A commodity, sometimes known as a gold future, is an agreement in which the price of a thing is determined based on what it will display in the future. The notion might be a little hazy, but we’ll cover all the facts and benefits of gold futures here as we go along.
When the agreement is drawn, the product’s price is fixed when buying and selling, and the commodity can be purchased and sold once the contract is in place. One of the finest aspects of commodities futures is that they are liquidated inside the contract period and before the expiry or delivery date.
The owner can buy and sell futures contracts at a certain price, and the product will be sold at a later period. The contract term defines how many times they are purchased and sold. Most precious metals or futures contracts are bought and sold for hedging or speculative objectives. The majority of commodities futures and gold futures are traded because they are registered with:
- The Commodity Futures Trading Commission (CFTC)
- The National Futures Association (NFA)
Most gold and commodity futures are traded on exchanges such as the Chicago Mercantile Exchange (CME) Group and the Intercontinental Exchange (ICE). But there are other exchanges where gold futures can be traded with proper trade statistics.
What Will I Learn?
Gold Futures Contract
Gold is one of the most valuable precious metals in the world, and this is one of the most diverse and closely monitored commodities in history. Gold is a brilliant yellow metal with a shine frequently employed as an inert metal in machinery and equipment.
Air, moisture, UV radiation, and chemical compounds have no impact on gold interest rates, which can only be liquidated at high temperatures. Gold is the rarest and most unique metal, capable of being bedded to any desired form, which is why gold jewelry is valued internationally.
The first gold was mined around 2000 BC, and most people believe it was mined in Egypt since gold can be found in artifacts and pyramids.
In 600 BC, the first gold coin was struck. But the coins’ faces have altered throughout the years, and they are now created by precise machines rather than workers investing in a single coin for hours. Gold mines may be found worldwide, including in the United States.
Most gold is discovered in quartz veins or as a free metal in mines. And depending on whether it’s an open pit or an underground mine, the company must make changes. Nevada is the largest gold producer area in the US, and Alaska and California are right behind with their past performance. Gold is one of the precious metals that is a good conductor of heat and electricity.
Gold futures are traded on the Chicago Mercantile Exchange or CME. The futures are traded on the COMEX exchange. New York Mercantile Exchange (NYMEX), Tokyo Commodity Exchange (TOCOM), Korea Future Exchange (KOFEX), and Bolsa de Mercadorias and Futures(BM&F) are some of the Exchanges where gold is traded in their COMEX Division.
The CME gold futures contracts are traded on 100 troy ounces of gold, and the fineness of gold is 99.5%. The gold is traded here in dollars and cents per troy ounce.
COMEX Gold Futures
CME Globex: GC
CME Clearport: GC
Gold Contract Size: 100 troy ounces
Pricing: United States dollars and cents
Tick Size: 0.1
Tick Value: $10
Point Value: 1: $100
Average Daily Volume: 342,222(2018)
Gold Future Contract Months: January, February, June, August, October, and December.
Trading Hours: CME Globex = 6:00–4:00 pm, Sunday–Friday. There is a 60-minute delay. Break starts at 5:00 pm each day.
Limits: 10 gold Contracts.
COMEX gold is the standard for all the gold futures in the world for its gold prices. The liquidity value of COMEX gold is higher, and almost twenty-seven million ounces of gold are traded daily.
Gold futures will allow diversification in the precious metals market. Gold futures are responsive to the world market, unlike holding precious metals where you don’t get to see the difference until the end.
Why Trade Gold Futures?
Gold as a physical metal is often deemed worthy of all its attention. Most people invest in gold to diversify their investment portfolio and stabilize their contributions and funds. An economy can be risky if you are in business and are directly connected to a company. Most people invest in gold as a retirement account, which is often considered a long-term investment.
The gold market is often related to volatility, as gold prices frequently fluctuate, which is why gold investment can be a part of a better plan. The gold industry is worth billions, including physical gold and gold-backed services. There are almost four thousand tonnes of gold traded globally in a year.
If you’re investing in gold rather than other commodity futures, there is a high chance that you’ll be in leverage and flexibility financially. Gold futures are traded on a centralized exchange, and they receive special treatment and the market is highly valued, so the investors enjoy a trading advantage. The gold exchanges are open 24 hours a day, and the price of gold is set internationally.
Advantages of a Gold Futures Contract
Here we are including some of the advantages of gold futures.
A gold futures contract is considered the standard for all other commodity contracts. There are almost 27 million dollars of trade daily with gold futures; thus, the liquidity value is pretty lofty compared to the other commodities.
If you invest in a gold futures contract, you will likely gain more control over your funding. You’ll be able to control your investments more effectively, and with a small sum of money, you’ll get to control the national value. The margin value is reduced to 80% when the money has been trading on one exchange.
With a gold futures contract, the exchanges are online almost all the time. You’ll be able to get frequent access to the market with the Internet and mobile. With world events and news, you’ll be able to manage the positions and let the prices unfold.
CTFC regulates the market, and most gold futures contracts must be certified. As a result, it is assumed that trading futures will be less credit risk because the central controlling factors reduce credit risk.
With market data, you’ll get tax treatment for long-term and short-term values with gold futures contracts. 60% of the taxes will be blended with long-term gains, and the rest will be termed short-term. This 60/40 tax treatment is primarily applicable in the United States.
Gold futures can be used differently for a trading session and dollar index. They can be used to diversify your investment portfolio and, thus, they’ll be able to stabilize the investments. Like physical gold, futures contracts are also considered a safe hedge against inflation. Dollar index lastly, gold futures can be invested in as a currency and can be traded in exchange for something else.
Gold Future Specification and Symbols
Here we are including some general terms for the gold futures exchange.
This is the minimum movement for the given product. If the tick value is 0.1, the minimum price movement recorded will be 0.1. So, if a product is traded on a 0.1-minute tick and the value is 67.01, the recorded value movement is 67.11-67.21 or 67.00-67.11.
This resembles how much the tick movement is worth. The min tick value will be multiplied by the contract size to give a price. For gold futures, if the tick is 0.1 and for 100 ounces of gold,
Tick Value=Tick× Contract Size
Tick Value=0.1×100=10 dollars
Here we are including some symbols related to the future exchanges.
- January =F
- February =G
- July =n
- August =Q
- September =u
- October =V
- November =X
- December =Z
- Platinum =PL
- Silver= SI
- Us Dollars =DX
- Australian Dollar= AD
- Canadian Dollar=CD
- British Pound=BP
- EuroFX= EU
- Japanese Yen = JY
- Swiss Franc = SF
Explaining a Gold Future Symbol
Example of ticker symbol: GC. K18
Here, GC symbolizes gold as a metal for the root symbol and the necessarily indicative. The K symbolizes the month of exchange, May, and the last two digits symbolize the year 18: 2018. If we are to ask why the month of the future hasn’t started with A and gone on in alphabetical order, Then the answer is that A is for Ask, B is for Bid, C is for Corn, E is for Eggs, O is for Oats, and W is used for Wheat. The rest of the letters are used in ascending order for the months.
Trade Entry with Futures
Trades are available for different months and years. As such, most traders go for the front or active month as the contract holds the most traded volume for a dollar amount. The codes will be carved out of the symbol of the month and the year codes. If the prices get low, buy the contract; if the prices get high, sell the contract.
The margin in futures contracts differs from the margin in stock trading, and the margin requirements are the gold futures contracts’ performance bonds. So, before you begin trading, research the margin requirement sites and websites.