Have you ever felt that gold was priced out of your league to trade or invest? Retail traders will soon be able to trade gold with much less capital requirements. As the Chinese New Year looms, so does the pent-up seasonal demand for gold.
Would you like to participate in the next move higher using less capital?
Source: Moore Research Center, Inc. (MRCI)
Seasonality is a valuable tool that allows market participants to see which months of the year have historically formed a seasonal high or low. MRCI research has found a 15-year seasonal pattern (black line) that indicates gold typically puts in its annual low during the latter portion of December. From there, the gold market makes its most significant move higher until peaking near early May.
Investors can look for undervalued gold prices near the end of December to add additional ounces of gold to their long-term portfolios. The People's Bank of China (PBOC) is generally considered a "value buyer" of gold, meaning they tend to buy significant amounts of gold when the price is relatively low or when they see an opportunity to diversify their reserves, often purchasing large quantities during periods of market uncertainty or when gold prices dip; they are seen as a significant influence on the gold market due to their considerable buying power.
Traders looking to capitalize on shorter-term moves can use seasonality as an additional edge. They can put their capital to work more timely and not have idle capital waiting for the market to move.
It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading/investing choices.
2025 brings an additional way for retail traders to participate in these explosive moves
In the past, futures traders could participate in these moves using the standard-size contract (GC) or the micro-size (GR) contract, and equity traders could use the exchange-traded fund (ETF) symbol (GLD). Additionally, investors could purchase physical gold in the spot market.
Retail traders, are you ready for this? On January 13, 2025, the Chicago Mercantile Exchange Group (CME Group) will answer your request for a more affordable futures contract to trade gold.
The original standard-size gold contract (GC) trades 100 ounces per contract. At the current price for the February futures contract of $2,636 per ounce, the nominal value of the contract is $263,600. The contract requires $11,500 of margin capital per contract traded. Every $1.00 move in the GC contract is worth $100. The 10-day average daily range for the GC is approximately $37, with a nominal movement of $3,700 per day.
The recent micro-size gold contract (GR) addition trades 10 ounces per contract. At the current price for the February futures contract of $2,636 per ounce, the nominal value of the contract is $26,360. The contract requires $1,150 of margin capital per contract traded. Every $1.00 move in the GR contract is worth $10. The 10-day average daily range for the GC is approximately $37, with a nominal movement of $370 per day.
"CME Group's Micro Gold futures products are already among the fastest growing metals products, reaching record levels of participation this year. The average daily volume (ADV) for Micro Gold futures year-to-date is a record 105,000 contracts."
While the GR contract is more affordable than the GC for many traders, there has still been significant demand for a smaller gold contract from the retail trading base.
To answer this request, the CME Group will launch a 1-ounce gold futures contract on January 13, 2025, aimed at the retail client.
Specifications for the new gold contract are:
Contract Size: 1 ounce
Pricing: US dollars and cents per ounce
Tick size: $0.25 (note the GC and GR contracts are $0.10)
Trading symbol: 1OZ
Expiration months: Feb, Apr, Jun, Aug, Oct, & Dec
Settlement method: Cash settled
The features of the 1OZ contract allow traders to track the price of gold more accurately. The 1OZ futures are directly tied to the spot price, offering accurate market exposure.
Complete specifications can be found here.
Pros and the Cons
Let's review a few things traders may need to know before trading the 1OZ futures contract.
Pros
- While the CME Group has not released the margin requirement, the 1OZ "should" be 1/10 of the micro-size contract if they continue with the usual pattern. Requiring traders to have $115 of margin per contract in their trading account.
- More straightforward profit/loss calculations. If gold moves from $2,636 to $2,638, the trader will see a $2.00 change in their account value per contract traded.
- Sunday night to Friday evening, 23 hours per day trading. Reducing gap risk during the week.
Cons
- Unlike the equities markets, each contract traded will have a commission and fees.
- For longer timeframes, traders may need to roll their positions over to the next contract in the cycle as the one they are currently trading comes to expiration.
- It will require having a futures trading account
In closing…..
The upcoming launch of the CME Group's 1-ounce gold futures contract is set to revolutionize how retail traders engage with the gold market. With significantly lower capital requirements and simplified profit and loss calculations, this product opens the door to a broader audience, making gold trading more accessible. Imagine participating in gold's dynamic moves with just a fraction of the resources previously required—an opportunity designed for traders eager to explore the potential of this precious metal.
Are you ready to seize this moment? The combination of gold's seasonal patterns, robust market dynamics, and the flexibility of the new 1-ounce contract creates an unparalleled chance to refine your strategies and maximize returns. Whether you're a seasoned trader or a newcomer intrigued by gold's allure, now is the time to delve into this game-changing product. Take the first step toward unlocking the possibilities of trading gold like never before.
