Gold Futures VS Gold ETFs (GCL, IAU) by Matt Kang
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Gold is the most actively traded precious metal and it is a good hedge against inflation that is why many individuals and institutional investors are investing in gold to keep their assets by declining dollar and US stock values. Retail access to gold trading has broadened substantially through the futures and gold ETFs.
Let’s take a look at the key difference between gold futures and gold ETFs.
- Where they traded?
Gold future (GC) is trading at COMEX and GOLD ETFs (GLD/IAU) is traded through securities exchanges.
There are various prices for gold futures because the futures price is measured according to the maturity period. For instance, the current April gold futures contract price is 1364.10 but June price is 1368.10 (as of 04//11/18, April GC contract). Gold ETFs doesn’t have a maturity period like a gold futures market. Only one price for each ETF.
- Multiplier and Actual Dollar Value
One futures contract for gold controls 100 troy ounces or one brick of gold. Therefore, the actual dollar value of one gold futures contract is (1364.1*100) $136,410 but you can trade one gold futures contract if you have $4,000 on your futures trading account(as of 04//11/18, April GC contract).
One gold ETF represent 1/10 price of metal. Therefore, if you buy one ETF you are purchasing $136.10 the actual dollar value of the gold.
- Trading Hours
Overnight trading is available in the gold futures market unlike gold ETFs. Trading hours for gold is Sunday through Friday 6:00 p.m. – 5:00p.m. ET which means the market is open approximately 23 hours throughout the day.
Overnight trading is not available in the Gold ETFs (GCD/IAU) market. The trading hours are Monday– Friday 9:30a.m. – 4:00 p.m. ET.
- Short Selling Restrictions
If you think the market will go down , the gold futures market doesn’t have any restrictions to go short and selling without owning the product. Unlike the gold futures market, gold ETFs have restrictions on short selling.
Let’s say if you would like to buy 1 gold futures contract, then you pay the commission fees when you purchase the futures contract, but gold ETF, you will have to pay a management fee on top of the commission fees.
- Trade Gold Futures or Gold ETFs?
Gold futures market tracks well with the underlying physical gold market, but the gold ETFs price is based on shares and influenced by other factors. Either futures or ETF, there is no right or wrong answer to this, but if you consider the leverage that I mentioned and the total cost to own 1 gold contract/ETF also the costs of each should be considered before you jump into the market. In my opinion, ETFs could have a tracking error because of the other various factors that impact the gold ETF markets. Therefore, gold ETF is more suitable for small investors (less than $10,000) and looking to hold position for a long time period. If you are not a small investor then gold futures will be more suitable because you can mix with different strategies, including short selling and gold options with less maintenance fees.
Important: Trading commodity futures and options involves a substantial risk of loss. The recommendations contained in this letter are of opinion only and do not guarantee any profits. There is not an actual account trading these recommendations. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.