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New gold market: how to play

New gold market: how to play

Canadia Gold & Trust Co, one of Phnom Penh's more dynamic Sino-Khmer banks, has

installed Reuter's "Commodities 2000", a data network that provides fast

updates of Futures, Options and spot prices for gold and foreign exchange. Short-term

investors and speculators can now play London for the first time.

A large computer screen in the main banking hall will soon relay up-to-date information

to customers on gold quotations from the world's major trading centers.

Previously, those wanting to speculate could only do so at Phnom Penh's Olympic Market.

A somewhat thin high-risk market dealing in 1kg bars at a minimum, with no deposit

required and where a small number of gold dealers could manipulate prices to their

advantage. Canadia's new service cuts out the arbitrary price risk and gives an above

board service.

First, a warning. Forward Markets and, especially, Options, are a recognized way

of winning a sizable amount of money or losing your shirt.

For the moment, the Canadia Bank is offering a "Loco-London Spot" service

only. This allows a speculator to take a position on a future price movement on the

London market.

For example, suppose a speculator expects a price change in the near future to be

above what it is today. The person would then speculate by either buying at the Spot

rate and then, after one period, selling at a higher price (or vice versa), thereby

making a profit.

A couple of examples to see how it all works in practice. First, betting on a

rise in prices:

Nov. 20: Spot gold price = $360/oz

Minimum contract 100ozs bought for $36,000

Required 10 percent margin deposit: $3,600

Commission per contract: $30

Cost of playing market: $3,630.
Nov. 21: Spot gold = $370/oz

Minimum contract 100ozs now sold for $37,000

Profit ($37,000 - 36,000) = $1,000

Less buying & selling commission ($30 x 2) $60

Less interest (36,000 - 3,600) x 5 percent x 2 day, dividing 100 x 360 : $9

Net Gain $ 931

A return of 25.6 percent on initial outlay after only two days.

One can also speculate on a price decline. Or by going "short", another

way of saying one does not have the gold in the first place but one hopes to redress

the situation later, viz.

Nov. 20: Spot gold price $360/oz.

Minimum contract 100 ozs sold for $35,000, 10% margin deposit: $3,600

Commission per contract: $30

Total cost: $3,630

Nov. 21: Spot gold price $350/oz

Minimum contract 100 ozs bought for $35,000

Profit (36,000 - 35,000) = $1,000

Less selling & buying commission (30 x 2) $60

Net Gain $940

A return of 25.9 percent on initial outlay, again within two days.

Thus, whether one is a "Bull" (i.e. expecting a price rise), or a "Bear"

(selling in anticipation of a fall), one can make a large percentage return on a

small outlay .


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