Our introduction of smaller denomination Gold futures and options contracts marked an important step in making the gold market more accessible to the widest range of participants. The launch of Gold (GC) futures goes back to 1974. It was, and remains to this day, denominated in 100 troy ounces per contract. In 2006, we introduced E-mini Gold (QO) futures  with half the contract size, which was followed in 2010 by Micro Gold (MGC) futures  at 1/10 of the GC size, namely 10 troy ounces per contract. Starting in 2025, investors will also be able to trade gold using the 1-Ounce Gold (1OZ) futures contract, which, as the name indicates, represents one troy ounce of gold. 

These innovative products effectively lower the barriers to entry for a wider range of market participants. By reducing the capital requirements and overall risk associated with gold trading, smaller unit size contracts open doors for individual investors, traders with smaller accounts and those seeking more precise position management. The benefit of using smaller unit size contracts is particularly strong when gold is now quoted above 2,500 $/tr.oz, meaning capital requirements for holding one GC contract, equivalent to 100 troy ounces, are now much more onerous than they were just a few years ago.

In particular, Micro Gold futures have found strong market adoption, and trading volumes in Micro Gold futures represents almost half of GC futures in contract terms (meaning almost 5% of GC in terms of ounces of gold traded via the respective contracts). In a year in which gold posted new all-time highs and recorded its best annual performance since 2010, Micro Gold futures were a preferred tool for retail investors to seek access to the gold market. Jin Hennig, Global Head of Metals at CME Group, stated in an interview that retail demand “tends to have a high correlation with the price movement of gold, especially when it’s in an uptrend.”¹ Gold’s strong performance and accessibility to retail traders is likely to have played a role in the outstanding volume figures for Micro Gold futures this past year.

The influx of new participants brought about by Micro Gold futures has yielded significant benefits for the overall market since more participants and increased trading activity translates into tighter bid-ask spreads, making it easier and more cost-effective for all participants to manage gold price exposure. A broader and more diverse range of market participants ensures that gold prices more accurately reflect the interplay of supply and demand factors, meaning more robust price discovery. In addition, the presence of numerous orders from a variety of participants reduces the likelihood of large orders disproportionately impacting prices, fostering a more stable and predictable trading environment.

The accessibility of smaller-sized Gold products has been amplified by retail broker platforms, which now routinely offer these contracts to individual investors. This ease of access has empowered retail traders to incorporate gold into their portfolios, diversify their investments and potentially benefit from movements in gold prices. The rationale for trading gold via smaller denomination contracts, whether it’s Micro Gold, 1-Ounce Gold or the E-mini Gold futures, remains compelling in today's dynamic market environment:

Portfolio diversification: Gold's historical inverse correlation with other asset classes makes it a valuable tool for potentially mitigating losses during periods of economic uncertainty.

Inflation hedge: Concerns about inflation have not disappeared, and gold's ability to retain its value has reinforced its appeal as a potential hedge against eroding purchasing power.

Speculative opportunities: Traders can capitalize on both upward and downward movements in gold prices through Micro futures and options, potentially generating revenue from short-term price fluctuations.

What about alternative investment venues, in particular gold ETFs?  When it comes to gaining exposure to gold, futures contracts offer distinct advantages over exchange-traded funds (ETFs). Here's why futures might be the better choice for certain traders and investors: As we explained in this piece, liquidity in Gold futures contracts is usually superior, whether it’s benchmark GC or smaller-sized Gold products, futures contracts typically exhibit tighter bid-ask spreads and more trading volume in terms of gold ounces traded. This tightness minimizes trading costs. In addition, trading futures means using leverage, allowing traders to control a larger notional value of gold with a smaller amount of capital. While leverage can amplify gains and losses, it is a powerful tool for efficient capital allocation when used judiciously. In addition, unlike ETFs, where shorting involves borrowing shares and paying borrowing fees, futures contracts allow seamless short positions, facilitating trading strategies in both bullish and bearish markets. 

Our introduction of smaller-sized Gold futures and options contracts has democratized access to the gold market, empowering a wider range of participants to engage in this historically significant asset class. By lowering barriers to entry, enhancing market efficiency and providing valuable tools for risk management and speculation, we have solidified gold's relevance in modern portfolio construction and trading strategies. As economic uncertainties and geopolitical risks persist, the accessibility and flexibility offered by smaller denomination Gold products are likely to remain key drivers of continued growth and participation in the global gold market. The next step in the market evolution is just ahead of us, with the introduction of the 1-Ounce Gold (1OZ) futures contract in early 2025.