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Gold Futures Trading: A Quick Report
Investing in gold futures does not involve gold to exchange hands. A gold future represents an agreement by the buyer to buy a certain quantity of gold at a pre-set price in a future time. Gold futures are one of the best way to obtain leveraged exposure but they are capricious. Gold futures are a fascinating and important realm, but they do not deserve the level of mysticism and fear they seem to generate. The futures priesthood that 'informs' gold-stock investors often takes facts beyond context and disseminates half-truths planned to sway sentiment.
Gold's importance in world markets makes COMEX Division gold futures and options an important risk management tool for commercial investors. Investors watch Comex data as an indicator of froth in the market. Trading gold futures securities happens primarily on paper: the majority of the gold purchased or sold in the futures market never moves. Gold futures are typically traded by "speculators," traders who buy or sell gold futures but are not interested in the actual gold, versus "hedgers," who do value the gold itself as an asset. Trading gold futures also has low fees.
Gold options are also powerful and cost-effective investing instruments, which can be used to own desired amount of gold in future, and can also be used to hedge price moves of gold that you possess. Each futures contract is equivalent to 100 troy ounces.
Prices in a structured derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the supposed future level. The prices of derivatives converge with prices of the underlying at the end of the derivative contract. Prices vary based on supply and demand (although the twice-daily gold fix in London helps set a reference point for prices). The price of gold in the spot gold market-known as the "spot price"-is the price fixed for the spot gold, including delivery, to be paid two days following the date of the actual transaction.
In conclusion, let me stress once again that gold futures are not a risk free financial commodity and should be considered carefully. Investments should only be made with risk assets which is funds you could afford to lose and it would not cause you to change your lifestyle in any way.
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