Investing in Gold Futures and Options

Investing in Gold Futures and Options

Another popular choice among investors with less time at their disposal is investing in gold futures and options, which is basically a set of derivatives based onย the price of gold. Contracts such as this are also utilized by large institutional investors to hedge their exposure to price fluctuations with gold. The COMEX, a United States company, houses the most active contracts involving the sale of gold futures and options, with an estimated 200,000 of these said contracts being transacted daily.

This is equivalent to over 20 million ounces worth of gold โ€“ a staggering amount of the stuff (That is, if it’s really there). When investing in gold futures and options, investors hope to gain from the falling and rising of the price of gold dependent on what kind of contract they entered.

The main reason that the futures and options market is so attractive is that it lets investors leverage capital using the derivative marketโ€™s own margin system. By doling out a payment known as the โ€œinitial marginโ€, investors have better exposure than they would have gotten if they had gone through the cash markets.

The options and futures market has alwaysย  been a source of contention in the gold investment community. A process called โ€œnaked shorting”, which is selling metal not in the ownership of the investor selling it, is often called out as the cause of distortions with the price of gold, because it places artificial selling pressure on the gold market.

Seeing as how fragmented the gold market is nowadays, a lot of futures and options are just traded through online brokers who take care of all the requirements for the connectivity, exchange, and margins for the investors.

There are a lot of options for investors who want to purchase gold to serve as a short-time investment โ€“ several have been discussed already, such as investing in gold futures and options, gold ETFs, gold mining stocks, or physical gold bullion.

However, a lot of investors have placed their interest in investing in gold for longer time periods, and they often seek ways to incorporate that gold investment in such a way that it complements their retirement plans. One can achieve this in several ways, with an Individual Retirement Account.

Note: Investors interested in doing so should consult with an expert on the structure of investments involving pensions, such as an investment advisor or tax consultants.

Pros of Investing in Gold Futures and Options:

Easily traded

You don’t need to fuss about storage, since the gold you are investing in isn’t actually physical gold.

Cons of Investing in Gold Futures and Options:

You aren’t entirely certain whether the gold you are investing in is backed by physical metals

No real protective measures in place in case the system collapses

No one involved actually owns any physical metals

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