Gold has traditionally been viewed as a safe investment for maintaining wealth especially in the face of inflation. This may not be the case with gold futures as they are a different type of investment than the physical metal itself. Futures are contracts to buy or sell physical metal in the future at the future price. As prices change the value of the contract changes and since futures contracts are bought on margin a change in price may require more money being put up or closing the deal at a loss.
Successfully speculating in futures require the ability to analyze prices and determine the direction the prices will move and set your transactions accordingly, that is go long or go short depending on your analysis. Predicting future prices of any commodity requires study of past prices and the circumstances that resulted in those prices, that is what caused the prices to move either up or down. Once the speculator determines factors that move price trades can be made based on solid criteria.
From the Middle Ages until 1931 gold prices remained stable. In 1931 Britain abandoned the standard and prices began to fluctuate. In 1935 the US set the price at $35 an ounce. When Britain devalued the pound in 1941, prices increase from 8.66 pounds per ounce to 12.50 pounds per ounce. In the early 1970s the dollar was devalued and by 1972 gold was $42.22 per ounce. After that the dollar floated and the value dropped as gold rose to $850 or just a little under 400 British pounds per ounce.
Gold future prices are based on a combination of current prices and a perception of which direction prices are headed and how much of a movement there will be. Current futures prices are relatively high compared those before 1931, but are relatively low compared to the early 1970s.
Over the past decade many central banks around the world have sold off much of their gold reserves increasing the supply on the market and driving price down. Some experts think this trend will reverse in the next couple of years causing prices to increase. This will cause a corresponding increase in gold futures prices.
Other reasons for price to increase is that worldwide demand remains high as governments use gold to fight inflation and it continues to be viewed as the international medium of exchange. Depositories and gold mines determine the supply on the market. If depositories increase their holdings and mines are not able to keep up with demand, prices will rise. When depositories maintain or increase their holdings it becomes more difficult for mining companies to keep up with demand and prices increase with futures prices increasing sooner and faster than underlying gold commodity futures prices.
Successfully speculating in futures require the ability to analyze prices and determine the direction the prices will move and set your transactions accordingly, that is go long or go short depending on your analysis. Predicting future prices of any commodity requires study of past prices and the circumstances that resulted in those prices, that is what caused the prices to move either up or down. Once the speculator determines factors that move price trades can be made based on solid criteria.
From the Middle Ages until 1931 gold prices remained stable. In 1931 Britain abandoned the standard and prices began to fluctuate. In 1935 the US set the price at $35 an ounce. When Britain devalued the pound in 1941, prices increase from 8.66 pounds per ounce to 12.50 pounds per ounce. In the early 1970s the dollar was devalued and by 1972 gold was $42.22 per ounce. After that the dollar floated and the value dropped as gold rose to $850 or just a little under 400 British pounds per ounce.
Gold future prices are based on a combination of current prices and a perception of which direction prices are headed and how much of a movement there will be. Current futures prices are relatively high compared those before 1931, but are relatively low compared to the early 1970s.
Over the past decade many central banks around the world have sold off much of their gold reserves increasing the supply on the market and driving price down. Some experts think this trend will reverse in the next couple of years causing prices to increase. This will cause a corresponding increase in gold futures prices.
Other reasons for price to increase is that worldwide demand remains high as governments use gold to fight inflation and it continues to be viewed as the international medium of exchange. Depositories and gold mines determine the supply on the market. If depositories increase their holdings and mines are not able to keep up with demand, prices will rise. When depositories maintain or increase their holdings it becomes more difficult for mining companies to keep up with demand and prices increase with futures prices increasing sooner and faster than underlying gold commodity futures prices.
SHARE
