Betting on Gold Using a Futures-Based Gold ETF
How do gold futures contracts work? What are the primary differences between futures
and forward contracts?
Suppose Michelson took a long position (as a speculator) on the December 2012 gold
futures contract on 9/20/2012 and closed it on 10/19/2012. Would Michelson have
lost money or made a profit during that period, and would he have received a margin
call? Hint: Compute (mark to market) the daily gains/losses over the period.
How are gold futures determined? For example, can you make sense of the Dec-12 (GCZ12)
futures price? Hint: Apply the spot-futures parity equation.
Gold futures prices are typically higher for longer maturities: Does that mean that gold
prices are expected to rise? Hint: Use case Exhibit 6 data to support your argument.
What drives futures gold futures prices outside of demand?
Looking at case Exhibit 3, explain why the futures-based gold ETF (DGL) has a slippage
in returns compared to the physical-based gold ETF (GLD) or gold spot prices? Why is
the slippage less than the futures-based oil ETF (USO) relative to crude oil spot prices
in Exhibit 2?
Examine the period from 6/2/2008 to 10/19/2012. Assume the DGL follows the roll
Schedule in case Exhibit 12 for DBLCI-OY Gold. The GC futures contracts are listed in
case Exhibit 13. How much did the roll yield contribute to the DGL returns?
In which ETF would you recommend Michelson invest in order to get exposure to gold:
The DGL or GLD? Or would you recommend another option altogether? Explain your
reasoning with support point