Gold futures market

Gold bullion trades on exchanges throughout the world. Gold futures trade on the COMEX exchange. The gold futures market trades gold futures contracts, derivative instruments, tied to the promise to buy or sell gold at a set price on a set future date. These contracts have a daily value which is based on the day’s price of gold and the eventual settlement price of the contract.

The COMEX acts as a clearing house, sets margin requirements, provides a mechanism for settlement, and acts as "counterparty". This last function takes away "counterparty risk" which is when the investor who is supposed to buy the gold won't buy or the investor who is supposed to sell the gold won't deliver it. The margin covers the risk of not following through on the contract and, like in the stock market, if the premium or discount becomes too large there will be a margin call on the trader to cover his or her position.

When the contract is settled the delivery price will commonly be above or below the market or spot price. The difference between the spot price and the delivery price is a premium or a discount, namely the profit or loss involved in the contract.

Future contracts are like other derivative securities in that they are often used to hedge risk. For example a gold mining company may want to lock in part of their profit and market share by agreeing to deliver gold at a set price on a future date.

Any investor can buy and sell in the gold futures market providing that they can meet the margin requirements and are willing to pay commissions. Normal investors do not deliver or take delivery of gold bullion. They buy and sell futures contracts looking to profit from the movement of gold and they always get out before the contract is up.

The way to buy and sell physical gold for the normal investor is to work through a gold exchange. Feel free to contact one of our gold experts at 1-800-300-0715 and after a few questions about your investment goals we will be able to outline the gold investments available for your needs.