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How is Spot Gold Rates different from Gold Futures Rates?

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  | Published: 18 October 2021

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Out of all the precious metals in the market, gold comes on top when it comes to trading and as an investment. The gold rate in UAE is amongst the most widely discussed topics in the futures and commodity markets. But what are spot and futures gold?

This article discusses both the terms in detail. 

Knowing Both the Terms in Detail

For a layman, the world of markets and trade can be daunting, with terms that are unknown and are thrown around regularly. The first move of a keen investor must be knowing what they are signing up for, no matter a professional or an amateur.

When it comes to investing in gold, we all know that this commodity is not easy to own as the rates may dig into your wallet. However, the returns make this investment-worthy.

There are two commonly used terminologies in gold investment- spot gold & futures gold. Let us see what do these terms imply. These simple definitions may help you in understanding the actual nuances of gold trading.

Futures Gold: It refers to gold trading where a transaction takes place on a certain date, however, the delivery of the product will take place in the future only, on the day as pre-determined. Basically, it means that you will be paying the gold rate in UAE now, but it will be delivered to you on the day as agreed in the future.

Spot Gold: Just like the term signifies, it refers to gold trading where the gold is immediately bought, that is, on the spot. The prices are determined instantly and both the cash as well as the product are interchanged almost immediately. 

Difference between Future Gold and Spot Gold Rates

For centuries, gold has been at the frontline of trade with nations and their armies waging wars for finding and owning this precious metal in the past. In the present, gold continues to woo the world and has an important place in your investment portfolios, no matter what the gold rate is. There are a few factors that are considered while determining the gold price in Dubai, some of them being currency changes, international trends, demand and supply, and more.

The price of spot gold keeps changing regularly on the basis of the market. Basically, spot gold prices are lower as opposed to gold futures prices because there is no involvement of any extrapolation while purchasing spot gold.

You get what you see without any market predictions. On the other hand, the prices for gold futures are expensive due to the addition of storage charges until the date of delivery and other expenses as incurred by the supplier.

The table below shows the basic differences between spot gold & futures gold.

Basis

Futures Gold

Spot Gold

Prices

Rates are higher due to adjustment for delivery and storage

Present rates in the market

Delivery

Delivery is done after 2-3 months on the date agreed upon

Instant delivery

Liquidity

Limited liquidity due to delayed gold delivery

Higher liquidity

Price Settlement

After the signing of the contract, price settlement may be done in 1-2 days

Instant price settlement during the point of trade

Risk

A moderate amount of risk- the gold price in Dubai may rise or fall at the time of delivery, taking you to a profit/loss situation

A lower amount of risk- you get what you see according to the market rates

 In a Nutshell!

Both the gold futures and spot gold markets have their own advantages and disadvantages like the capability of seeing volume in the gold futures markets and the centralized exchange v/s the OTC characteristics in the gold spots market. Ultimately, all of this comes down to the trading style of the trader. The factors above will assist you in understanding the costs involved depending upon your approach of trading.