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.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News
Monitor and Market
Overview Editor
Gold News Monitor
Gold
Trading Alerts
Gold Market Overview
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