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Market Spotlight: Gold Futures

What are Gold (GC) Futures?

Gold Futures are financial contracts offered by the Chicago Mercantile Exchange under the ticker symbol (GC). Each contract reflects 100 troy ounces of the precious metal and each tick is worth $10.00. Out of all the precious metals gold is the most traded and is one of the highest traded futures contracts in the world. Besides the standard gold futures contract the CME also offers a micro gold futures contract at $1.00 a tick at 10 troy ounces.

Gold Futures Highlights

Gold is the top most traded precious metal for good reason, below are some of the strengths that make Gold Futures so attractive: Flexible: The Chicago Mercantile Exchange offers not only a standard contract of $10.00 a tick but also a micro contract at $1.00. Even traders with smaller account sizes will be able to comfortably trade this market. Fair trading: The GC is traded on the Globex platform which gives retail traders with smaller accounts a fair chance at trading the market. Trades placed on the GC don’t prioritize different types of accounts, so orders are placed in a first come first serve basis. High Volume/Good liquidity: Out of all the futures commodities the CME group offers Gold ranks among the top ten most liquid futures contract. Gold regularly trades with an average daily volume around 300,000 contracts and according to a 2018 first quarter report by the Chicago Mercantile Exchange the average daily volume for gold reached over 382,000 contracts. Good Intraday Volatility/Reactive Market: The gold market reacts to economic and news events quickly and depending on the day the price can swing significantly throughout a trading session. Add in the liquidity and high volume of the Gold market and you have a great market for retail day traders. What moves the Gold Futures contract? Below are some of the most common factors that influence the Gold Futures (GC) market: US Dollar/ FOMC Meetings: Like with most commodities changes in interest rates will have a large impact on Gold prices. Watch for FOMC reports and a change in interest rates. On an intra-day scope the Gold market should be especially volatile on these days. If the FOMC reports a hike in interest rates we can usually look for the price of gold to drop and if interest rates are kept around the same levels the price might rise. Watch for other reports and factors that can impact the US economy overall, as this could impact interest rates and by indirectly the price of Gold.Economic events such as the Consumer confidence report,GDP report and even the Retail sales report can cause the Gold market to become volatile. Since gold has historically been used as a “safe” investment when the US dollar drops we will usually see a rise in Gold price and visa versa. Yen Correlation: While the US dollar has a major impact on gold price, the Gold market moves closely in the same direction as the Japanese yen. Both the yen and gold are tied together because both are “safe” investments. When the overall attitude of the market becomes a higher risk environment and investors are willing to go with higher risk/higher reward investments the price of these market usually drop together, likewise when investors are unsure of the economic environment they will tend to invest in safer markets and the so the yen and gold markets increase. We can use this correlation to check the market conditions for gold and if our account allows it we could trade both of these markets together. Gold Demands Trend Report: Gold is a physical commodity which means supply and demand play an important role in the market. Watch for days when quarterly and annual reports come out that talk about this data. One important report comes from the World Gold Council called the Gold Demands Trend Report. This report tracks and watches the changes in the supply and demand of gold in a quarterly cycle. Aside from this report the World Gold Council maintains a great website that allows you to keep track of data and important news on the Gold market. Conclusion The Gold Futures market offers a unique, high volume market that if traded correctly can be used as a traders sole source of profit. The Chicago Mercantile Exchange offers different options for traders, from the micro contract at a $1.00 tick to the standard and most popular $10.00 a tick contract. It’s important to note that new traders, especially ones with a smaller account size should be careful trading the GC Futures contract at $10.00 a tick. Wait till you have a proper account size to day trade this market comfortably. Traders that wish to start trading this market should be on watch for major economic events from a variety of sources as the gold markets can react quickly and can often become volatile. Remember that as intra-day traders we are not as concerned with the long term price movement of gold as we are with how the market will react in the short-term. Unless you have experience trading the market, don’t take a position based off of news alone, wait for these reports to hit and see how the market is reacting.

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