A quick guide to gold futures

Juliet D'cruz

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A quick guide to gold futures

So what exactly are gold futures? A gold futures contract is a financial instrument in which the buyer agrees to take delivery of a specific amount of physical gold in the future at an agreed price.

Like most futures contracts, the gold futures contract specifies a time and place for delivery, as well as a price per ounce. In other words, you can sell your gold futures contract before it expires and take delivery of the gold itself. This is important if you’re going to need physical possession of your gold when the time comes for you to sell it.

Gold futures are one of the risk management tools used by investment managers to protect investors against market volatility and inflation. Gold is a popular hedge against inflation (rising prices); however, some see gold as an alternative to or substitute for government-issued currencies as a store of value over time.

Who are the participants in Gold Futures?

The two most important participants in the gold futures market are those that use it to hedge risk and those that trade it as an investment. The former group consists of companies involved in the mining, fabrication, or trading of gold. These companies are likely to have financial exposure to gold prices and use futures trading as a means to stabilize their price risk.

The latter group is composed primarily of speculators who trade gold futures on margin for profit. Traders can be individuals, hedge funds, or other institutions. They can also be merchants who use futures to secure the price of an upcoming purchase or sale of gold, or they can be investors in search of an alternative asset class or safe harbour store of value.

Why is it popular?

Gold prices can be volatile and are impacted by numerous factors. All you need to do is look up gold price today in Agra or any other state and you can see for yourself that with such high prices it may be risky to play around with the volatility. Click here for more info. With highly leveraged contracts available through futures trading, investors can reap significant profits by successfully predicting the future price trends of this precious metal. Futures traders can also hedge their portfolios against inflation or currency devaluation with this commodity. Gold has endured as a standard for measuring and storing value over many centuries due to its usefulness and rarity. These factors have made it one of the most popular commodities traded on many exchanges around the world.

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What are the risks of investing in gold futures?

Gold futures, like most futures contracts, have notional values which are significantly larger than the margin deposits required to back them. This leverage can magnify your gains on a gold investment (if the price of gold goes up) or it can magnify your losses (if the price of gold goes down). Losses can exceed your original investment amount, and you may be responsible for additional funds.

If you want to buy or sell a futures contract, you must find someone who wants to take the opposite side of your trade. This is called making a transaction. Hence investing in gold futures involves more than just making searching gold price today Pune or Bhopal on Google. More importantly, you do not have the option to hold on to your position and wait for another day in hopes that prices will improve. You must either unload your position at a loss or accept delivery of the physical commodity at the end of the contract period (not all gold futures contracts require physical delivery).

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