Trading futures contracts is widely considered the most direct means of obtaining exposure to your favorite commodity. Among the most popular futures are gold contracts, as investors have adopted these securities for a number of reasons. First and foremost, gold futures and options are highly liquid as they are among the most actively traded futures in the world. Gold’s appeal is also from the fact that it is a popular speculative instrument used to make bets on the overall economy and recovery efforts. Trading gold futures, however, may be a bit difficult given the wide variety of choices that investors have. Below, we outline the different kinds of gold futures to help you find the most appropriate option for you [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
Commodity Exchange (COMEX)
We’ll start with the Commodity Exchange (COMEX) offered from the CME Group. Below are the four gold futures options you have with this ultra-popular, U.S.-based exchange.
- Gold: Trading under the symbol GC, these are your standard gold futures which are representative of 100 troy ounces of the precious metal. Prices are quotes in U.S. dollars and cents per troy ounce and trading terminates on the third to last business day of every month. According to the home website, trading is conducted for delivery during the current calendar month; the next two calendar months; any February, April, August, and October falling within a 23-month period; and any June and December falling within a 72-month period beginning with the current month. Don’t forget that these futures are also optionable [see also Three Reasons Why Gold Is Overvalued].
- Gold Volatility Index: Trading under the symbol GVF, these volatility contracts come with a multiplier of $500. Contracts cycle out for the next six months and offer a financial settlement upon maturity. These specific contracts are also optionable.
- miNY Gold: Utilizing the symbol QO, miNY gold futures offer investors with less change in their pocket a way to make a play. Each contract is comprised of 50 troy ounces of gold and trading is conducted for delivery in any February, April, June, August, October, and December falling within a 24-month period for which a 100 Troy Ounce Gold Futures contract is listed [see also Is Gold Overvalued? The Bearish Case vs. The Bullish Case].
- E-micro Gold: The final option the COMEX has to offer, these contracts (MGC) represent just 10 troy ounces, making them easy for even the smallest of investors to make a fair play on the gold futures market. The trading time and period for these contracts is identical to that of miNY Gold futures.
Multi-Commodity Exchange (MCX)
Now, we move overseas to the Indian MCX, which also offers a fair amount of gold futures. Note that India is among the world’s largest gold consumers, so its futures products may have an appeal all their own.
- Gold: These futures secured the ticker GOLD, allowing them to be easily recognizable to the general public. Contracts trade in February, April, June, August, October, and December and are available Monday through Saturdays. Each contract represents one kilogram and has a daily price limit of 3%. Individuals are allowed positions of up to 2 MT, meaning that a single person is allowed to take positions in up to 2,000 contracts at a time [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].
- Gold Mini: The mini gold contracts represent 100 grams and are available in every calendar month of the year. With a max of 2 MT per person, you can own 20,000 of these contracts at any given time.
- Gold Guinea: These contracts (GOLDGuinea) are available all 12 months of the year and are aimed at those with a smaller capital base. Each contract represents eight grams of the precious metal and individuals are still allowed up to 2 MT in contracts. That would be somewhere in the neighborhood of 250,000 contracts should one ever feel so bold [see also Is Gold Overvalued? The Bearish Case vs. The Bullish Case].
- Gold Petal: Intended for the smallest investors out there, these contracts represent just one gram of gold each. There are no set contract months, but the months are released by the MCX for investors to see. Just in case you were wondering, you can own up to 2,000,000 of these futures at a single time.
London Metal Exchange (LME)
Giving investors a different way to play the metal, the LME offers gold matching & clearing, gold interest rate swaps, and London Bullion Market Association gold forward curve.
Who Should Use Gold Futures?
This is an extremely important distinction to make; just because gold futures are available to everyone does not mean that they are intended for widespread use. In fact, it is safe to say that the majority of investors should not be utilizing actual futures, but may instead choose to use gold stocks, ETFs, or mutual funds. Futures contracts are only intended for serious investors and traders who fully appreciate their complexities and risks. Owning these contracts requires consistent management and a watchful eye, as a position can unravel in a matter of hours.
Trading gold futures requires a specific account that is complicated enough on its own, but when you add in the volatility of these contracts and all of the underlying price drivers, it becomes abundantly clear that futures investing is not meant for everyone. Gold’s price can be impacted by anything from government data around the world, comments and movements from central banks / The Fed, and even demand and supply figures. For those traders who have done their homework, these securities will offer an enticing play on this precious metal [see also 25 Things Every Financial Advisor Should Know About Commodities].
Disclosure: No positions at time of writing.