Gold futures glitter as stocks lose lustre

Today marks an important milestone for the local capital market, as gold futures contracts begin trade on the Thailand Futures Exchange.

For retail investors, the timing could not be better, as gold has enjoyed a strong run in recent months even as the equities and bond markets remain moribund.

But investment experts caution that investors should take the time to study the workings of the derivatives market, trading strategies and details of the new gold contracts.

The leveraged nature of futures contracts means that much can be won - or lost - in a hurry, as the value of futures moves up and down with underlying gold prices.

Apichart Vilairat, an executive at Capital Nomura securities, expects trading for gold futures to be light at the start.

Investors should take several months to monitor futures and gold prices before entering the market, he said.

"It's important to also know what kind of investor you are," Mr Apichart said. "Can you accept investment risk? Then gold futures might be the right instrument for you."

Once you have a view on gold prices, you can then settle on the most suitable contract term and price level for taking a position.

Mr Apichart said in the first several months, it would not be unusual to see bid and price quotes out of line with the physical market. Excessively high quotes offered a short opportunity for investors to take advantage of price distortions, while low quotes indicated a chance to profit from long positions.

According to a research study by Thammasat University and the Gold Traders' Association, gold was an interesting investment option for managing one's portfolio risk as prices were uncorrelated with stocks, bonds or property.

Gold prices, like other commodities, move with the forces of supply and demand. Gold is in demand not just from the jewellery trade - its unique properties of resisting corrosion and as a conductor is put to use in a variety of industries, from dentistry to electronics.

But the precious metal also enjoys the reputation as being a safe haven during inflationary or volatile economic times - prices shot up to over $1,000 per ounce last year when global inflation soared with oil prices. And while prices have since retreated to around $900 per ounce, gold has continued to outperform many other asset classes as the financial markets and global economy remains bearish.

Gold of course is a wildly popular investment and savings asset for many Thais, who typically purchase bullion or ornaments from the 6,000 gold shops in the country.

Investment experts say for gold futures, investors should have sufficient capital to cover at least twice one's initial investment. Beginners should focus only on most immediate, liquid series, and establish stop-loss positions to minimise potential losses.