Gold

In normal futures markets the spot or cash price is less than the price for delivery of the goods at some distant time. This normal condition is called “contango” in futures terminology. In contango the price of further out futures contracts is higher than nearby or closer in time contracts. For example, the price of a contract for delivery of goods in April is more than a contract for delivery in March and so on. This condition reflects the carrying costs of warehousing and maintaining the goods until delivery in the future.

The opposite condition, where the spot price is higher than the price of future delivery contracts is called “backwardation.” Backwardation occurs when buyers are willing to pay a higher price to have the goods now. Backwardation is a sign that buyers anticipate shortages of the goods in the future due to immediate demand.

Backwardation in gold and silver is very rare. Silver is now in complete backwardation or “zero contango.” This condition exists out till 2015. That is, the silver price of every contract month is lower than the next further out month. Backwardation is bullish for silver price and indicates demand by retail investors and industrial users is strong. The Silver price leads the gold price in a bull market. Will gold also go into backwardation? If so, that would be extremely bullish for the gold price.

The gold price and the silver price movements near options expiry dates have attracted attention from some analysis. These analysts noticed a pattern where gold price and especially silver price regularly declines before options expiry. Such a price move causes many call options to expire worthless. They claim these moves are orchestrated to benefit the sellers of call the options.

Gold and silver options are options on gold and silver futures contracts. Gold and silver futures and options are traded on the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange (TOCOM). NYMEX gold futures contracts (symbol GS) are for 100 troy ounces of 9995 gold. NYMEX silver contracts (symbol SI) are for 5,000 troy ounces of 999 silver.

NYMEX gold and silver options expire on the fourth business day prior to the future contract’s delivery month. The settlement type of the option is the physical metal underlying the futures contract. Delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.

2011 gold and silver options expiration calendar:

Contract Month	Expiry Date
January	12 December 2010
February	26 January 2011
March	23 February 2011
April	28 March 2011
May	26 April 2011
June	25 May 2011
July	27 June 2011
August	26 July 2011
September	25 August 2011
October	27 September 2011
November	26 October 2011
Decemeber	22 November 2011

The Gold Silver Ratio is given by dividing the Gold Price by the Silver Price. The ratio is the amount of silver a given amount of gold will buy. For example, today the Gold-Silver Ratio is about sixty – 1:60. One ounce of gold will buy sixty ounces of silver.

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Deciding where to buy physical gold products is a very important decision. This article provides guidance to help you decide where to make gold purchases. The knowledge you need to find the best place for you to buy gold consists of general knowledge and knowledge specific to gold

Use the same common sense approach you use to make any major purchase. After determining exactly what you want to buy make a list of potential sellers. Write the seller’s details down. These details include the seller’s physical address, contact information, and web site address. Next, write a small set of criteria based on which you will select your top three sellers. Some criteria to consider are as follows. How long the company has been in business. Their terms and conditions related to payment procedures, return policy, and buying back. Recommendations from those you know and trust that have done business with the company. Find or make your own gold price comparisons for the items you want.

Use the Internet to search out any information you can find on others experience with the company. Don’t be afraid to call the company and tell them you are evaluating them and ask any questions you need answered. It is important to find a person at the company that will be your main contact. By this point you will be able to pick your top two or three companies.

One approach is to test your sellers buy making a small purchase from each of the selected sellers. Another approach is to make a purchase each month from a different seller. In any case, determine all the costs involved in each purchase including taxes, shipping and insurance before completing the transaction. Based on this experience you will have found some good companies to deal with. Ideally you will develop a long term relationship with a good company.

Here are some gold specific things to keep in mind when deciding where to buy gold. Look for coin shops near you that you can visit. Look at government and private Mints. eBay is an alternative suited to some. As gold becomes more popular you will see many more advertisements for gold products. Be very careful about these offerings and remember the process given above. If it seems too good to be true – it is!