Much of the media buzz around gold these days centers on ETFs and physical bullion, but don't overlook another way to get your precious metals fix: futures contracts. Both the NYMEX and NYSE Liffe U.S. (the U.S. futures exchange of NYSE Euronext) offer futures contracts, in standard, 100-ounce and "mini" 33-ounce sizes.
Futures contracts aren't as arcane or complicated as they seem, but you should keep a few things in mind before investing, says Jennifer Ropiak, vice president at NYSE Liffe U.S., NYSE Euronext's U.S. futures exchange.
Since 2008, Ropiak has managed business and product development for the exchange's gold and silver futures and mini futures contracts. Prior to joining NYSE Liffe, Ropiak worked at a CTA and at a small hedge fund specializing in gold. She has over 20 years' experience trading and marketing precious metals, including stints at Morgan Stanley, AIG and Dresdner Bank.
Recently, HAI Associate Editor Lara Crigger sat down with Ropiak to get her perspective on the mini futures market, including why silver mini futures have seen a bump in open interest, what new investors should consider before buying a mini futures contract, and whether proposed government regulations would send derivatives business overseas.
Crigger: Given gold's trajectory over the past several months, how has volume or open interest changed in the gold mini futures market? Or, for that matter, the silver mini futures market?
Ropiak: We're seeing a lot of active trader and retail trader flow. I think that is because the sharp rise in price has made the full-sized contracts less appealing to some traders. But people still want to have some exposure to precious metals prices, so they're using our mini gold contract [which is 33.2 ounces], as opposed to the 100-ounce gold contract. Our mini gold contract volume is up 71 percent from this time last year, and our open interest is up 75 percent. Average daily volume in June is about 10,000 contracts.
We have also seen much more interest in mini silver: Our mini silver contract is 1000 ounces, versus a standard contract, which is 5,000 ounces. Mini silver has averaged a daily volume in 2010 of 3,200 contracts, which is up 25 percent from 2009.
Crigger: Are the increased inflows a direct result of gold's price rise? Or are investors judging silver's fundamentals separately from those of gold, and moving into the metal accordingly?
Ropiak: Many people view silver as "poor man's gold," and as a cheaper item, I think silver is benefiting from the interest in the precious metals complex in general.
But on the other hand, silver is an industrial metal, too. So at certain times, depending on economic sentiment and the fundamentals, silver prices can move on the back of either gold prices or copper prices.
Crigger: So six of column A, half a dozen of column B.
Ropiak: Exactly. If you feel the economy will recover strongly, you might want to be long in silver, because it's an industrial metal. Also, silver prices are more volatile than gold prices, so if you think precious metals prices are going up, you might choose to buy silver, because you would expect it to have greater percentage gains than gold prices. But you might choose the reverse, and buy gold if you believe the economy's still going to have difficult times ahead.