Gold Futures and Options Trading

Learn the most effective strategies for buying and selling options on futures contracts. Also learn producer and consumer hedging strategies.

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

The History of Gold and Gold Futures Market

The Egyptians mined gold before 2,000 B.C. and the first gold coin was minted on the orders of King Croesus of Lydia in the sixth century B.C. Throughout history nations have embraced gold as a store of wealth and a medium of international exchange and individuals have sought to possess gold as insurance against the day-to-day inflationary uncertainties of paper money. Gold futures and gold options are sometimes used as an inflationary and currency hedge. Gold is often thought of as a default currency in times of economic upheaval and depreciating currency values.

The United States backed its currency with gold and silver in 1792. This continued until President Richard Nixon ended the gold standard leading to dissolution of the Bretton Woods international payment system. Gold is an inactive substance and is unaffected by air, moisture and most solvents. Gold is mined on every continent with the except for Antartica where mining is not allowed. Gold is typically found in quartz veins or alluvial deposits as a free metal. Because gold is virtually indestructable most of the gold every mined is still in existence whether it be unmined or stored somewhere.

COMEX Gold Futures and Options Quick Facts

100 ounce contract
one dollar move equals $100
trades February, April, June, August, October, December and serials
Gold futures symbol (GC)

Here is the option strategy guide for metals courtesy of the CME Group.

Metals brochure

Pure gold is one of the most malleable and ductile of all metals which makes gold such a vital industrial commodity. It is an excellent conductor of electricity, is extremely resistant to corrosion, and is one of the most chemically stable of the elements, making it critically important in electronics and other high-tech applications.

A broad cross-section of companies in the gold industry, from mining companies to fabricators of finished products, can use the COMEX Division gold future and gold future option contracts to hedge their price risk. Furthermore, gold has traditionally had a role in investment strategies, and gold futures and gold options can be found in investors' portfolios. Learn More >>>

Gold future contracts opened for trading in the United States on December 31, 1974, timed to coincide with the lifting of a 41-year ban on the private ownership of gold by U.S. citizens.

Today, gold future prices float freely in accordance with supply and demand, responding quickly to political and economic events.

Gold can be an effective hedge against inflation. In addition, gold is often inversely correlated to the US dollar, making it a good currency hedge. As an asset class, gold has all the advantages of being universally regarded as a currency, without what are all too often the disadvantages of being subject to the economic and monetary policies of one particular country's government.

Exchange-Based Gold Futures Trading

The New York Mercantile Exchange (NYMEX) merged with the Commodity Exchange, Inc. (COMEX) in August 1994 to become the world's largest physical commodity futures exchange. Recently the Chicago Mercantile Exchange (CME) merged with NYMEX and COMEX to become the largest exchange in the world. The gold future contract is one of the most liquid of the precious metal future contracts. During the September 11 terrorist attacks the COMEX was destroyed but within days the gold futures and gold options markets were trading again. This is a testament to the strength and viability of the metals future markets.

Are you a gold hedger? If so, click here to learn more.

Gold Options on Futures Contracts Explained

A gold call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a June gold $1,000 call option and pay a premium of $2,200.

This means that you bought the right but not the obligation to buy 100 ounces of June gold for $1,000 per ounce. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the gold option to hedge your price risk in the physical gold market (you may be a producer and own a gold mine or be a consumer like a jewelry fabricator) or you are speculating that gold prices will go higher in an attempt to make a profit.

A gold put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy a June gold $900 put option and pay a premium of $2,100.

This means that you have the right but not the obligation to sell 100 ounces of June gold at $900 per ounce.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the June gold $1,000 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the gold futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought a June gold $1,000 call option with 60 days left until expiration. Let's also assume that the gold futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

Gold Futures and Gold Option Contract Specifications

Trading Unit

100 Troy ounces

Price Quotation

U.S. dollars and cents per troy ounce.

Trading Hours (All times are New York time)

Open outcry trading is conducted from 8:20 AM until 1:30 PM.

After-hours electronic trading begins at 2:00 PM on Mondays through Fridays and concludes at 8:00 AM the following day, with the exception of Friday's session which concludes at 4:30 PM that same day. On Sundays, the session begins at 7:00 PM and concludes at 8:00 AM the following day. (Verify with exchange)

Trading Months

Gold futures trading is conducted for delivery during the current calendar month; the next two calendar months; any February, April, August, and October falling within a 23-month period; and any June and December falling within a 60-month period beginning with the current month.

Minimum Price Fluctuation

$0.10 (10¢) per troy ounce ($10.00 per contract).

Maximum Daily Price Fluctuation

Initial price limit, based upon the preceding day's settlement price, is $75.00 per ounce. Two minutes after either of the two most active months trades at the limit, trades in all months of gold futures and options will cease for a 15-minute period.

Last Trading Day

Trading terminates at the close of business on the third to last business day of the maturing delivery month.

Delivery

Gold delivered against the gold futures contract must bear a serial number and identifying stamp of a refiner approved and listed by the Exchange. Delivery must be made from a depository licensed by the Exchange.

Delivery Period

The first delivery day is the first business day of the delivery month; the last delivery day is the last business day of the delivery month.

Exchange of Futures for Physicals (EFP)

The buyer or seller may exchange a gold futures position for a physical position of equal quantity. EFPs may be used to either initiate or liquidate a gold futures position.

Margin Requirements

Margins are required for open gold futures positions.

Futures Trading Symbol

**Click Here Now! for actual gold futures and options quotes, prices, expirations, charts .....

To learn more about the precious metal and industrial metal futures visit silver futures, copper futures and platinum and palladium futures.

Also visit Gold Futures Special Report

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