The acceptance of gold as a unique investment opportunity has been significantly increasing. This shiny metal offers multiple advantages to investors such as – providing portfolio diversification, offering a hedge against inflation, affordability, liquidity etc. Gold offers investors various investment options to choose from, such as – Physical Gold, Gold ETFs (Exchange Traded Funds), Gold Mutual Funds, Sovereign Gold Bonds (SGBs) and Gold Futures.
Gold Futures are one of the most convenient ways for investors to trade in Gold. Gold futures are a contract between two parties to exchange gold at a pre-decided rate and date in the future. Since Gold is a commodity, it is traded on a separate exchange, viz – Multi Commodity Exchange Ltd. or MCX. MCX is a reputed commodity derivatives exchange that facilitates online trading of commodity derivatives transactions. Other commodities that trade on MCX include base metals, energy, and agriculture commodities.
How is the price of gold futures decided?
It is important to note that there is a difference in the price of physical gold and the indicated price of MCX GOLD. This is because MCX prices are determined by trading activity, as well as a variety of other variables such as international gold price, USD-INR rate, import duty and prevailing premium/discount, and troy ounce to grams conversion. Also, gold futures contracts are for a specific time frame, while the physical gold market prices are spot rates, which explains the evident disparity.
A commonly accepted formula for calculation of MCX Gold price is as under:
Quoted unit for Gold in MCX exchange is 10 gms. 1 troy ounce is roughly 31.1 grams.
Hence, the Gold price calculation formula for 10 gm = (International Gold Price) x (USD to INR rate conversion) x 10 (Troy ounce to grams conversion)
Variants of Gold Contracts
There are four variants of gold contracts:
- Gold 1 Kg
- Gold Mini (100 gms)
- Gold Guinea (8 gms), and
- Gold Petal (1 gm)
Let’s understand these variants a little better in the table below.
| Parameters | Gold | Gold Mini | Gold Guinea | Gold Petal |
| Contract Size | 1 kg | 100 gms | 8 gms | 1 gms |
| Maximum order size | 10 kg | 10 kg | 10 kg | 10 kg |
| Tick Size | Rs.1 / 10 grams | Rs.1 / 10 grams | Rs.1 / 8 grams | Rs.1 / 1 gram |
| Expiry date | 5th Day of Expiring Month | 5th Day of Expiring Month | Last Day of Calendar Month | Last Day of Calendar Month |
Steps to Start Trading in MCX Gold
You will need to open a Commodity Account with a broker who is registered with MCX to begin trading in Gold Futures. Brokers like Angel One can help you to easily open such an account.
In case you already have an equity trading account with your broker, you can simply activate your commodity segment to begin trading in MCX Gold. You will need to submit the either of the below documents to activate your commodity segment:
- Last 6 Months Bank Statement
- Demat Account Holding Statement
- Salary Slip
- Mutual Fund Statement
- Bank Fixed Deposit Receipt
- ITR Acknowledgement
- Form 16
To check which segments are active in your Angel One account, please visit your Profile section via Angel One Mobile App or Web Trading platform.
Once your commodity account is active, simply look for the MCX Gold Contract you wish to buy or sell and place your order by entering the details needed such as Number of Lot(s), price, etc.
Remember…
Like all other investments, investing in Gold Futures also requires a thorough understanding of the asset and one’s own financial goals and risk appetite. While the benefits of investing in a commodity like gold seem attractive, it is important to take a well-informed decision while planning your finances.
Some related terms
Spot gold:
It refers to a trade in which gold is purchased immediately, i.e., on the spot.
Spot price:
The price is determined immediately, and the product and cash are interchanged almost instantly.
Strike price:
The strike price of an option is the price at which a put or call option can be exercised.
Tick size:
It is the minimum price change between the different bid and offer prices of an asset traded on an exchange platform.
Tick price:
It is the minimum price difference that must exist at all times between consecutive bid and offer prices. In other words, it is the minimum increment in which prices can change.
