| Understanding Gold Futures Trading |
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| Written by James Bolton |
| Monday, 15 February 2010 08:22 |
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Trading gold futures does not involve 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 a future time. Gold futures are the best way to gain leveraged exposure but are volatile. Gold futures are a fascinating and important realm, but they do not deserve the level of mysticism and dread they seem to cause. The futures priesthood that 'informs' gold-stock traders often takes events out of context and disseminates half truths designed to sway sentiment.
Investing in gold futures does not require gold to exchange hands. A gold future refers to an agreement by the buyer to buy a specific quantity of gold at a pre-set price at a future time. Gold futures are the best way to gain leveraged exposure but are volatile. 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 significance in world markets make COMEX Division gold futures and options an important risk management tool for commercial operators. Operators watch Comex contracts as an indicator of froth in the market. Trading gold futures securities happens largely on paper: most of the gold purchased or sold in the futures market never exchanges hands. Gold futures are typically traded by "speculators," traders who buy 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 tools, that can be used to own desired quantity of gold in future, and can also be used to hedge price movements of gold that you have. Every futures contract is for 100 troy ounces. Prices in a structured derivatives market replicate the perception of market participants regarding the future and lead the prices of underlying to the perceived 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 aids 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 transaction. 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 capital which is funds you could afford to lose and it would not cause you to change your lifestyle in any manner. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Hit by the financial crisis? You may want to know how to sell your gold to get some extra cash fast. My site has a number of tips on where to sell gold |