Gold futures
A futures contract is a financial agreement to buy or sell a specified quantity of a certain commodity at a designated time in future, at an agreed price set at the time the contract is established.
Originally, gold futures contracts were designed to protect large industrial users of the precious metal from adverse price swings by enabling them to obtain or supply a steady quantity of gold at established prices – prices at which their respective businesses will be able to make a profit.
Members of the public buying futures are mostly speculators betting on the rise and fall of the price of gold. They buy gold futures when they believe that the price of gold will rise and sell them when they think it will fall. Gold futures traders don’t actually have to own or take delivery of the physical gold. By opting for cash settlement, they can just pay (or receive) the valuation difference in cash on delivery date.
The profit potential as well as the associated risk can be very high as futures trading account typically provide significant leverage. For example, the investor can control $50000 worth of gold by paying only $2500 upfront.
As the risk of trading gold futures can be very high, especially for those untrained in the intriques of options and futures trading. Investors are advised to exercise due caution if they wish to venture into this highly speculative endeavor. Less aggressive investors seeking to enter the gold market are recommended to stick to less risky means like buying gold ETFs or gold mining stocks.
Gold Futures Trading
Gold futures are traded in futures exchanges worldwide. Below is a summary of gold futures contracts traded in major futures exchanges worldwide.
Standard Gold Futures Contracts
| Exchange | Symbol | Contract Size | Min. Price Fluctuation | Initial Margin |
| New York Mercantile Exchange (NYMEX) | GC | 100 troy ounces | US$0.10 (10¢) per troy ounce, equivalent to $10.00 per contract | approx 5%, subject to change. (see full contract specs.) |
| Tokyo Commodities Exchange (TOCOM) | Not Available | 1 kilogram (approximately 32.15 troy ounces) | JPY 1 per gram (1000 japanese yen per contract) | approx 5.5%, subject to change. (see full contract specs.) |
| Shanghai Futures Exchange (SHFE) | AU | 1 kilogram (approximately 32.15 troy ounces) | RMB 1 per gram (1000 RMB per contract) | approx 7%, subject to change. (see full contract specs.) |
| Dubai Gold & Commodities Exchange (DGCX) | DG | 32 troy ounces (approximately 1 kilogram) | US$0.10 per troy ounce (US$3.20 per contract) | approx 6.5%, subject to change. (see full contract specs.) |
| Multi Commodity Exchange (MCX) | GOLD | 1 kilogram (approximately 32.15 troy ounces) | Re. 1 per 10 grams (Rs 100 per contract) | approx 4%, subject to change. (see full contract specs.) |
Gold Mini-Futures
In recent years, gold mini-futures contracts were introduced by some of the major futures exchanges to make gold futures trading accessible to more people. The contract sizes of gold mini-futures are lower than their standard counterparts and consequently, their margin requirements are lower, making them attractive to gold futures traders who would like to speculate with less money.
| Exchange | Symbol | Contract Size | Min. Price Fluctuation | Initial Margin |
| New York Mercantile Exchange (NYMEX) | QO | 50 troy oz. | US$0.25 (25¢) per troy ounce ($12.50 per contract) | approx 5%, subject to change. (see full contract specs.) |
| Tokyo Commodity Exchange (TOCOM) | Not Available | 100 grams (approximately 3.215 troy ounces) | JPY 1 per gram (100 japanese yen per contract) | approx 5.5%, subject to change. (see full contract specs.) |
| Multi Commodity Exchange (MCX) | GOLDM | 100 grams (approximately 3.215 troy ounces) | Re. 1 per 10 grams (Rs 10 per contract) | approx 4%, subject to change. (see full contract specs.) |
How to Start Trading Gold Futures
To buy or sell gold futures, you need to open a trading account with a broker that handles gold futures trades. Most online brokerages out there only deal with stocks and stock options.
Gold options
The buyer of a gold option contract is conferred the right (but not the obligation) to buy or sell a specific amount of gold at a fixed price (strike price) to be delivered on a designated date. This right can be exercised anytime before the option expires but the option buyer can opt not to exercise the option should the price of gold move against him.
The advantage of buying gold options is similar to that of gold futures in that they both provide significant financial leverage. However, unlike a gold futures contract, the gold options contract holder do not have the obligation to buy or sell the underlying gold. Hence, the gold option buyer’s downside risk is strictly limited to the cost of the option – i.e. the premium plus any transaction costs.
The disadvantage of gold options is that they can expire worthless if price of gold does not appreciate beyond the strike price within the lifetime of the option.
Another useful aspect of investing in gold options is that, unlike more traditional gold investments such as gold coins or gold stocks which only gain in value when the price of gold goes up, it is possible to profit from a drop in gold price when trading gold options. One can purchase gold put options, which gain in value as gold price falls. Buying gold put options allow the astute gold investor to bet against gold price. An investor with a sizable stash of gold bars or gold coins can also protect the value of his holdings against falling gold price by purchasing some gold put options.
For the novice investor, options trading can be a rather complicated subject.
How to Start Trading Gold Options
To buy or sell gold options, you need to open a trading account with a broker that handles gold futures options trades. Most online brokerages out there only deal with stocks and stock options. Only a few let you trade futures and futures options as well. They may also provide a virtual trading platform where beginners can try out futures and options trading in real market conditions without using real money.
Gold IRA
Let’s be clear, all the above derivative products are very risky. For safer gold investments, you can check about Gold IRAs at GoldSupply. These financial products act as retirement saving accounts and let you minimize your taxes.