Tue. Oct 19th, 2021

“Gold is arguably the most watched and diverse product in the world,” according to the CME Institute. While gold-specific ETFs, such as GLD and IAU, offer traders a way to participate in this market, a more efficient and profitable way to trade gold is through gold futures.

Operated by the CME, COMEX offers 2 different futures contracts for the gold trade:

  • Gold Futures (GC) is the world’s leading benchmark gold futures contract that offers consistent high liquidity to traders and investors.
  • Micro Gold Futures (MGC) offers a smaller contract for active traders who want to participate in the physical gold market with less financial commitment.

Learn more about the benefits of trading gold futures in this 4-minute video.

7 Advantages of trading gold against ETFs

  1. Leverage: A gold futures trader has approximately 15 times leverage on a gold contract, or in other words, takes advantage of $ 1 to control approximately $ 15 of gold. This is a much larger leverage than even the most aggressive gold ETFs as it offers 3X ​​leverage at best. *
  2. Liquidity: The average daily dollar volume in GC futures is $ 52 billion, 54 times the average daily turnover of the Gold SPDR ETF in the fourth quarter of 2019. With such high liquidity in the gold futures market, traders can enter and exit positions easily in both directions.
  3. No commissions: Gold futures do not accrue management fees, which are charged to a gold ETF position each day the position is maintained.
  4. No additional company risk: ETFs that track gold may be exposed to additional company risks that are not related to the value of gold. For example, the SPDR Gold Trust can liquidate if the net asset value falls below $ 50 million, regardless of the strength of the gold market. Trading in gold futures does not involve company-specific risks.
  5. Close to 24 hour access: Gold futures are traded almost 24 hours a day, 6 days a week, making it a popular and desirable futures instrument around the world. Compared to the usual 6.5-hour stock market trading session, 5 days a week, gold futures offer more trading opportunities and the ability to manage positions at any time of the day.
  6. Tax advantages over gold futures: Although holdings in gold ETFs are treated as “collectibles” subject to capital gains tax, gains and losses on gold futures are taxed in accordance with rule 60/40 (60% rate). of long-term capital gains, 40% ordinary income tax rate).
  7. Low initial margin: The initial margin for trading gold futures can be as low as 3% of the contract value. In contrast, the margin on gold ETFs can exceed 50%, in addition to intermediary financing fees.

* Be aware that financial leverage can result in losses in excess of the initial margin and traders should be aware of the risks involved in futures trading.

Gold chart

The chart above, created 100% FREE usingT with NinjaTrader, shows 3 months of Gold futures price action at a daily interval. A volume weighted moving average (VWMA) has been added for further analysis.

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