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On my quest of finding alternative investments to generate passive income, I was first drawn to foreign exchange, also known as Forex. Why? Because I traveled a lot, was a bit aware of world events, and thought I knew where the currencies were going. I remember reading a lot about it, and starting a demo account on a Forex trading website. While my predictions were generally pretty accurate over the long term, weathering the short term market swings was not my forte.
That particular trading platform happened to have an option to trade gold, like BullionVault gold. I had never thought about trading gold before. I imagined gold only came in the form of a physical bar and by no means could be traded online. It intrigued me, and after studying some more, I learned that gold was an hedge against financial crisis, that when the dollar got weaker gold was usually getting stronger, and if you held dollar positions it made sense to hold the inverse position in gold.
I was convinced that the price of gold would go up, with the increase of demand as a crisis hedge, and the rise of the middle class in countries like India, who buys a lot of golden jewelery. So back in 2006, I bought 200 ounces at $585. That was a margin purchase, and I started tracking my gold daily. Every time the ounce went down by $1, I lost $200. A $10 swing is more than normal in any given trading day. Imagine coming back home at the end of the day and finding out you just ”lost” $2,000!
After a few sleepless days, the market went up again and I made an exit with a little profit. I could breathe again.
As of today, an ounce of gold is worth $1,660, down from an all time high of $1,908, meaning I passed out on over $250,000.
Lesson learned: only invest money that you can afford to lose, and if you think your position is solid, do not watch it daily, the market swings can have you make a costly emotional decision!
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I’ve always stayed away from Forex myself, but I know money can be made. In regards to gold, I still see it increasing over the long haul. The FED will continue debasing the currency as long as its in existence, which means gold will continue to rise over time. It’s too easy of a way for the rich to get richer and the poor and middle class to get poorer.
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I read that if gold reaches $2,000 per ounce, it will start being profitable taking it from the sea. Sounds kind of crazy but if there is demand, supply will follow.
That’s actually interesting….never thought about that angle. Once it becomes profitable to do so, people might invest in means to get gold from an alternate source. Who knew? I wonder if companies involved in that method of “mining” would correspondingly increase in value?
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I don’t know if they would increase in value, since the investment would be colossal, and there may be a substitute to gold by the time they are able to turn a profit, like they are looking for an oil replacement. It just sounds a bit strange to imagine monster machines digging under the sea for more gold.
Great advice, only invest money you can afford to lose!
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sadly true, one has to prepare for the worse!
That sounds like good advise. I just don’t have the money to invest. I did a DRIP for a bit and that was fun, I felt so smart! But I had to sell GE to make ends meet one year! ;-( I sold high though, cause its really low these days.
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At least you got a good exit price! Maybe if you can afford to invest again you can buy back lower. With little money I wouldn’t go with metals or currencies, the market swings are too high.
I wouldn’t touch gold with a 10 foot stick. People talk about gold being a hedge against financial collapse, but they don’t realize that in a true callapse, there are no hedges other than being able to grow your own food and defend yourself. People who talk about precious metals having intrinsic value are just being silly. It’s valuable because we say it is, nothing more.
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True, if there is a real collapse you are on your own and no money or metal will be worth anything. I guess people still remember gold as the tender during WWII when you could migrate to any country with gold and have it accepted, while your country of origin’s currency would have no value.
Gold is used in a lot of technology and there is a finite supply of it. Overtime, it will probably go up though that’s looking at it as a buy and hold view. I’ve been tempted to invest in silver because of it’s historic relationship to gold, but I’m still a bit skittish.
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Me too, although I think I never got silver positions. I felt safer with something of lower value that I thought would also increase greatly. Now I have to admit I haven’t followed either for a long time.
Very interesting post.. The history of gold as a currency is extensive and IMO it would always hold value. Even if there was a total collapse, it would only be a matter of time before people had to establish trading and a new currency – gold is finite and like oil, will continue to rise in value!
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Trading could be bartering and referring to the old currency price. If a goat used to be $100 and a sheep $200 then you get one sheep for two goats. In a real survival mode where currencies have crashed you would have to eat and not hoard gold. In a more normal world, yes, I imagine it will rise a bit more, maybe not with the strength of the past 10 years.
Oh wow–that is quite a lump of money lost. However, market swings can make a person’s stomach turn and in the moment it is hard to know exactly what you should do. I think you make a good point about investing money you can stand to lose, and then not watching it for awhile.
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I like to think my sanity was worth passing out on that money!
I have some physical gold, but it is because I collect coins. I am definitely not a gold bug by any means. It just sucks the price is so high now that it takes me forever to save enough to feel comfortable making a new purchase.
My BF is an enthusiast numismatist as well, he had a lot of regular coins that are now worth quite a bit thanks to the appreciation of the metal, so he uses that to sell and buy good coins.
I’m a pretty serious investor but have never took a foray into Forex. I’ve traded Options and futures (I won’t even claim moderate success with those) but Forex has a level of risk I’m not comfortable with (this coming from a “damn the torpedoes, full speed ahead” investor). As far as precious metals, I prefer to hold the commodity. I’ve read of too many precious metal funds that arent backed with the actual substance. Commodity metals are a good hedge, especially with the U.S dollar, which is my opinion is in serious jeopardy. Which is why I have a portion of my assets in silver (which is my preference). One interesting point on silver. It seems the best way to buy silver at it’s closest price to “spot price” is to get bulk “junk” coins. US coins prior to 1964 (with a few exceptions) are 90% silver and are worth many times their face value. They can usually be bought in bulk for very close to the spot price. -J-
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I heard about the silver coins, although with *regular* online trading you can sell when you want, with physical coins you can sell when you get a buyer and it can take time. Forex really depends on your leverage, at the moment I have almost no leverage, I just use it for my currency needs and it isn’t stressful.
Great info, Pauline! We did a similar thing with a gold purchase. Not sure how we’ll handle gold investments in the future, but one thing we will do is not scrutinize the market every minute of the day and let our emotions dictate our moves. Thanks for the valuable post!
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