The futures market is usually deemed a high risk investment but that is quite relative; others may view futures as a hedge against fluctuating and uncontrollable pricing.
Futures refer to the obligation of buying or selling a committed amount of commodity at a preset price on a particular day.
A gold futures contract is really a bet on gold price trends and has nothing to do with the physical metal, which does not concern the trader. Hence, futures trading is really a speculation rather than an investment.
Some traders view futures as a risk inhibitor. Gold mining firms that sell gold at some fixed price can hedge themselves from falling gold prices with futures trading. But many futures traders reap huge profits while being mindful of the risks attached. Those who wish to indulge in futures trading must be ready to take on those risks.
The saying is sure that a big gain opportunity is always balanced by a big loss possibility. However, futures trading is not really for the individual as the stakes are very high with unpredictable results. It is the leverage in futures contract that constitute the big gain opportunity and big loss possibility phenomenon (hedge funds realm).
Leveraging refers to the utilization of a small sum of money for a huge investment return. Hence, a gold contract of $35,000 would cost you $3,500 (minus fees and commissions) with a leverage of $31,500.
A small 10¢ gain of your contract, your investment value goes up by $10. For gold, it is possible for its price to swing $100 during the contract’s lifespan. Hence, for a price increase of $100, your investment value would increase to $10,000 to give you 300% gain.
But, the opposite can also happen; a price drop will incur a heavy loss in value which you would have to bear. Hence, leverage offers a seemingly easy and quick way to multiple your small investment, but it can also pull you deep down in serious financial losses quickly.
Futures contracts do offer an opportunity to traders to make a profit from the gold price increase and decrease. An investor expecting a price increase is said to be taking a “long” position while the one who expects gold price to drop will take on a “short” position.
There is “future” in the futures market. Futures contracts normally last only one year or less. Gold futures contract trading does not involve any physical gold delivery. Hence, it is normal for a trader to close out his position prior to the delivery date. Very few futures contracts last up to their whole lifespan. To close out, you will need to sell your contract.
The U.S. has eleven futures exchanges with two gold futures trading in New York and Chicago only. Overseas futures markets which trade in gold are also abundant.
Showing posts with label gold futures. Show all posts
Showing posts with label gold futures. Show all posts
Thursday, June 9, 2011
Friday, June 18, 2010
The Advancing Gold Futures
The significance of gold as a measuring standard of wealth and a viable investment option has been recognized since ancient times. Even after the dissolution of the Gold Standard worldwide, the yellow metal remains the most important asset for the various Central Banks across the globe. In such times, the demand surges in every quarter from national treasuries to retail investors. The recent global recession reestablished the authority of gold coins for hedging, investment, and even for speculative purposes.
The gold futures got a fresh impetus on June 15, 2010, amidst the growing concerns about the state of global economy. The August-delivery gold futures increased by 0.8% to reach $1,234.40 on the New York Mercantile Exchange, after hovering around $1,220 for a couple of days. Amidst concerns over the rising sovereign debt levels and weakening US Dollar, gold is increasingly seen as an effective alternative. The Dollar Index (DXY) was down by 0.7% to 85.93, while Euro ended approximately 1% higher than the Dollar. The Dollar Index measures the price of the US Dollar, relative to six major currencies of the world. The Greece-led economic crisis that came into picture in the first quarter of 2010 sent warning signals in the already ailing world economy. The impact of these events in the Euro Zone could not be assessed completely until date. As more and more grim news and analysis began pouring in, the fears of a double dip grew stronger.
The volatile situation in the European Union, in general, and the downgrading of Greece’s credit rating by Moody’s Investor Service on Tuesday, are the other major factors currently driving the gold prices. The credit rating agency slashed the ratings to non-investment grade, pointing out the inherent risks of IMF-sponsored proposed bailout packages for Greece. The Chicago-based Future Path Trading’s futures analyst, Frank Lesh stated that it is still uncertain whether the European Union is out of ‘danger’ and on the path of recovery. Nevertheless, the popular sentiments remain highly skewed in favor of gold. According to analyst Stephen Platt from Archer Financial Services in Chicago, following the past week’s price fluctuations, the commodity appears to be consolidating. Ever since the debt crisis became apparent, the commodity has become pricier by 12%. For the first time in almost four decades, since the gold futures were introduced on the New York Mercantile Exchange, the bullion touched $1,245.60.
The gold futures got a fresh impetus on June 15, 2010, amidst the growing concerns about the state of global economy. The August-delivery gold futures increased by 0.8% to reach $1,234.40 on the New York Mercantile Exchange, after hovering around $1,220 for a couple of days. Amidst concerns over the rising sovereign debt levels and weakening US Dollar, gold is increasingly seen as an effective alternative. The Dollar Index (DXY) was down by 0.7% to 85.93, while Euro ended approximately 1% higher than the Dollar. The Dollar Index measures the price of the US Dollar, relative to six major currencies of the world. The Greece-led economic crisis that came into picture in the first quarter of 2010 sent warning signals in the already ailing world economy. The impact of these events in the Euro Zone could not be assessed completely until date. As more and more grim news and analysis began pouring in, the fears of a double dip grew stronger.
The volatile situation in the European Union, in general, and the downgrading of Greece’s credit rating by Moody’s Investor Service on Tuesday, are the other major factors currently driving the gold prices. The credit rating agency slashed the ratings to non-investment grade, pointing out the inherent risks of IMF-sponsored proposed bailout packages for Greece. The Chicago-based Future Path Trading’s futures analyst, Frank Lesh stated that it is still uncertain whether the European Union is out of ‘danger’ and on the path of recovery. Nevertheless, the popular sentiments remain highly skewed in favor of gold. According to analyst Stephen Platt from Archer Financial Services in Chicago, following the past week’s price fluctuations, the commodity appears to be consolidating. Ever since the debt crisis became apparent, the commodity has become pricier by 12%. For the first time in almost four decades, since the gold futures were introduced on the New York Mercantile Exchange, the bullion touched $1,245.60.
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