bar Gold commodity futures are contracts that are exchange traded and standardized. With them, a person agrees to accept delivery of a certain gold quantity from the seller, at a certain date in the future, with a price that is predetermined.

Because there is the problem of convenience, transparency and cost, trading gold on a physical market is not a possibility. That’s why the gold futures market is thriving, as it meets the requirements of the gold speculators on the short term. The requirements of these speculators are met by a transferable and standardized contract of quarterly futures.

Futures Trading Advantages

First of all, the costs are considerably reduced, since the storage and settlement costs are eliminated, together with the hassles of having gold in custody. Second, you don’t need as much money to participate in the market.

Next, a trader can decide to short sell. As long as they purchase back an equivalent contract before the expiration, they will make money if the price falls. Usually this will happen on a market that have large difficulties, since the seller will need to borrow the gold, something that retail investors find impossible.

A real time price that is reliable is provided by increased liquidity, but this isn’t available in the OTC market.

The advantages I mentioned mean that the gold futures contract turnovers exceed right now the production of gold of the world. These figures can’t be estimated exactly, but just the COMEX gold turnover is twenty times larger than the actual production.

Besides the risk of the price going in a direction that would cause you to lose money, one other risk of gold futures is the default which would take place in the period of time between the trade and the future settlement date. This would cause someone to get a profit, without having the possibility to collect it.