Gold Futures

Information on Investing in Gold Futures

Gold Futures

Gold Futures.

Gold futures have been, and will continue to be a great hedge against inflationary economic pressures. As a portion of a well-balanced portfolio, gold futures can offer substantial gains through changing market conditions.

Gold futures were born in 1975 in the uncontrolled inflation rise of that period. The demand for gold fueled disproportionate values, reaching $850 an ounce in 1980, at a time when the demand far outstripped the supply, as a response to inflation. Gold futures were first introduced in the Comex, or Commodities Exchange, now the leading metals exchange in the United States.

A gold future is a contract to purchase gold at a certain price, within a specified period of time between a buyer and a seller. The contracts are traded on the floor of a futures exchange, much like other financial instrument such as stocks. The demand fuels the contract prices and typically moves inversely to bull stock markets. If the stock market is doing well then the price of gold and subsequently gold futures contracts decline. In 1999, the stock market reached an all-time high, driven by the lowest interest rates since the Depression. With investment capital flooding into the stock market, the price of gold plummeted and bottomed out. Gold futures are traded based on price expectations and are reflective of these significant market events.

Gold futures, like any other commodity, can be a volatile way to invest, particularly in the short term, and should be limited to investors who fit specific criteria. Individuals with access to up-to-the-minute market information will benefit as the prices change rapidly and often. Traders who have low risk tolerances would do well to remain in more traditional investment vehicles, and individuals with lesser amounts of disposable income would be better served in slower growth investments and diversified vehicles.