Gold has been one of humanity’s most desired assets since time immemorial. Yet the methods by which we trade gold have changed dramatically over the years.
In this post, we will take a closer look into one of the most convenient methods for transacting in gold: The gold futures contract.
What is Gold Futures Trading?
A precious metals futures contract is a legally binding agreement for the delivery of gold or silver at some future date. A futures exchange standardizes the contract with regard to timing, quantity, quality and mode of delivery.
What Are the Benefits of Trading Gold Futures?
Trading gold futures offers several key benefits, including:
- It can be used as a hedge against an investor’s other holdings or inflation.
- Trading gold futures options can serve as a speculative play on the direction of the underlying asset.
- It provides an alternative asset for investors seeking positions outside of equities or other conventional holdings.
How Does Trading Gold Futures Work?
Gold futures are often used as a hedging tool by traders who wish to manage risk associated with the purchase or sale of physical gold.
Additionally, traders can use gold futures to make bets on the price movement of gold without having to take physical possession of the metal.
Long positions (a buy) obligates the buyer to accept delivery of physical gold, while short positions (a sale) obligates the trader to make a delivery. However, practically speaking most transactions do not involve any physical deliveries, as traders can eliminate this obligation by opening an offsetting position by reversing their position in the same contract.
Gold futures are much like any other futures contract in terms of price and expiration. Contracts typically expire in February, April, June, August, October and December.
While traders can also opt for dealing in the actual underlying commodity, working with futures contracts offers a few key advantages. They are much more flexible, offer much higher leverage and do not feature counterparty risk, thanks to the clearing services offered by exchanges.
What Are the Best Times to Trade Gold Futures?
Gold futures trade from 6 p.m. EST to 5 p.m. EST Sunday through Friday. Historical data shows that changes in the price of gold are most active between 6 a.m .EST and 10 a.m. EST. Major US markets and European markets are all open simultaneously during this period.
How Much Does a Gold Contract Cost?
Gold is pegged to dollars and cents per-ounce. If gold is trading at $1,000 per-ounce, a standard 100-ounce COMEX contract will have a value of $100,000.
Gold prices rise in minimum 10-cent increments (or tick size). If a trader buys the contract mentioned above, that trader earns $10 for every 10-cent increase in the price of gold. For every 10-cent drop in the price of gold, the contract loses $10 in value.
The price of contracts varies, but traders can use leverage/margin to control sizable contracts with much smaller upfront capital requirements. Many platforms also offer e-mini (50 ounce) and e-micro (10 ounce) contracts that are less expensive.
How Do I Buy Gold Futures?
Investing in gold futures is simple: You open an account with a qualified investment platform and begin trading.
Choosing the right futures instrument depends on your investment objectives and your level of financial resources.
What Is Spot Gold?
Spot gold is the price of gold at the moment it is being checked. There are typically no brokers or market makers in spot gold trading.
Buyers and sellers can transact directly through a third-party trading platform and trade gold bars, coins or ingots.
What Are the Different Ways to Invest in Gold Futures?
Investors who want a position in gold have a few options:
- They can buy physical gold
- They can buy a gold ETF that tracks the price of gold
- They can buy gold futures or options.
Gold futures, or trading gold futures options, offer many advantages: Flexibility, the ability to carry large positions with less capital, less risk and the ability to avoid delivery.
How Can RJO Futures Help?
Successfully trading the gold futures market requires the assistance of a reputable investment platform. At RJO, we’ve got one of the industry’s longest and most distinguished track records.
Our team of investment pros can help ensure that you put your best foot forward when trading gold futures, regardless of your experience level.
We’ve also got the industry’s most advanced array of trading tools to help you execute your strategies with optimal efficiency.
Futures trading gold or any other precious metal requires help from a steady hand.If you’re ready to begin trading gold futures, we urge you to give RJO a call today.