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This article, therefore, sets out to help those who are unfamiliar with gold futures.

Similar to the SET 50 Index Futures, gold futures are standardised contracts traded on a futures exchange to buy or sell a standardised quantity of gold at a certain date in the future. One unit of futures equals 50 baht weight of gold.

Gold futures' prices are determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date.

The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business. The Thailand Clearing House (TCH) acts as counterparty to all contracts and, crucially, also provides a mechanism for settlement.

Investors can buy or sell gold futures via brokerage firms that are TFEX members. To become a member, brokerage firms must first acquire a licence from the Securities and Exchange Commission and then apply to the TFEX.

Gold futures can provide returns for investors in both bull and bear markets. For example, in a bullish market, if an investor believes the price of gold will increase in three months by more than Bt300 from the spot value (present price) while the gold futures for three months are Bt300 different from the current price, he will purchase the futures. On the other hand, in a bearish market, if an investor believes gold prices in six months will have fallen more than Bt300 from the spot value while gold futures for six months are Bt300 less than the spot value, he will sell sixmonth futures.

Unlike direct investment in gold, when an investor puts his money into futures, he puts in only 10 per cent of the total contract value with the licensed broker. Futures will be marked to market on a daily basis until the maturity date of the contract. Investors may be asked to top up the money should the marktomarket value become less than the threshold amount preset by the broker (margin call). Since gold futures have leverage, an investor may have the opportunity to gain or lose more than someone who invests directly in gold. From the example above, if we assume the spot value of gold is Bt12,500 in a bullish market, an investor will need to put down Bt64,000 [(10 per cent of 12,800) x 50], compared with Bt625,000 (12,500 x 50) for someone investing directly in gold. On the maturity date of the futures contract, the value of gold has risen to Bt13,000, so our investor will earn Bt10,000 [50 x (13,000 - 12,800)], or a 15.62percent return, compared with Bt25,000 [50 x (13,000 - 12,500)], or a 4percent return for the direct investment.

In a bearish market, our futures investor will need to put up Bt61,000 [(10 per cent of 12,200) x 50]. On the maturity date of the futures, the value of gold has fallen to Bt12,000, so our investor will gain Bt10,000 [50 x (12,200 - 12,000)], or a 16.4percent return, compared with Bt25,000 [50 x (12,500 - 12,000)], or a 4percent return for the direct investment.

However, should the market not move in the way the investor expects, he may face a margin call. Let us assume the spot rate on the second day after our investor purchases his futures is Bt12,000. This makes the balance lower than the threshold, so our investor will be called upon to top up his money by Bt25,000, making a total of Bt64,000.

This example indicates a higher risk for direct gold investment, because it has leverage. Therefore, goldfutures investors must know their gain or loss appetite and operate with good investment discipline to halt losses if need be.