A - TRADING FUTURES
Buying to profit from an expected price increase (Going Long)

Nations around the world embraced gold and silver as a store of wealth and a medium of international exchange. Individuals have sought to possess precious metals as insurance against the day-to-day uncertainties of paper money. Gold, silver, platinum and palladium constitute the majority of trading in precious metals.
Trading in precious metal futures market or spot market in a speculative manner provides an important alternative to traditional means of investing in precious metals such as gold bullion, coins, and mining stocks, and where substantial profits, as well as losses can be made.

Trading contracts in precious metals also provide valuable trading tools for commercial producers and the users of these metals.
Precious metals are traded on the futures and spot markets in contracts (a contract of gold is 100oz while a contract of silver is 5000oz). On the spot market, precious metals are usually bought or sold based on a value date of 48 hours which can be rolled over on a daily basis thereafter. Trading on the futures market is done by buying or selling precious metal for a specific settlement date in the future, for example July Gold, i.e. buying a gold contract say in March for July settlement.

Precious Metals Trading Model

Trading Precious Metal

Someone expecting the price of gold to increase over a given period of time, can seek to profit by buying futures contracts. If correct in forecasting the direction and timing of the price change, the futures contract can later be sold for the higher price, thereby yielding a profit. If the price declines rather than increases, the trade will result in a loss. Because of leverage, the gain or loss may be greater than the initial margin deposit.
For example, assume it is now January, the July gold futures contract is presently quoted at $644/oz, and over the coming months you expect the price to increase. You decide to buy a contract of one lot by putting a deposit (margin) of $1000.Further assume that by April the July gold futures price has risen to $653/oz and you decide to take your profit by selling.
Since each contract is for 100 oz , your $7.00/oz profit would be 100 oz x $7.00 or $700. Suppose however, that rather than rising to $653/oz, the July gold futures price had declined to $644/oz and that, in order to avoid the possibility of further loss, you elect to sell the contract at that price. On 100 oz your $2.00/oz loss would thus come to $200.

Selling to profit from an expected price decrease (Going Short)
Going short is, instead of buying a futures contract, you first sell a futures contract at a higher price in the hope that you will buy another contract at a later stage at a lower price thus realizing profit (or loss in case prices move in the other direction).
For example, assume that in January you have indications that the price of gold will decrease over the next several months. In the hope of profiting, you sell one contract of April gold at a price of, say $625/oz. If by March , the price has declined to $617, an offsetting futures contract can be
purchased at this price, realizing a gain of $8.00/oz making a total profit of $800 ( $8.00x100oz). A loss would be realized if the price has moved in the opposite direction .
B - TRADING SPOT
If the client wishes to speculate on gold believing that gold price will strengthen (going long), then the client will buy an (X) number of contracts of gold (each contract being 100 oz) say at $625/oz. This trade is called (opening buy).
If the gold price appreciates and the client wishes to close the position when the quote is $633/oz, then the client will sell the contract/s of gold at this price (closing sell). The profit that results from this trade is calculated by subtracting the purchase price from the selling price and multiplying it by the size of the trade (profit/loss calculation).
Selling price-Purchase Price x Size of Trade= Profit/Loss

$633-$625x100oz=USD 800 Profit

If the price of gold moves in the opposite direction then loss will be incurred.

If the client wishes to speculate on gold believing that the price of gold will weaken then the client needs to sell gold, and say sell at a price of $632/oz (going short) (opening sell).

If the price goes down to $622/oz and the client decides to buy the gold (closing buy) thus realizing a profit of $10/oz i.e $10x100 oz a profit rForex