Introduction
The gold market is experiencing increased investment potential as the CME micro futures contracts make it more accessible to smaller retail investors. Jin Hennig, managing director and global head of metals at the CME, believes that this accessibility has created new growth opportunities for gold as investors seek alternatives to hedge against inflation and geopolitical uncertainty.
Untapped Potential
Hennig states that the retail market is still largely untapped in terms of gold investment. The CME recently launched options on micro gold and silver futures contracts, allowing investors to trade at a reduced cost. These micro futures contracts are one-tenth the size of traditional futures contracts.
Growing Volume
Since their launch a decade ago, micro gold futures have seen average annual volume growth of 58%, while micro silver futures have experienced a 93% increase in volumes. Trade data from the CME reveals that the average daily volume of full and micro futures reached 482,000 in October 2023, representing a 24% increase compared to the same period in 2022.
Geopolitical Uncertainty
The recent chaos in the Middle East due to Israel’s war with Hamas has driven significant investor interest in gold and silver. This geopolitical uncertainty has further highlighted the value of gold as a hedge against uncertainty.
Risk Management Through Options
Investors are not only using micro futures for precious metals exposure but also options for risk management. Trade data shows that the average daily volume of options trading across precious metals has increased by 29% compared to the previous year. Gold options, in particular, have seen a 76% increase in average daily volume and open interest in gold is at its highest level since 2020.
Silver Market
The silver market has struggled to keep up with gold, but it has also seen an increase in options trading volume. Average daily volume in silver options rose by 48% compared to October 2022.
Value of Gold
Despite lackluster price action in 2023 due to the Federal Reserve’s restrictive monetary policies, gold continues to attract attention as investors recognize its value as insurance within their portfolios. Hennig believes that the recent rise in the market reaffirms gold’s worth in times of uncertainty.
Global Demand
Hennig remains optimistic about global demand, noting solid growth in Asia and the Middle East. Gold is seen as an important international asset and is experiencing growth in every region and client segment.
