Technical Analysis of the Gold Futures Market

For most investors, the futures markets along with its trading strategies and jargons can be extremely confusing. While it is true that there are noteworthy profits that one can make in futures markets but it is vital for you to understand the way the markets work and how one can achieve consistent profits.

A future is a deal to trade gold at terms and conditions that are decided at present but with a settlement day in the near future. This implies that you wouldnt have to pay up immediately and the seller neednt have to deliver you any gold now. Its as simple as that. The settlement day is the day when the exchange occurs, when the seller delivers the gold and the buyer pays the amount.

Margins of gold futures

When you delay the settlement, this creates the requirement for a margin which is one of the most vital aspects of purchasing gold futures . What is the reason behind setting a margin? Delaying settlement makes the seller precarious because if the price of gold falls, the buyer may cancel the already-struck deal while on the other hand, the buyer is left at a precarious stage because if the gold price rises, the seller may similarly cancel the deal.

Time for gold bugs to know the facts

It was on Monday, the 11th of November, 2019 that December Comex gold futures settled at $1458.10 and this proves that yellow metal is definitely an investment but no longer a safe-haven asset. Currently, this non-dividend paying and non-yielding investment cant fight against the returns offered by the stock markets.

According to the daily swing chart, the main trend is down and the downside target is the 1st August swing bottom at $1413.10. If buyers can take out $1519.00, the main trend will change upwards. The ultimate direction of the December Comex gold futures contract will be determined by the reaction of the traders to the way it closed at $1458.10.

Bearish scenario: A sustained move below $1458.10 will show presence of sellers and this specific move will generate a downside momentum which is necessary to challenge the 1st August bottom at $1412.10.

Bullish scenario: Overachieving and successfully sustaining a rally above $1457.10 can imply the presence of buyers. Sellers will re-emerge on a specific test of $1471 to $1489.

How gold futures offers leverage

Lets suppose, you had $5000 to invest. In case you wish to purchase gold bullion and settle, you can only purchase worth $5000. But in case of gold futures, you can purchase worth $10,000. This is because the margin on a $10,000 future will be around 5% which is $5000. In a situation where the underlying price increases by 10%, you could make $500 from gold bullion but $10,000 from gold futures.

You cant forget the flipside. In case price of gold falls 10%, this could cost you $10,000 with gold futures which is $5,000 more than the amount that you invested in the beginning.

Dealing with gold futures

In order to deal with gold futures, you require joining hands with a futures broker who is a member of the futures exchange. The task of the broker should be to tackle your relationship with the futures market and get in touch with you on behalf of the central clearer when the margin needs to be collected from you. Setting up of the account will take few days as the futures broker will check your creditworthiness and identity.

Achieving success in the futures market isnt easy. In order to be successful, you should have proper judgment skills and strong nerves. Be cautious about the number of people who have lost their money in futures trading and take precautionary steps to avoid losing money.