How to Trade Gold Futures

Gold is one of the most popular assets in the world, as this precious metal has proven its value over the years with its impressive track record. Gold investing can be used as a part of a long term strategy, or for short term futures investments for speculation trades. For those looking to dabble in gold futures, there are a number of options available, leaving some to wonder where to begin. Below, we outline strategies for trading gold futures as well as a few other products that offer similar exposure [see also Three Reasons Why Gold Is Overvalued].

The Exchanges

First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading gold futures.

  • Commodity Exchange: The COMEX, a member of the CME Group, offers exposure to a number of commodities with a focus on metals, including gold. The standard gold contract represents 100 troy ounces, while the miNY and micro contracts respectively represent 50 ounces and 10 ounces. It should be noted that there are also gold volatility futures for traders who wish to play the metal in that regard. One benefit to these contracts is that they trade Sunday-Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45 minute break period between each day).
  • London Metal Exchange: The LME offers gold forwards curve data to any investor interested in signing up. Investors will be able to see 1 week forward curves as well as 1, 2, 3, 6, 9, 12 and 18 months forward, giving you a great long-term view on the metal [for more gold analysis subscribe to our free newsletter].
  • Multi-Commodity Exchange (MCX): The Indian-based exchange offers a number of different contracts for gold including standard gold (one kilogram), gold mini (100 grams), gold guinea (8 grams), and gold petal (one gram) contracts. This may be an exchange better suited for investors with a smaller capital base.

Common Gold Trading Strategies

As far as futures contracts are concerned, playing gold is going to require a considerable amount of attention and should be left to only the most active of traders. Neglecting your position for even as long as an hour can have a dramatic effect on the outcome of your investment. Gold’s big price drivers are inflation, overall demand (be it financial instruments or institutions), and the actions taken by global banks, like the various quantitative easing programs. Finally, it is important to remember that as a primary trading instrument, developing trends in markets and how the majority of traders are behaving can also skew gold prices. Remember, the trend is your friend [see also How to Play Schiff’s $5,000 Gold Prediction].

For those who choose to shy away from actual futures contracts themselves, there are still options available for trading. Perhaps the best alternative to outright owning the contracts is to utilize the SPDR Gold Trust (GLD), which is the second largest ETF in the world. The fund, which is physically backed, has over $64 billion in assets and trades millions of times per day. Investors can also look to the physically backed iShares COMEX Gold Trust (IAU), which is also physically backed, but charges 15 basis points less for investment.

Further Resources and Reading

For further reading on silver and related topics, check out some of the links below [see also Were Gold and Silver Manipulated Alongside LIBOR?].

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Disclosure: No positions at time of writing.

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