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Gold Futures and Options Education
Gold futures and options quick facts:
The History of Gold and Gold Futures
Market
Throughout the history of mankind gold has been coveted for
its unique characteristics of rarity, beauty, and near
indestructibility. 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.
Gold
is 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.
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 is an effective hedge against
inflation. In addition, gold is 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. 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.
Trading is conducted through two
divisions; the NYMEX division, which trades a variety of
energy futures, platinum futures and options platinum and
palladium futures, and the COMEX division which trades gold,
silver and copper futures and options.
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.
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.
Trading
Symbol
GC
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