Trading gold futures is not the usual nor conventional option for investors, not because it’s unheard of, but probably due to the volatile nature of gold prices. Although gold is a hefty commodity, many people are skeptical about purchasing it; however, it’s well-known in the global market that it’s an effective hedge against inflation. Gold futures, in particular, are relatively low-risk because both parties to the agreement merely consent to settle in the future, thus giving the trader time to think about possible gains (or losses) before actual payment. According to Investopedia, the centralized exchanges of futures contracts are advantageous because they offer flexibility, financial integrity, and higher financial leverage than trading the commodity itself.
Gold and Precious Metals, a site that publishes data on gold and silver, enumerates certain benefits of gold futures trading. According to an article, it significantly reduces costs by eliminating the hassle of storage and settlement. Also, investors may participate even if they don’t have a lot of money. Furthermore, traders have the option to short sell as long as they purchase an equivalent contract back. An analysis by Bullion Vault, a gold trading and investment site, observed that gold rates are affected by dollar rates—if the latter drops, the futures price will be below spot price (this is known as “backwardation”). It’s therefore best to consider dollar interest rates before plunging in.
The Options Guide also offered a sound advice: gold futures contract can be undertaken with gold options. This will offer flexibility, because investors have a wide range of approaches at their disposal, which can address a specific risk profile, investment time, or outlook on price volatility. A profit can be gained if an investor will take a “long position” in the market while gold prices are on the rise. It’s possible that a slight increase in gold prices on the market will yield to a great ROI due to the relatively low margin required in a gold futures contract.