There is two principle gold futures market for bullion gold and silver. For this conversation, we’ll presume that the silver market functions in a comparable enough manner to make an example from the gold market. We’ll look into the distinctions between the silver and gold market in a later post.
The two primary markets that figure out the rate of gold are the area market and the futures market. The spot market is the market where gold for immediate shipment trades. Regardless of the name, not every deal that takes place in the spot market has a physical exchange of products, but anyone who has access to the area market should have the ability to make shipment of gold on demand.
The gold futures market is the market for gold at some date in the future. A futures agreement is a standardized arrangement to provide or get a specific amount of gold at some point in the future.
The e-micro is identical to the general gold futures agreement other than that it trades a notional ten troy ounces of gold. If one makes or takes shipment of this agreement, 10 ounces of gold changes hands. The e-micro can be considered a fractional conventional gold futures contract, so ten e-micros equivalents one standard contract.
The contract enables a trader to takes a position that advantages from an increase in the price of gold or from a fall in cost. If one is long, then they successfully buy gold, they own the commodity and benefit when the cost increases. If one sells a gold contract and “gets short,” then successfully, they offer gold.
Futures markets are predictive. Individuals look for to anticipate where the cost of gold will be near the end of the contract and invest appropriately. The futures rate of any commodity is based upon price expectations and the interest rate. Interest rates matter because there is an opportunity cost of investing money in a futures contract. The cash is not earning interest in a checking account, so that opportunity cost is factored into the futures rate of gold by the market. Since the rate of interest is currently low, and a little part of the cost factor, for our purposes we can disregard the prices of interest impact.
Regardless of the futures contract requiring physical shipment of 100 Troy ounce of gold, many agreements are closed before expiration needs shipment, and it is not the norm that gold is physically exchanged precious metals. Even among big gold users, traders and investors, much gold is traded by electronic transfer while the excellent,t physical remains safely locked behind numerous layers of security at big, well-secured banks and vault organisations. If one does take delivery of a gold contract, one receives a warrant for gold from a cleaning depository.
There is two principle gold futures market for bullion gold and silver. The gold futures market is the market for gold at some date in the future. The COMEX gold futures contract specifies delivery of 100 troy ounces of 995 pure gold. The e-micro is similar to the traditional gold futures contract except that it trades a notional ten troy ounces of gold. In spite of the futures agreement needing physical delivery of 100 Troy ounce of gold, the majority of the accords are closed before expiration requires shipment and it is not the standard that gold is physically exchanged.