In contrast to simple investments in gold, when the question of its safe storage and the possibility of subsequently realizing it becomes relevant, the ingots purchased earlier, futures contracts for this metal are a more attractive investment tool available to many. They represent an excellent alternative to conventional investments in gold and allow you to conduct operations with it at world market prices.
The price of gold used for settlements in world trade is set at the London interbank market. Twice a day, the pricing occurs on it, when orders for buying and selling are equalized, which is called fixing. That he is the benchmark price for all those who trade in this precious metal on the market.
A gold futures contract is an ordinary exchange transaction where at least two of its participants are present – the seller and the buyer, and the transaction itself is guaranteed by the exchange platform so that neither of its parties has a desire to avoid its implementation at a price that is unfavorable to it – the exchange receives a guaranteed cash advance contribution. The futures contract itself can be settlement or deliverable. In the first case, the parties to the transaction under a futures contract have an obligation to make a calculation in the form of the difference in the price of gold in the contract itself and the price established by the morning fixing in London. According to the second variant of the futures gold contract, the seller undertakes to sell a certain amount of this metal, and the buyer to buy it at a pre-agreed price. This type of contract can only be used on international exchanges.
If you compare gold futures with a simple investment in gold, the investor does not seek to acquire a certain amount of gold for profit in the future, but merely operates with the difference in its price depending on time. Another major advantage of a futures contract in comparison with the usual purchase of metal in physical form is the difference in the amount of funds required for its purchase. If, when buying ordinary gold in a certain amount, an amount equal to its full value is required, then when operating with a futures contract, an amount of the order of a few percent of the value of the amount of gold specified in the contract itself is required. As a rule, this amount is 5% and represents a guarantee obligation paid by the exchange. In financial practice, this is referred to as leverage and allows you to operate with a large amount of gold than there is available funds for its acquisition.
On a counterweight to investing in ordinary gold in the form of ingots, futures contracts allow you to use a variety of strategies for earning profits in the future, such as reducing the risks from rising and falling prices, trading with leverage based on price fluctuations, calendar spreads, and buying and sales with a forecast for changes in its value.