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!