Futures and Options:

Investors most of the time ask about gold’s erratic, puzzling and sometimes inexplicable behavior in price. These questions are well justified. Too many a time, right when you are thinking that everything is lined up economically, politically, and fundamentally for gold to make its ascent, it promptly turns on a dime, and performs in an exact 180 degree fashion. People often ask the typical refrain as to why gold can’t be more predictable. The answer to this is simple, gold was never said to be predictable what you can learn from watching the gold market is that, just when you believe that gold is about to take one direction or another, it does the exact opposite of what you are expecting and shows you who is in control here, gold.

Futures and Options
The main reason for this is that the price for gold has not been established in the physical market for gold, but in the futures and options markets, where geared trading overwhelms the volume of the actual physical market. In this arena, the COMEX gold trading pit or the over-the-counter market in London, the short-term view holds sway over the medium- to long-term. The price of gold is discovered and determined not only by the fundamentals, although they play their part, but more directly by the trading activity of thousands of players exercising their speculative or commercial interest.

In general, this subject is much more complicated than can be properly treated in a general overview. But for the purposes of this part, we will set our focus on the activity of one group of important market players who influence the gold price deeply., the COMEX group calls large speculative traders – a group which claims among its constituents, financial institutions, commodity trading groups, and massive hedge funds. As one can estimate, these groups are capable of moving the gold market in one direction or the other, and they hold the key to understanding how the gold price is set on a day-to-day basis.