Trading gold futures does not require gold to exchange hands. A gold future refers to an agreement by the buyer to buy a certain quantity of gold at a pre-set price at a future time. Gold futures are the best way to gain leveraged exposure but are capricious. Gold futures are a fascinating and important realm, but they do not deserve the level of mysticism and dread they seem to create. The futures priesthood that \’informs\’ gold-stock investors often takes events out of context and disseminates half truths designed to sway sentiment.
Gold\’s importance in world markets make COMEX Division gold futures and options an important risk management tool for commercial operators. Traders watch Comex contracts as an indicator of fizz in the market. Trading gold futures securities happens mostly on paper: most of the gold bought or sold in the futures market never exchanges hands. 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 commissions.
Gold options are also powerful and cost-effective investing instruments, which can be used to own desired amount of gold in future, and can also be used to hedge price movements of gold that you have. Each futures contract is for 100 troy ounces.
Prices in an organized derivatives market replicate the perception of market participants concerning the future and lead the prices of underlying to the supposed future level. The prices of derivatives join with prices of the underlying at the expiration of the derivative contract. Prices fluctuate based on supply and demand (although the twice-daily gold fix in London helps set a reference point for prices). The price of gold in the spot gold market-called the \”spot price\”-is the price fixed for the spot gold, including delivery, to be paid two days after the date of the actual contract.
In closing, let me emphasize again that gold futures are not a risk free financial commodity and should be considered judiciously. Investments should only be made with risk resources which is funds you could afford to lose and it would not cause you to change your lifestyle in any manner.
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