Diversifying your investment portfolio with gold & other precious metals is a smart move. Smoothing out the market’s volatility is achieved by incorporating non-correlated securities. Over the long term, they may also increase your profits while decreasing your risk.
Investing in gold & other precious metals can be done in a variety of ways. We’ll explain how and where to invest in gold futures in this article. You may want to consult a financial advisor if you’re considering adding derivative products to your investment portfolio.
Gold Investing Methods
Whenever it comes to purchasing gold, investors have a plethora of options. It’s up to you to decide which is best for you based on your situation.
Jewelry made of gold. It’s popular choice for informal investors because it provides something to wear, an opportunity for appreciation, and the ability to also be covered among most homeowner policies.
Futures on gold It is possible to profit from future change in price of gold through these contracts. In contrast to options contract, futures contract is binding on both parties even if the transaction is not profitable.
Gold-backed mutual funds and exchange-traded funds (ETFs). By investing in these funds, investors can avoid hassle & risk of owning gold while keeping a close eye on its price. Fees eat into your investment returns.
Mining-related mutual funds and exchange-traded funds. Investing in a mining mutual fund saves you the trouble of researching and vetting individual mining companies. Instant diversification & professional expertise in niche are also provided by mutual funds.
Futures In Gold
Buying gold futures is another way to invest in gold without owning any of the metal. “Gold futures were also hedging tools for commercial creators and consumers of gold,” says CME Group, a global markets company. G lobal gold price discovery & diversification opportunities they provide is another benefit.”
Nymex and Tokyo Commodity Exchange (TCX) are two of the major international exchanges where these futures can be traded. This type of futures contract can be traded on Multi Commodity Exchange in India (MCX).
Gold is an excellent hedging asset because it moves in the opposite direction of many other assets, such as equity. Of course, the security concerns and the need to evaluate purity of metal make it difficult to store and trade gold in its physical form. Holding these futures through maturity and taking delivery of metal is an option. However, you can trade all without having to take possession of them if you sell them prior to their expiration date.
There are monthly settlement dates for these futures contracts on the 5th of the following month. Your position should be squared off before 1st of month if you don’t want to receive the metal. Delivery is made in 995-purity gold bars numbered sequentially.
These gold futures are excellent investment for those looking to profit from changes in the precious metal’s price. Depending on your financial situation, you can choose from a variety of gold futures contract sizes.
For example, if you’re a big player, you can get gold contact for 1 kg. It’s also possible to get the Mini (100 gm), the Guinea (8 gm), and the petal (100 gm) (1gm). In terms of volume, the largest 1 kilogram gold contract is the most popular.
Gold futures in India have very low margins, around 4%, like most other commodities. A substantial position in these futures contracts is therefore open to investors. For instance, margin of only Rs 4 lakh will allow you to take a position in gold futures worth Rs 1 crore.
Profits will be easier to come by as a result of the increased visibility. However, the dangers are substantial. Events in any part of world will influence gold prices in India, as gold is a global commodity. Any blunder you make in your assumptions may cost you dearly.
The gold futures market requires massive appetite for risk, quick reflexes, and thorough understanding of precious metal or its place in the global economy.