Under the gold standard, the U.S. government was willing to exchange its paper currency for a set amount of gold, meaning its currency was backed by gold. However, President Nixon in 1971 severed the convertibility between the U.S. dollar and gold, which led to the breakdown of the Bretton Woods international payments system. Since then, the prices of gold and paper currencies have floated freely.


What is the futures price above which there will be a margin call? Let’s say it’s a slow day on the exchange and a professional trader puts out a large request to sell at an especially low price. With enough volume, that price alone can push down the market’s price temporarily. As the market price falls, this could trigger a stop-loss put on your shares to be triggered, forcing the broker to sell your position. TheAll Futurespage lists all open contracts for the commodity you’ve selected.

Gold Continuous Contract GC00 (U.S.: Nymex)

At today’s prices, therefore, a gold futures contract would be worth approximately $130,300 with gold currently trading at $1,303 per ounce. A silver futures contract would have a value of $103,150 with silver currently trading at $20.63 per ounce. Needless to say, the total contract value will fluctuate as gold and silver prices move up or down. The value of these contracts fluctuates according to the prices of gold and silver, with the quantity always the same. One gold futures contract is for the purchase or sale of 100 troy ounces of 99.5% minimum fine gold.

This is very debatable, but, again, due to the nature of futures contracts they are certainly not suitable for all investors. Proper hedging requires a good deal of market knowledge and expertise and is beyond the normal investor’s investment acumen. In addition, if one is buying gold or silver for the long-term, they should be prepared for and accept any declines in prices that may occur.

The multiplier for a contract on the stock-market index is $250. The maturity of the contract is one year, the current level of the index is 800, and the risk-free interest rate is .5% per month. Suppose that after one month, the stock index is at 810. Find the cash flow from the mark-to-market proceeds on the contract. Most investors are better served by treating physical gold and silver as core elements in a portfolio, buying and holding them for the long term role they play in mitigating volatility, not adding to it. Occasionally, however, a major speculator may take delivery of physical metal.

So you would expect to see the next future at a premium of 0.63% to the spot price. This is where you pay the financing cost on the whole size of your deal. Investors can prevent being stopped out by resisting the temptation to have too big a position just because the futures market lets them. If the investment amount is lower and plenty of surplus margin cover is down, a stop loss is unnecessary and the broker’s pressure to enter a stop loss order can be resisted.

Topping up the Margin

What is left is what we call the underlying yield. My feeling is going to continue to drift lower now after a surge upwards, I don’t think it’ll get back to where it was before which was in negative territory. We had negative reels for quite a period of time following 2009. That being said, the real yields, the long term real deals can decline, I think meaningfully from here.

physical gold

You can speculate if you believe the price of gold will go up, and also if you believe the price will go down. In the former you are going “long”, and in the latter you are going “short.” If you believe that gold will correct sharply, you can buy a futures contract to sell gold. The other side to the deal agrees to sell gold in the future for a price close to the current price. We see, therefore, that leveraging is a two-edged sword. However, without SLs to protect gold futures contracts that go against traders’ expectations, the cutting power of that sword can be devastating. ’ Because the losses in a contract sometimes amount to much more than Example #3’s $1,000 – perhaps swallowing the $18,000 equity and more.

Gold COMEX (Apr’ @GC.1:CEC:Commodities Exchange Centre

Physical gold, whether bullion or coinage, has security and storage problems. The futures markets are another alternative, but a much easier and more accessible vehicle introduced in recent years is the gold contract for difference. Hedgers buy or sell in the futures market to manage price risk.

  • The asset in question is called “the underlying asset”).
  • Let’s say it’s a slow day on the exchange and a professional trader puts out a large request to sell at an especially low price.
  • Things are not BOUND to happen, they are just likely to happen, or not.).
  • The COMEX gold futures contracts are traded in the pit from 1.20pm to 6.30pm using the old traditional open outcry method.

In other words, traders should almost never find themselves underwater in normal markets by more than their reserve can cover. If they get close, they’ll be forced to put up more reserve or close the positions and settle up. This sounds like panic-mongering, but it is an important commercial consideration. It is inevitable that the commodity exchange which comes to dominate through good times and healthy markets will be the one which offers the most competitive margin terms to brokers.

Chart of Gold Term Structure

Please read the Risk Disclosure for Futures and Optionsprior to trading futures products. Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Trading privileges subject to review and approval. The financial leverage of a futures contract may make you think that you are saving money on the actual price of a purchase.

The COMEX gold futures contracts are traded in the pit from 1.20pm to 6.30pm using the old traditional open outcry method. This is the time when these contracts are most heavily traded, although electronic systems allow the market to remain open all though the day. A put and a call on this gold futures contract, both struck at $1215 both sell for $10. The options both expire in one year, and both are European.

U.S. mine production in 2021 fell by -1.0% yr/yr to 180,000 kilograms. Canada’s gold mine production in 2021 was unchanged yr/yr at 170,000 kilograms, down from the 2018 record high of 183,047 kilograms. Meantime, the closing price of LME Aluminum 3-Month contract stood at USD 2,411.00 per tonne as on 2nd March, 2023.

What is a Futures Contract?

The page will always show prices from the latest session of the market. It is important to understand the benefits and risks involved with gold futures before placing a futures trade. Compared to traditional investments, with gold futures you can trade nearly 24 hours a day during the trading week and take advantage of trading opportunities regardless of market direction. Gold futures also provide the ability to trade with greater leverage and allow a more efficient use of trading capital. However, trading leveraged products like gold futures also involves the risk that losses can exceed the amount originally invested and may not be suitable for all investors.

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Think of how many professionals are out there today trying to “beat the market.” The majority of these professionals cannot beat the benchmark SP500 index. We are not saying it cannot be done, but for most people we believe this type of mentality is not going to be of benefit. That being said, paper investments such as futures, ETFs or the like do not equal physical metal ownership and do not accomplish the same goals. The paradox in investing in gold futures is that a future is itself a ‘derivative’ instrument constructed on about 95% pure credit.

The contract specifies the quantity of the commodity, along with the location, date, and time where payment and delivery will be settled. The big gold contract, as you realize demands a heavy margin requirement in terms of Rupee value. This prevents a lot of traders from trading the big gold contract, and perhaps this is the reason the exchanges introduced contracts with much lesser margin requirement.


After the Cooling Off Period, Contracts of all contract months will be specified as reserved for a period of 5 minutes, after which the price limit will be expanded to 20%. The prices traded for Contracts of all contract months must then not vary more than 20% above or below the latest Daily Settlement Price (“the 20% Limit”). The idea is to cover all the major commodities that one can trade.

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