Chapter 34 — How to actually trade gold: the instruments

Everything to this point has been about why gold moves. This chapter is about the boring, decisive question that determines whether you keep your profit: what do you actually buy?

The same directional view — "gold rises into year-end" — can make money in one vehicle and lose it in another, purely because of leverage, financing, and tax. Most new gold traders pick their instrument by accident (whatever their broker showed them first) and discover the cost structure only after it has eaten a quarter of their return. Pick deliberately.

The six ways to be long (or short) gold

Instrument	What it is	Leverage	Main cost	Best for
Spot XAUUSD (CFD)	A contract-for-difference tracking the OTC spot price	High (often 20–100×)	Spread + overnight financing/swap	Active intraday/swing traders
Futures (GC)	CME COMEX 100-oz contract	High (~20×, set by margin)	Spread + roll cost; no daily financing	Swing/position traders, tax-advantaged (US)
Micro futures (MGC)	COMEX 10-oz contract	High	Same as GC, smaller size	Smaller accounts wanting futures' benefits
ETFs (GLD, IAU)	Shares backed by allocated bullion	None (1×, or use margin)	~0.25–0.40% annual expense ratio	Investors, retirement accounts, no-leverage exposure
Gold miners (GDX, GDXJ, single names)	Equity in producers	Implicit operating leverage (~2–3× gold's move)	Equity-specific risk (management, jurisdiction, hedging)	Leveraged directional bets, but with company risk
Options (on GC or GLD)	Right, not obligation, to buy/sell	Defined-risk leverage	Premium (theta decay)	Defined-risk bets, volatility plays (Ch 36)

Read the table twice. The instrument is not a detail — it changes the trade.

Spot XAUUSD (CFD) — the default, and its hidden cost

For most retail traders the screen shows "XAUUSD" and they trade a contract-for-difference. The appeal is real: tight spreads, fractional sizing, 24/5 access, high leverage. The trap is financing.

A CFD long is a borrowed position. You're effectively borrowing dollars to hold gold, and you pay overnight financing (the "swap") every night you hold. On a leveraged XAUUSD long, that's typically the relevant interest rate plus a broker markup, charged daily on the full notional, not your margin. Hold a $100,000 notional gold long for a month and the financing can quietly cost you several hundred dollars — before the price has done anything.

The implication is mechanical: CFDs are built for short holding periods. A scalp or a few-day swing barely feels the swap. A multi-week position bleeds. If your edge is multi-week macro positioning (and per Chapter 18, most of gold's move is), the CFD is often the wrong vehicle — the financing eats the slow macro drift you're trying to capture.

Futures (GC / MGC) — the professional's default for holding

A COMEX gold future is a standardised 100-oz contract (10-oz for the micro, MGC). You post margin, not the full value, so leverage is similar to a CFD — but there is no daily financing charge. The cost of carry is baked into the futures curve (contango), which you pay only when you roll from the expiring contract to the next.

For anyone holding more than a few days, this is the cleaner structure. You pay the carry once per roll (every couple of months) instead of bleeding it nightly. For US traders there's a second advantage — tax (below).

The downsides: contract sizes are larger (100 oz of gold at $4,500 is a $450,000 notional — the micro at 10 oz is far more manageable), and you must manage the roll. Set a calendar reminder for first-notice and roll a week before; do not get assigned physical delivery by accident.

ETFs — exposure without leverage

GLD and IAU hold allocated bullion and issue shares against it. One share ≈ a fraction of an ounce. No leverage (unless you margin the shares), no expiry, no roll, and they sit happily in a retirement account. The cost is the expense ratio (~0.25–0.40%/yr) — trivial for a position measured in months.

These are investor vehicles, not trader vehicles. If your thesis is "gold over the next year" and you don't want leverage or financing, an ETF is the honest choice. If you want to trade the next two weeks with a stop, it's too blunt.

Miners — leveraged direction, with a catch

Gold miners (GDX for seniors, GDXJ for juniors, or single producers) carry operating leverage: their costs are roughly fixed, so a 10% move in gold can swing their margins and stock 20–30%. In a gold bull market, well-run miners outrun bullion.

The catch is that you're no longer trading gold — you're trading a company. Management decisions, mine jurisdiction (a coup in the wrong country), hedging programs that cap upside, share dilution, and broad equity-market beta all intrude. In the March 2020 crash, miners fell with equities even as gold held, because in a liquidity panic everything correlates to 1. Miners are a leveraged directional expression of a gold view, not a substitute for gold.

Tax — the difference that compounds

This is jurisdiction-specific and not advice, but the structure matters enough to name (verify with your own accountant):

US futures (GC/MGC): taxed under the 60/40 rule — 60% long-term, 40% short-term, regardless of holding period. For an active trader in a high bracket this is a meaningful edge over CFDs/spot.
US physical & most bullion ETFs: often taxed as collectibles at up to 28%, higher than the long-term equity rate.
CFDs: unavailable to US retail; elsewhere, typically taxed as ordinary income/CGT depending on country.

Over years, the tax wrapper can move your net return by more than your strategy tweaks do. It belongs in the instrument decision, not as an afterthought in April.

Figure 34.1 — Net return of an identical +8% gold move held six weeks, by vehicle

Figure 34.1 — Same view, three vehicles. A side-by-side of a hypothetical +8% gold move held six weeks, showing net return after costs in (a) a leveraged CFD with nightly financing, (b) a futures position with one roll, and (c) an unlevered ETF. The CFD's nightly swap and the miners' company beta are where identical directional calls diverge into different P&L.

On goldintel today

The dashboard quotes spot XAUUSD — the CFD/OTC reference price. The briefs' entry/stop/target levels are spot levels. If you trade futures, the GC price runs a few dollars off spot (the basis); translate the levels rather than using them raw. If you trade an ETF or miners, the briefs are still directionally valid but the timing precision (tight stops, intraday entries) won't map — those instruments are for the slower macro expression of the same view.

Common mistakes

Holding a CFD for weeks and wondering why a winning view barely profited — the nightly financing ate it.
Trading the full GC contract on a small account — one 100-oz contract is a $450k notional; use MGC until your account can absorb a full-contract stop.
Treating miners as "gold with leverage" and ignoring that they crash with equities in a panic.
Ignoring tax until filing — the 60/40 futures treatment vs. collectible rate can outweigh a year of strategy refinement.
Forgetting the futures roll and getting flagged for delivery.

Key takeaway

Match the vehicle to the holding period: scalps and short swings in spot/CFD, multi-week macro positions in futures, unlevered conviction in ETFs — and let tax and financing, not habit, make the call.