Last week, the CME Group announced the launch of the first-ever, exchange-traded precious metals spread and ratio futures contracts. What does it imply for the precious metals market?
All eyes are now on the monetary policy meetings of the Bank of Japan and the Fed. However, investors should not ignore the news about three new products in the gold market. The CME Group, the world’s leading derivatives marketplace, is going to introduce Gold/Silver Ratio futures, Gold/Platinum Spread futures and Platinum/Palladium Spread futures next month.
According to the CME Group’s announcement, Gold/Silver Ratio futures will be 500 index points in size and reference the ratio of the COMEX Gold and Silver futures price for each day of the contract month. Gold/Platinum Spread futures will be 100 troy ounces in size and reference the difference between the COMEX Gold and NYMEX Platinum futures price for each business day of the contract month. Platinum/Palladium Spread futures will be 100 troy ounces in size and reference the difference between the NYMEX Platinum and Palladium futures price for each business day of the contract month. These contracts will begin trading through the CME Globex platform Monday, October 24, 2016.
The introduction of these new products is an important change, as they “will eliminate a great deal of complexity involved in price ratio and spread trading of precious metals”, said Miguel Vias, CME Group Head of Precious Metals. Surely, the new contracts would not trigger a price rally in the precious metals market, but they may increase the interest in this market, by enabling investors to more effectively manage the price relationships of the precious metals futures contracts.
Summing up, the CME Group announced the introduction of three precious metals spread and ratio futures contracts next month. It is great news for the precious metals market, because these new contracts will be the cheapest and the most convenient way to trade spreads between precious metals. As we wrote in the June Market Overview, when the gold to silver ratio (or gold to platinum ratio) moves to extremes, it creates a trading opportunity for investors. For example, when the ratio is low, it indicates that gold may be undervalued. Now, thanks to these new contracts, investors will not have to buy gold and sell silver contracts, but all they would need to seize the trading opportunity would be to open a position in gold/silver ratio futures.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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