When inflation hits, many investors think about turning to gold as an investment.

If you watch the financial networks, you will see many advertisements for buying gold, usually in the form of coins.

Gold bugs cite many reasons for buying gold these days.  Inflation is one.  The likely roll out of central bank digital currencies is another.  Global war is among the more ominous reasons.

I’ve never been a big fan of buying actual gold bullion for a couple of reasons.

It is a lousy long term investment.  It doesn’t build anything or sell a service that people want.  It is effectively just a shiny rock.

The gold dealers love to cherry pick rates of return that are often misleading.

If you bought gold in 1999, indeed, you have made good money.

However, if you bought it in 2011, you’ve hardly made anything.  Check out the chart below.

This is a weekly chart of the gold cash price going back to the late 1970s.

It is interesting to note that we had our largest bout of inflation since the early 1980s, beginning in 2021, but gold has hardly moved.

That’s some kind of inflation hedge.

One reason some people think it is a good idea to buy gold coins and bars is the potential for armageddon.

I agree that we are closer to WWIII than any time since the 1970s, but what good would having a big stash of gold do you if the world blows up?

If you survive, how will you carry that gold with you?

But, I digress.

In my opinion, gold is a good trading vehicle.  The best way to trade gold is in the futures markets, as you can get more bang for your buck there, due to the leverage.

Gold Futures

The most liquid gold futures contract in the world trades on the CME exchange.  This contract trades the equivalent of almost 27 million ounces per day.

This futures contract is 100 troy ounces.  Therefore, a $1 move in the price of gold is worth $100.

At present, gold futures typically trade in a range of about $25 to $35 per day at a current price level of about $1,950.

The current margin requirement for trading this contract is $8,300.

Because of the size and volatility of this contract, there are smaller contracts that can also be traded.  The most liquid of these is the Micro Gold futures contract, which is 10 troy ounces.

Therefore, a $1 move in gold is worth $10.  The margin requirement to trade this contract is $830.  This makes the gold market far more accessible to smaller speculators.

What moves the gold market?

As with any market, certain pieces of news will tend to affect gold prices.  Economic reports such as CPI, PPI and employment reports may move the needle in the gold market.

Since gold is often a flight to safety type of market, financial crises and wars will also impact the market.

As I mentioned, gold is a pretty lousy investment in the long run.

When the gold market is acting like dead money, you can be sure there are plenty of stocks that are doing well.

With that said, every now and then, an opportunity to exploit a decent trend will present itself in the gold market.

While there are occasionally sharp moves to the downside, I think it is best to focus attention on only trading gold from the long side.

That is where longer, more easy to trade trends will occur.

I cover the gold futures market in my daily newsletter, Trade The Big Swing.  You can learn more about that here.