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    Gold Derivatives

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    vinusachdev
    Gold derivatives allow investors to gain exposure to gold prices without having to purchase physical gold. The value of gold derivatives depends on the price of gold. Gold is a unique asset that is both a commodity and a monetary asset. Its value is influenced by factors like central bank purchases and sales, demand for jewelry, and as a hedge against inflation. Gold futures contracts allow investors to control a large value of gold with only a fraction of the capital required to purchase physical gold. Both US and Indian gold futures markets exist, with contracts based on different metrics but providing exposure to gold price movements. Trading futures involves risk but can provide high returns for experienced traders.

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    Gold Derivatives

    Uploaded by

    vinusachdev
    475 views19 pages
    Gold derivatives allow investors to gain exposure to gold prices without having to purchase physical gold. The value of gold derivatives depends on the price of gold. Gold is a unique asset that is both a commodity and a monetary asset. Its value is influenced by factors like central bank purchases and sales, demand for jewelry, and as a hedge against inflation. Gold futures contracts allow investors to control a large value of gold with only a fraction of the capital required to purchase physical gold. Both US and Indian gold futures markets exist, with contracts based on different metrics but providing exposure to gold price movements. Trading futures involves risk but can provide high returns for experienced traders.

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    some basic stuff about gold drivatives

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    Gold derivatives allow investors to gain exposure to gold prices without having to purchase physical gold. The value of gold derivatives depends on the price of gold. Gold is a unique asset that is both a commodity and a monetary asset. Its value is influenced by factors like central bank purchases and sales, demand for jewelry, and as a hedge against inflation. Gold futures contracts allow investors to control a large value of gold with only a fraction of the capital required to purchase physical gold. Both US and Indian gold futures markets exist, with contracts based on different metrics but providing exposure to gold price movements. Trading futures involves risk but can provide high returns for experienced traders.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    475 views19 pages

    Gold Derivatives

    Uploaded by

    vinusachdev
    Gold derivatives allow investors to gain exposure to gold prices without having to purchase physical gold. The value of gold derivatives depends on the price of gold. Gold is a unique asset that is both a commodity and a monetary asset. Its value is influenced by factors like central bank purchases and sales, demand for jewelry, and as a hedge against inflation. Gold futures contracts allow investors to control a large value of gold with only a fraction of the capital required to purchase physical gold. Both US and Indian gold futures markets exist, with contracts based on different metrics but providing exposure to gold price movements. Trading futures involves risk but can provide high returns for experienced traders.

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    Gold Derivatives

    Derivatives
    • Def- “ A derivative can be defined as
    financial instrument whose value
    depends on (or derives from) the
    values of other, more basic,
    underlying variables”
    • Equivalently the value of derivative
    changes when there is a change in
    the price of an underlying related
    asset(variable).
    •
    • EG- the underlying assests can be
    equities (shares), debt (bonds, T-
    bills, and notes), currencies, and
    even indices of these various
    assets, such as the Nifty 50 Index.
    •
    Importance of Gold
    • Gold is unique as it is both a commodity
    and a monetary asset.
    • Its stability and high value makes it
    virtually indestructible always
    recovered and recycled.
    • Gold mine production is relatively
    inelastic, recycled gold (or scrap)
    ensures there is a potential source of
    easily traded supply when needed, and
    this helps to stabilize gold price.
    • No true consumption of gold in the
    economic sense as the stock of gold
    remains constant while ownership
    ØDemand for gold is widely spread around the world.
    ØEast Asia, the Indian sub-continent and the Middle
    East accounted for 70% of world demand in 2008.

    Ø55% of demand is attributable to just five countries


    - India, Italy, Turkey, USA and China, each market driven
    by a different set of socio-economic and cultural
    factors.
    Factors affecting gold prices
    • The dumping of gold into the market by several
    nations' central banks (whether through leasing or
    outright sales) has artificially increased supply, and
    therefore lowered the price.
    The desire for gold as jewelry affects demand. The
    gold market in India is closely watched, since Indian
    brides are often dripping with gold, when they walk
    down the aisle. If there is strong buying in India,
    during the autumn "wedding season," prices can
    increase.
    The desire for gold as a "hedge" against inflation
    affects demand. With the USA printing money like
    mad, inflation expectations are beginning to grow.
    As this trend continues, look for the price to
    increase.
    Top 25 OFFICIAL GOLD HOLDINGS
    DECEMBER 2009
    Investors
    • Essentially, there are three broad
    categories of gold investors:
    • 1. Those who wish to hedge
    uncertainty and possible financial
    disaster
    • 2. Those who wish to simply make a
    profit.
    • 3. Those who wish to combine
    hedging with potential profit
    •
    Trading Gold In Future
    • A Gold futures contract is a legally
    binding agreement for delivery of
    gold in the future at an agreed
    upon price.
    • The contracts are standardized by a
    futures exchange as to quantity,
    quality, time and place of delivery,
    Only the price is variable. 
    There are two different positions one
    can take in the markets.
    • A long (buy) position.
    •  A short (sell) position.
    • The great majority of futures
    contracts are offset prior to
    the delivery date.
    • Example, this occurs when an
    investor with a long position
    initiates a short position in the
    same contract, effectively
    eliminating the original long
    position
    Advantages of Futures
    Contracts 
    • Because they trade at 
    centralized exchanges, trading futures
    contracts offers more financial
    leverage, flexibility and financial
    integrity than trading the commodities
     themselves.
    • Financial leverage is the ability to trade
    and manage a high market value
    product with a fraction of the total
    value.
    • Trading futures contracts is done with
    performance margin.
    • It requires considerably less capital than
    Example
    • One futures contract for gold controls
    100 troy ounces, or one brick of gold.
    • The dollar value of this contract is 100
    times the market price for one ounce
    of gold.
    • If the market is trading at $600/ounce,
    the value of the contract is $60,000
    ($600 x 100 ounces). Based on
    exchange margin rules, the margin
    required to control one contract is only
    $4,050. So for $4,050, one can control
    $60,000 worth of gold.
    • As an investor, this gives you the ability
    Comparison
    US MARKET INDIAN MARKET
    Gold is traded in dollars and cents Gold is traded in Rupees and
    per ounce.
    There are a few different gold paisas
    Variousper 10 contracts
    gold gms are traded
    contracts traded on U.S. exchanges:
    one
    Oneat COMEX  and two
    Gold future on eCBOT
    contract is. in
    OneMCXGold&NCDEX. Eg gold,
    Future contract is
    generally 100 troy ounce. goldguinea
    generally , goldhni , goldm in
    1kg.
    when gold is trading at 600/ounce, cost of gold is Rs 6000 per 10
    the contract has a value of $60,000 MCX & GldPurahm
    grams, with , of Rs 6
    an investment
    (600 x 100 ounces). A trader that is lakh, one can buy
    gld100AHM 1kg of gold. Now,
    in NCDEX.
    long at 600 and sells at 610 will suppose, three months hence, when
    make $1,000 (610 – 600 = $10 profit, the going price of gold is Rs 6,500
    10 x 100 ounces = $1,000). per 10 grams, the person decides to
    Conversely, a trader who is long at sell the gold. The gross profit made
    600 and sells at 590 will lose by the person is Rs 500 for every
    $1,000. 10 grams and hence, for 1 kg, it
    stands at Rs 50,000. 
    Conclusion
    • No Doubt Future contract trading
    gives high returns but whether you
    are a hedger or a speculator,
    remember that trading involves
    substantial risk and is not suitable
    to everyone. Although there can be
    significant profits for those who get
    involved in trading futures on
    gold, remember that futures
    trading is best left to traders who
    have the expertise needed to
    • Harsh Sachdev - roll 48

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