Investing in gold futures does not require gold to exchange hands. A gold future refers to a commitment by the buyer to buy a specific quantity of gold at a pre-set price at any future time. Gold futures are the best way to gain leveraged exposure but are volatile. Gold futures are a fascinating and important territory, but they do not deserve the level of mysticism and fear they seem to generate. The futures priesthood that ‘informs’ gold-stock investors often takes events out of context and disseminates half truths intended to sway sentiment.
Gold’s importance in world markets make COMEX Division gold futures and options an important money management tool for commercial investors. Investors watch Comex contracts as an indicator of froth in the market. Trading gold futures securities happens largely on paper: most of the gold bought or sold in the futures market never moves. Gold futures are typically negotiated by “speculators,” traders who acquire or sell gold futures but aren’t interested in the physical gold, versus “hedgers,” who do value the gold itself as an asset. Trading gold futures also has low fees.
Gold options are also powerful and cost-effective Investing instruments, which can be used to own desired quantity of gold in future, and can also be used to hedge the price of gold that you possess. Every futures contract is for 100 troy ounces.
Prices in an organized derivatives market mirror the perception of market players concerning the future and lead the prices of underlying to the alleged future level. The prices of derivatives converge with prices of the underlying at the conclusion of the derivative contract. Prices swing based on supply and demand (although the twice-daily gold fix in London helps set a reference point for prices). The gold price in the spot gold market-called the “spot price”-is the price set for the spot gold, including delivery, to be paid two days following the date of the actual deal.
In closing, let me stress again that gold futures are not a risk free financial commodity and should be considered cautiously. Investments should only be made with risk resources which is capital you could afford to lose and it would not cause you to change your lifestyle in any manner.
