Gold Futures

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Gold futures contracts represent an advanced approach to investing in the yellow metal.  Futures contracts can seem mysterious, if not out of reach, for the average investor.  However, with the progress of the historic gold bull market, new products are being made available, just as a whole host of gold ETF funds and other gold funds have cropped up.

Gold Futures Overview

Gold futures contracts today offer considerably more flexibility than ever before.  They are commonly available in the 100 troy ounce size, such as the CME Group’s GC.  CME also offers a 50-ounce alternative, known as the COMENX miNY Gold product.  More recently, you can now find the E-micro Gold investment, which now gets the size down to just 10 ounces.

Aside from the various contract sizes, COMEX futures contracts in general benefit from a number of features.  They are quite liquid.  There are approximately twenty million ounces of gold that changes hands daily.  At any given time there could be somewhere around 50,000,000 ounces at play in open positions.  There are tight bid-ask spreads and real-time quotes.  Transparent pricing is appealing and draws a large number of investors, which only aids the liquidity.  On top of all that, the vast majority of transactions are mere digital entries, which makes the market quite efficient.

Gold Futures In Every Portfolio?

Gold has set a record decade-long rise, increasing in value for each of the first ten years of the century.  It’s difficult to think of another commodity that has done this well for so long.  Worldwide economic factors suggest this is not the normal “cycle” within a given investment sector.  Instead, it appears there is a global fondness of real assets.  In an age when fiat currencies are falling out of favor all over the planet, the push for “real” money is strong.  Gold investment opportunities have grown in number.  Any number of stocks, ETFs, mutual funds, and gold storage programs exist.  There are even leveraged vehicles that use derivatives to try to amplify the move in gold prices.  Futures contracts deserve a reasoned consideration in one’s portfolio.

The E-micro gold futures contract brings futures within the reach of the more typical investor.  This new offering coincides nicely with rising interest in gold not only as an investment, but also as a hedge against inflation and a deteriorating dollar (and other fiat currencies).  Since it is only 10% the size of the usual gold contract, the smaller amount allows more people to trade bold bullion without tying up an inordinate portion of their overall portfolio.  In addition to the smaller capital involvement, there are also smaller margin requirements and exchange fees as well.

This type of contract offers remarkable versatility.  For one, it is available for trading just about 24 hours a day through the CME Globex.  In addition, the flexible timing allows more control of trading decisions, since there’s less pressure to respond to market factors.  Plus, for larger investors, the E-micro gold contract could be used in a cross-margin scenario with larger contracts under the same umbrella of product offerings.

Gold Futures Housekeeping Considerations

These 10 troy ounce gold futures contracts have rather standard functionality.  Indeed, they are listed with COMEX and all of those rules and regulations apply.  They are priced in U.S. Dollars.  The smallest permissible fluctuation in price is 10 cents for every troy ounce.  Trading for these contracts ends on the third last business day for the month of delivery.

Speaking of delivery, physical settlement of the contracts does not include a 10-ounce bar, but rather is limited to an Accumulated Certificate of Exchange (ACE), which we’ll mention in greater detail momentarily.  The gold subject to these gold contracts has a guaranteed purity of .995.  The delivery period begins as early as the first business day of the delivery month.

Gold Futures – Mechanics Of Physical Delivery

While gold futures contracts don’t offer ten-ounce bars as an option for physical delivery, accumulation and conversion does permit you to receive a one hundred ounce COMEX gold warrant.  The COMEX gold warrant is a proxy for a real gold bar.  It can be a gradual process where you first take delivery of an E-micro contract, whereupon you’ll receive 1 “Accumulated Certificate of Exchange” (ACE).  This signifies 1/10 ownership in a 100 ounce gold bar, with that ACE being backed up by actual bullion warehoused in a depository.  Once you aggregate ten of the ACEs, you can convert this into a COMEX gold warrant that is a real gold bar with serial number.  This allows you to play gold futures not only for profit, but also protection against failing fiat currency.