As a safe haven assets, gold has always been a popular investment choice. Particularly in recent years when the spot gold price has been rallying and outperforming other investment products.
When it comes to investing in gold, some choose to purchase physical gold products at jewellery stores, others set up paper gold accounts with their banks, or trade gold investment products through HKEX, such as gold ETFs, gold futures and gold futures leveraged products.
Spot Price is not the same as Futures Price
You may think that gold futures leveraged products, like gold ETFs, are for buoyant expectation on spot gold price. However, it indeed invests in gold futures instead of physical gold, and its investment objective is to deliver a daily return equivalent to a multiple (capped at 2 times) of the return of a specified gold futures index rather than tracking the spot gold price.
The gold spot price and gold futures price may display different trends. For example, the prices of the COMEX gold futures contract (front-month) are different from the spot gold price. The spread has been within the range of US$20 in recent years, but it surged to nearly US$80 when the market was volatile.
Risks Related to Futures Investment
Meanwhile, investors should be aware that gold futures leveraged products will incur risks related to investing in futures. For example, the prices of futures, including gold futures, could be extremely volatile. Under exceptional circumstances, if the price of gold futures drop to zero or even negative levels within a short period of time, investors will lose all of their investment capital. In addition, a loss adversely affecting the net asset value of the product may incur during a futures contracts rollover (i.e. selling expiring contracts and replacing them with contracts with a later expiration date). Other risks such as over-concentration on a single asset or futures contract, and mandatory measures imposed by relevant parties (such as clearing brokers, execution brokers, participating dealers and stock exchange) regarding futures positions should also be noted.
Similar to other leveraged and inverse products, gold futures leveraged products are not intended for holding longer than a day, and are only suitable for experienced investors who understand such products’ nature and risks.
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Gold futures leveraged products
