Quick answer: Probably not. But let’s put the pros and cons beneath the microscope.
The gold market may be played in several ways. You can get gold bullion bars or coins. You can get shares in gold funds – including exchange-traded funds (ETFs). You can find gold mining and processing stocks which benefit to varying degrees from higher gold prices. And you will find other styles of “paper” ownership of gold.
A commodity futures contract is one form of paper ownership. Gold futures offer some distinct advantages for many traders. Storage investing, insurance and transportation of the physical metal don’t drive up costs – because normally there is no physical metal. No metal also means no counterparty risk because of loss or counterfeiting. Think the price will fall? It’s simple to go short and profit if the price drops. Compared to physical metals, futures trading can be a quick and easy proposition.
But futures markets also include some serious disadvantages.
Leverage Futures are highly leveraged. Which means that you simply have to put up a portion of a contract’s value – the margin – to “own” it. Currently, you are able to control 100 ounces of gold, worth about $140,000, with only $6700 cash. But it’d only take a 5% move against your position to eliminate your whole margin. This loss in margin because of leverage is frequently caused by the unusual volatility of futures prices. Futures costs are no more volatile – oahu is the leverage that kills.
You’re David; They’re Goliath The futures markets exist to hedge price risk. Any large gold owner can protect the worth of the holdings by going short in the futures markets. These hedgers and producers of gold tend to be the larger players in the futures markets – and they often less leveraged and therefore more powerful than the little speculator – you. Market power can be a decisive factor; particularly when trading short term.
Commissions Add Up As you can avoid certain fees by not dealing in physical gold, you will find commissions and fees required to clear futures trades. Because futures contracts typically expire every month or two, they should be rolled regularly- thus incurring more commission expense. Any savings because of insufficient storage costs may be easily lost by the necessity to continuously roll your position.
Speculation in gold futures is a highly leveraged trade – no investment in gold or gold ownership. Futures are primarily made for hedging and quick speculation. Understanding the difference can help you save money.