A “future” in market terms, is a contract to buy or sell a commodity for a specific price at a specific time in the future. That contract (or future), can be bought and sold up until that date. Think of it this way: today, an apple costs 25¢ but you think the price will go up 50¢ next fall. You decide to buy a contract with an apple farm for an apple next fall at today’s price. Now you can sell that contract up until next fall.
Posts Tagged ‘commodities’
10 Things You Never Knew About Gold
Friday, July 15th, 2011Brett Molé had just finished eating his daily $175 hamburger topped with 750mg of gold flakes when he had the idea to make this video. It’s fun!
The CME is…
Thursday, June 30th, 2011The CME is short for the Chicago Mercantile Exchange. The CME is one of the largest derivatives markets in the world, offering a wide range of options, futures, and other products.
Saudi Arabia Reacts to Your Disinterest by Playing Hard to Get
Thursday, April 21st, 2011
(photo credit: ezioman)
Let’s see if we can explain this one:
- The laws of supply and demand say that when supply of a particular product is low, its price goes up. And when consumer demand for that product is high, prices also go up.
- The opposite is also true: low demand = low prices; high supply = low prices.
- So when the oil minister of Saudi Arabia says that OPEC is cutting down on oil production because there’s too much supply in the market, you would think that oil is pretty cheap right now.
Nope. The price of oil is actually higher than it’s been in two and a half years. But it’s not high because of strong consumer demand (apparently demand is quite low since no one can afford it), and it’s not because of low supply (the minister says the market is actually “oversupplied” with barrels and barrels of black gold).
The price of oil is high because of the investors trading it on commodity markets. Because of all the civil unrest/ revolutions/ humanitarian disasters in North Africa and the Middle East right now, they’re worried about whether oil will become harder to get in the future.
So in this case, the price of oil has nothing to do with present-day supply and demand. It’s about a bunch of analysts who think that if a lot of oil-rich governments collapse, tomorrow’s supply might not meet tomorrow’s demand. (Dun dun dun dunnnnnnnnnn!)
Don’t Just Buy Local – Buy Personal
Thursday, February 24th, 2011“Recently I saw a small business shut its doors. I feel terrible because I am partly to blame.
I never stopped by this store. While I can tell myself it was more convenient to shop at a large retailer, the truth is I didn’t stop in because I never saw any cars in the parking lot. I was uncomfortable with how both of us would feel if I browsed and didn’t make a purchase: He disappointed, me guilty.”
What do you think?
Have you ever avoided going into a store or restaurant because you felt awkward about interacting with the owner or salesperson?
High Cost Of Food Causing Riots, Widespread Poverty Around The World
Thursday, February 24th, 2011“The World Bank says food prices are at “dangerous levels” and have pushed 44 million more people into poverty since last June.
According to the latest edition of its Food Price Watch, prices rose by 15% in the four months between October 2010 and January this year.
Food price inflation is felt disproportionately by the poor, who spend over half their income on food.”
What do you think?
As a philanthropist, how would you approach the problem of unaffordable food?
Bet You Didn’t Know: The U.S. Still Manufactures 40% More Stuff Than China
Friday, February 11th, 2011“WASHINGTON — U.S. factories are closing. American manufacturing jobs are reappearing overseas. China’s industrial might is growing each year.
Yet America remains by far the No. 1 manufacturing country. It out-produces No. 2 China by more than 40 percent. U.S. manufacturers cranked out nearly $1.7 trillion in goods in 2009, according to the United Nations.
The story of American factories essentially boils down to this: They’ve managed to make more goods with fewer workers.”
What do you think?
What if higher production adds up to fewer jobs? Is efficiency always a good thing?
How often do you see “Made in U.S.A.” on the products you buy? How about “China?”
J.P. Morgan Will Take Your Gold Booty
Wednesday, February 9th, 2011
If gold is the same thing as cash, why can’t you use your gold medals to pay for coffee?
- 40 years after the U.S. dollar stopped being backed by actual gold, JP Morgan is saying that if you’ve got enough of the metal, it will trust you with a loan. From now on, some of their clients will be able to use their gold holdings as collateral* on certain loans.
- This is kind of a big deal. It means that the bank thinks gold, cash, and (super-low-risk) U.S. Treasury bonds are all equally safe bets.
- For a long time, investors stayed away from gold. There weren’t that many gold buyers around, so if you suddenly needed to sell your gold for cash (to buy that cup of coffee, maybe), it would take too long.
- Supporters of the gold-as-collateral decision say that gold is a stable, real-life source of value that can be relied upon no matter how the economy changes. Skeptics point out that the price of gold changes every single day on the commodity market.
*Collateral is something of value (e.g. your house, your credit card, your firstborn) that you give to a lender until you’ve repaid your debt. If you don’t repay your debt, the lender gets to keep whatever you’ve put up as collateral. For instance, if you loan your friend $10, you can keep his sunglasses as collateral until he gives you the money back.
Facts & Figures
- More than $100 billion in trade occurs in the gold market every day
- Former U.S. President Nixon stopped backing up the dollar with real gold in 1971
Best Quote
“When a bank, such as J.P. Morgan, is willing to extend collateral value against an asset such as physical bullion, it shows that they are not worried about the liquidity issue if they might take the collateral over or they have to liquidate the collateral.” – Frank McGhee, Head Precious Metals Trader, Integrated Brokerage Services
What do you think?
Does an old-fashioned form of currency like gold have a place in today’s plastic society? Do you know if there’s any gold in your investment portfolio?
Gold Medals – How Much Are They Really Worth?
Friday, February 26th, 2010The 2010 Winter Olympics started this past week in Vancouver, and when considering these prestigious games, one must ask oneself the question: if I were to take up curling, would winning a gold medal make up for all those years of chronic boredom and embarrassment, you know, money-wise? Well…
- Gold and silver have appreciated in value over the past ten years—a result of the current credit explosion and financial crisis—which has shaken investor confidence in currencies, making gold and silver a safer, more desirable bet.
- At the turn of the century, on the other hand, pawning off gold and silver medals would not have been as wise as it would today, since the value of both commodities was exponentially smaller then.
- 1980 was the golden year (pun intended) for hocking gold medals, but one in possession of an Olympic medal in these modern times would probably be best served by selling said medal on eBay (unless, of course, it’s a bronze).
Facts & Figures
- Gold is currently valued at $1,100 per ounce, but gold medals are primarily made of silver, with about 6 grams of gold plating on top.
- The medals handed out in Vancouver are substantially larger than medals awarded in years past—this year’s medals are about 100 millimeters in diameter, 6 millimeters thick, and weigh between 500-576 grams (a little over a pound). The medals from the last two Winter Olympics (held in Turin, Italy and Salt Lake City, UT, respectively) weighed less than 500 grams.
- Vancouver’s gold medals are worth approximately $500, while silver medals are valued at a little over half of that.
- In 1980, after adjusting for inflation, gold medals were worth around $1,000.00
- Silver medals on eBay have been known to sell for $7,000.00