating profit (where as most gold is just an anchor of value). And if at some point (when prices are high) you have more value in your physical gold, than your trading portfolio...you liquidate to cash to re-balance at 50%...
In my way of thinking this creates a self sustaining ever growing wealth building machine...apart from your regular trading or day job activities...and (if done correctly) would generate greater wealth than property ownership ever would. It is a combination of passive and active wealth building.
What do you think? (try to be constructive)
Idea for wealth building (using only gold):
Lets say you have x dollars (Euros, Pounds, Yen, what ever) that you wish to set aside and use it exclusively for building wealth. This is apart from your normal trading activity and/or savings for emergency (which BTW I NEVER trade with). So lets say this amount is $10,000 (or what ever you wish to dedicate).
My proposal is this...place 1/2 of those funds in physical gold at the market price and hold. Use the other 1/2 of those funds to trade gold (either futures or spot). Then every 6 months re-balance the funds to maintain the 50/50 ratio. Here is how it would work...(I'd like to believe).
You buy (as I did) physical gold at 1308. And if price goes (or is) below that price you balance your position with a short in the cash market (assuming your trading method makes this appropriate). You would trade this like a "normal short" and assuming price drops to 1100, you collect the 208 pt drop (which actually works out to 20,800 pips). Because this account is leveraged you'd only have to use approximately 25% of your "liquid" funds to trade this and recover the cash value lost in your physical position. But that's not all...
Lets say while price is very low, you close your shorts...collect the cash, and then place a long (again assuming your trading method provides the appropriate signal). Now your physical gold position recovers lost value, AND your trading position, is gaining value up to the point of your original position. So now, you have not only recovered the value of your physical gold position (which would normally be just break even), but you also have the profit gained from the short --> long trading. So that little tip just profited you (considering how you trade) twice the distance your original physical position devaluation...and viola...you've made a very nice profit on your entire gold portfolio, when the physical position was just break even.
Are you confused yet? But wait there's more. Lets say Gold prices rise, and your physical position is gaining value. You start switching to "buy the dips" in your trading strategy...and now you entire gold position is creating double the profit (depending on your leverage).
So every 6 months or so...assuming there is profit...you re-balance the "portfolio". You take extra cash...buy more physical gold, and then calculate your new aggregated position price. Depending on how the market is moving this price may rise or fall...but it always has you buying at the lows and selling at the highs. All the while, accumulating physical gold to build wealth. In this way your portfolio is always creating profit (where as most gold is just an anchor of value). And if at some point (when prices are high) you have more value in your physical gold, than your trading portfolio...you liquidate to cash to re-balance at 50%...
In my way of thinking this creates a self sustaining ever growing wealth building machine...apart from your regular trading or day job activities...and (if done correctly) would generate greater wealth than property ownership ever would. It is a combination of passive and active wealth building.
What do you think? (try to be constructive)
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