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How futures leveraged gold trade

(Chart courtesy of optionsHOUSE )

Gold is taking a beating as investors prepare for higher interest rates.

GCZ5 (Dec '15) gold futures touched 1062 yesterday, the lowest price since the contract began trading. It's down from 1191 in mid-October and has declined in 10 of the last 12 sessions.

Every point in GC represents $100 in client accounts, so a trader who shorted one contracts at last month's high would have made about $12,000. That's almost triple the $4,125 initial margin required to open the bet.

The selloff comes as conviction spreads that the Federal Reserve will raise interest rates for the first time in nine years on Dec. 16. That's lifted the U.S. dollar, reducing the appeal of metals and commodities. The next big session that could affect sentiment is Wednesday, Nov. 25, which is packed with economic news because of Thanksgiving the next day.

Spot gold, the underlying asset of GC, is now back to levels last seen in February 2010. The futures generate leverage because each contract effectively controls 100 ounces of bullion.

For more information on futures, please visit The Futures Institute (Powered by CME Group) .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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