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COMEX gold, or gold futures, are a common way for professional money managers to gain exposure to gold’s upside on behalf of their clients. Gold has been a standard component of a diversified portfolio from time immemorial. However, in times of increasing uncertainty, gold also becomes a prominent place of refuge. Indeed, investors routinely seek recourse to precious metal for stability.
COMEX Gold In Light Of The Overall Case For Gold
Gold has always been a store of value. As a basic, relatively rare, and universally valued commodity, gold has been ubiquitously recognized as “real money.” Gold functions well as a hedge against inflation too. Particularly in times when interest rates are low, or even negative in real terms, gold does exceptionally well. In fact, gold can not only retail value, but also rise significantly in the face of devalued currency. So, gold can be an excellent investment too.
After gold rose for 10 straight years in the beginning of this century, an increasing number people began to take notice. Despite record highs in nominal terms, gold remained relatively low in inflation-adjusted figures, and the variety of products for gold investing grows. Unique circumstances never before seen in the history of humankind render gold a critical component of any investment portfolio.
Futures contracts offer a handy way to tap gold. Prices are conveniently quoted in U.S. Dollars. Minimum price fluctuations are 10 cents for every troy ounce. Trading ends on the third last business day of the month prior to delivery. The gold at issue is geared to assay to at least .995 fineness. With COMEX gold so widely talked about, let’s take a look at it via the “LLC” method of evaluation.
COMEX Gold And The Tremendous Liquidity
COMEX gold futures post a typical daily volume of somewhere north of two hundred thousand contracts. This equates to somewhere in the neighborhood of 20,000,000 ounces of gold that change hands every day. As you can see, the market is extremely large. Moreover, there are about 50,000,000 ounces of gold that are tied up in open position.
Keep in mind, of course, that most of this is simply electronic transactions. Indeed, less than 10% involves physical metal, so the ease of trading makes for a liquid market that’s quite efficient. There are plenty of market players, who have access to real-time quotes. The market features tight bid-ask spreads and an open pricing structures that’s appealing to investors.
COMEX Gold Offering The Leverage Advantage
Unlike some gold investments, COMEX gold contracts feature built-in leverage. The Exchange promulgates minimum margin requirements. At times, the margin requirement might be just a few percent of the notional value of the underlying contract.
What’s nice about the margin for futures contracts is that is merely a deposit made to show one’s ability to perform on the contract. In other words, you simply have to demonstrate that you can financially handle the daily volatility. The margin balance is screened and account balances are modified daily to reflect market conditions. While the margin requirements may change, you won’t have to borrow money from your broker or pay fees for the margin use. Strategic use of gold futures can lend up to 25-fold leverage. This is something completely unknown to an “investment” as basic as a passbook type of account, like the Public Bank Gold Investment, where the account is intended to simply mirror the move in bullion.
COMEX Gold Cost Comparisons
Gold is not an income-producing asset. As a result, some gold investments require that actual physical bullion be sold to cover the administrative fees of the given gold investment. A nice feature of gold futures is the ability to buy and sell in a way that skips managerial expenses. These futures can be used for investment purposes, rather than as a means to actually obtain physical metal, to play the arbitrage vis a vis gold bullion. Only a brokerage cost incurred to roll contracts forward would be in play.
Taking physical delivery can be more economically efficient through futures as well. For starters, you can obtain just 100 ounces of bullion direct from the warehouse. By comparison, some vehicles would require multiples of that. The metal can be obtained through an exchange-licensed depository. While insurance and shipping costs can occur in any event of physical delivery, a streamlined approach in smaller quantities opens the door to physical delivery for more investors who want all options available.
Another aspect of cost involving COMEX gold has to do with taxation. Some investors find that there are tax benefits to investing in futures over other gold investment vehicles. Obviously, individual tax advice is beyond the scope of this writing. However, it’s important to be aware of all angles to play your gold investments for maximum profits. It’s worth exploring the tax treatment of various investments relative to COMEX gold prior to investing.
