Investing in gold is an excellent way to protect your portfolio or even for long-term gains. However, it is essential that you have a reliable investment institution that offers the best conditions for this and other types of investments.
When reading or watching something that recounts the history of humanity, in any period, it is common to come across reports that indicate gold as a standard, or as a highly valued exchange currency. Currently, this precious metal also has many purposes, one of which is its use as a store of value.
Thus, as a financial asset, it is widely used by investors for various purposes, but mainly as a means of portfolio protection.
After all, we are dealing with a commodity that is widely accepted worldwide, which makes it an alternative for investment and portfolio diversification.
What Is The Gold Contract?
Gold is one of the most precious metals in the world. Its value is used as a standard for many coins, and, currently, its use is even broader, covering a great demand by the jewelry manufacturing industry and even other segments, such as electronics, which uses the material as a conductor of electricity, being one of the most suitable for this purpose.
In addition, many institutions, and even individuals, use gold as a way to protect their capital, mainly to carry out a procedure known as hedge , which aims to protect an investment portfolio against possible sudden fluctuations in the market, serving as a form of compensation for financial losses arising from other investments.
The demand for gold intensifies even more in periods of economic crisis, especially because this metal is related to risk aversion. To facilitate transactions with this metal, the gold contract was developed, traded on the BM&F market.
It is important to understand the process involved in the transition from gold as a metal to a financial asset. The process is basically as follows: the gold is refined, transformed into bars, sealed, and guaranteed with a code and certificate, in a smelter accredited by B3. Then, the bars are delivered to a depositary institution – also accredited by B3 –, which will keep them in custody.
How Does Trading Gold On The Stock Exchange Work?
The object of these negotiations is the fine product that is disposed of in the form of an ingot. And now that the previously mentioned process, which reveals how this commodity is transformed into a financial asset, has become clear, it is simpler to understand the different gold contracts traded on the Stock Exchange market.
There are four types:
- Gold Futures Contract: this contract is traded in Reais per gram, with fluctuations in its quotation reflecting international market expectations, linked to the Brazilian domestic market and the variation in the dollar. Settlement of the gold futures contract (OZ1) is physical, and delivery occurs on the business day following the last trading day, with the last trading day occurring on the last day of the month prior to contract expiration. This contract expires monthly.
- Cash (Available): trading this contract is the most common among Brazilian investors. It has no maturity, and its liquidation can be both physical and financial. Despite being traded on the BM&F market, this contract is paid in cash and cannot be sold “short”, that is, you can only sell a position you own. It is also important to know that it is subdivided into three, the standard contract (OZ1D) of 250 grams, and the other fractions of 10 grams (OZ2D), and 0.225 grams (OZ3D). The last two, as they are fractional, cannot be settled physically, as it is necessary to have the minimum custody of a standard contract for this.
Forward : this contract delegates to its bearer the commitment to trade the asset – in a standard lot (OZ1 ) – at a certain fixed price, on a future date;
- Option On Gold Available: this type of contract grants the investor who acquires it, the right to trade the asset – in a standard lot (OZ1) –, at a certain fixed price, on a future date.
With regard to spot and futures contracts, it is important to pay greater attention to two points: physical settlement, and the custody fee charged by B3 itself.
As for the physical settlement, that is, the withdrawal of the gold ingot, mentioned above, it is not very common. This is because, in order to sell it, it is necessary to certify the purity of the bar, and, to turn it back into a financial asset.
It is necessary to go back to the beginning of the whole process, that is, take the bar to the smelter accredited by B3, and, in addition, the investor must bear the entire cost of the process.
Regarding the custody fee, the formula may seem a little complicated, but it can be consulted on the B3 website . This fee is accrued daily according to the financial value held in custody – from the day the purchase transaction is settled – but is charged monthly, proportionally to the period in which the investor keeps the asset in custody.