For that reason, it is best trade gold futures under the guidance of a futures broker to help coach you along the way. An investment in gold is a great way to hedge against the spectre of inflation – in particular using gold as a hedge to offset losses in other parts of their investment portfolios. Huge levels of government debt can also hit forex markets and cause traders to seeks refuge in gold. This could see gold prices carry on their upward surge.

contract size

One can lose more than all of the funds in his or her account as well. Trading in gold or silver futures contracts is not the same as owning the physical metal that one can wrap their hands around. There are several advantages to trading gold and silver futures contracts compared with trading the physical commodities. For one thing, futures contracts offer increased leverage, requiring less capital while increasing the potential return of the investment.

Futures Contract Specifications

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Hedgers may include producers, portfolio managers and consumers. For example, if a farmer produces corn and is concerned about the per-bushel price of corn falling and thus reducing his potential profit, he or she could sell futures contracts. Gold futures are traded at the COMEX division of the New York Mercantile Exchange . The standard contract size is 100 troy ounces, with two additional smaller contracts at 50 and 10 troy ounces. The exchange specifies the delivery of gold to New York area vaults and are subject to change by the exchange. An account approved to trade futures is required in order to trade gold futures.

All EV metals

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Plus, they used money printing to enhance these low rates. Now, they have nearly $9 trillion on their balance sheet and are stuck with this strategy. At the beginning of this century, they had $1 trillion on their balance sheet and were pursuing a strategy of using the free market for economic growth.

Market data licensing

The idea is to attempt to limit the damage of a position which is going bad. If the price of gold falls 10% you’ll lose just $500 with bullion, and your investment will be intact to earn you money if gold resumes its steady upwards trend. Margin is the downpayment usually lodged with an independent central clearer which protects the other party from your temptation to walk away. So if you deal gold futures you will be asked to pay margin, and depending on current market conditions it might be anything from 2% to 20% of the total value of what you dealt. A warehouse receipt is a document used in the futures markets to guarantee the quantity and quality of a commodity stored in an approved facility.

  • The professionals often aim to settle – a luxury not always available to the private investor.
  • It is always a good idea to stick to the nearest month contract as liquidity is high in these contracts.
  • Receive full access to all our price data and gain access to our monthly LME newsletter, packed with market tips and insights from our on-staff specialists.
  • Huge levels of government debt can also hit forex markets and cause traders to seeks refuge in gold.
  • Because gold is virtually indestructible, much of the gold that has ever been mined still exists in one form or another.

There is no guarantee that the next management step will not be just a bit too brave. Many futures broking firms offer investors a stop loss facility. It might come in a guaranteed form or on a ‘best endeavours’ basis without the guarantee.

Gold prices then zigzagged higher into November on increased demand for gold as an inflation hedge due to mounting U.S. inflation pressures. October consumer prices rose at a +6.2% yr/yr pace, the most in over 30 years. Gold prices then fell back into December after the December FOMC meeting showed policymakers projected a faster pace of QE tapering and signaled interest rate hikes would begin sooner than expected. Gold prices finished 2021 down by -3.5% yr/yr at $1,829 per troy ounce. Gold futures contracts can be used for either hedging or speculation.

In this scenario, you don’t actually take possession of the because trading the contract enables you to capitalize on price fluctuations before the contract’s expiration date. In order to benefit from mispricing, let’s sell gold short $1,700 today. And lend money at the risk free rate and long gold future of $1,641.

Gold prices then trended lower into March when they posted a 1-1/2 year low of $1,673 per ounce. Treasury yields rose and undercut gold prices after the March FOMC meeting showed more policymakers favored an earlier start to the tapering of the Fed’s quantitative easing program. Also, the U.S. stock market trended higher throughout 2021 to new all-time highs, which reduced safe-haven demand for gold.

The futures exchange where such contracts are traded is called the COMEX . This exchange floor enables price discovery through an auction-like process. There are always bid prices from buyers and ask prices from sellers, and contracts are forged when the two come to agreement.


What it means is that a futures trade is always in a steady uphill struggle to profit. For you to profit the underlying gold commodity must rise at a rate faster than the contango falls to zero – which will be at the expiry of the future. In 1792, the United States first assigned a formal monetary role for gold when Congress put the nation’s currency on a bimetallic standard, backing it with gold and silver.

News From WSJ Gold Continuous ContractGC00

X 1 is less than X 2 , and X 2 is less than X 3 by equal amounts, and all calls have the same expiration date. A vertical combination is the of a call with exercise price X 2 and a put with exercise price X 1, with X 2 greater than X 1 . In each of the following cases, discuss how you, as a portfolio manager, could use financial futures to protect a portfolio.


There will be a few left who deliberately run the contract to settlement – and actually want to make or take delivery of the whole amount of gold they bought. If you refused to top-up your margin you will be closed out by your broker, and your original $5,000 will be lost on a minor intra-day adjustment – a downwards blip in the long-term upward trend in gold prices. Most futures traders use the delay to enable them to speculate – both ways. Their intention is to sell anything they have bought, or to buy back anything they have sold, before reaching the settlement day. Then they will only have to settle their gains and losses.

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U.S. imports of gold for consumption in 2021 fell by -65.1% yr/yr to 190,000 kilograms. Demand – U.S. consumption of gold in 2021 rose +35.1% yr/yr to 250,000 kilograms. U.S. refinery production of gold from domestic and foreign ore sources in 2021 fell by -0.6% yr/yr to 180,000 kilograms. In addition, U.S. refinery production of gold from secondary scrap sources in 2021 fell by -2.2% yr/yr to 90,000 kilograms. Gold is a dense, bright yellow metallic element with a high luster. Gold is an inactive substance and is unaffected by air, heat, moisture, and most solvents.

The exchange behaves as a mediator and facilitator by standardizing the quality, quantity, delivery time and place for settlement of a contract. A gold futures contract will almost always be priced at a different level to spot gold. The differential closely tracks the cost of financing the equivalent purchase in the spot market. Hedgers take a position in the market that is the opposite of their physical position. Due to the price correlation between futures and the spot market, a gain in one market can offset losses in the other.