Gold futures give investors the option to trade in gold without paying the full amount at the time of entering into the contract. The terms of the trade are agreed between the party like settlement date, the price of gold, the weight of gold that will be exchanged, etc; in exchange of a token amount of money called the margin.
The spot price of gold is the current selling price of gold. The future price is the price for which gold will be traded on a future date.
Gold futures can be traded in the market any number of times before the settlement day. Gold future are subject to speculation and the buyers and sellers have different view on the movement of the prices of gold.
The future price of gold depends on various factors like :
- The price trend of gold
- The market conditions
- The demand for gold futures
Advantages of Gold futures :
- gives the investor the option to have an exposure in gold without investing the full amount
- Its a commonly used hedging tool
- A large exposure can be achieved in lieu of a small amount of money
- The market for gold futures is highly liquid
- The price of the futures can be easily tracked.
