Gold Options Explained

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How to Buy Gold Options and Not Go Broke?

Gold is the universal asset.
Coveted for its beauty and value, it is the ultimate investment.

The easiest and most accessible way to invest in the great world of gold is via gold stocks.

​Futures and Options trading is a surefire way to invest large with small money.

This page will introduce you the advantages and alternatives of investing in gold.

Gold Futures Trading

A “future” is essentially a deal set some time in the future but with the terms decided now. It is a contract that stipulates the delivery of a particular product — in our case, gold — at a given time in the future at a predetermined set price. The delivery or settlement day is usually three months ahead and traders use this delay to speculate the rise and fall in Gold prices.

Risky, you’d think? Not so much. You can manage this risk by trading before the settlement day. Using this method you deal only in gains on losses.

With gold futures trading you essentially get more for your money. This is done through gearing or leverage. If you have say €5,000 to invest, you could go and buy €5,000 worth of gold, which isn’t very much, but trading in gold futures gives you the option to buy up €100,000 of gold futures. This is assuming your margin is about 5%. So if the price of gold rises but say 5% you’ve earned €5,000 with futures but only €500 with actual bullion.

How to Buy Gold Futures

Future contracts are traded the world over.

Professional traders invent their own contracts but fortunately there are standardised contracts which are traded through a financial futures exchange.

The exchange will decide the settlement date, amount and delivery conditions.

Standardised contracts have numerous advantages to you as a speculator including giving you the option to sell when you choose to whomever you chose.

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They also provide a central clearer, these clearers guarantee against default of both parties (buyer and seller) and also look after the margin calculations and collect and hold the margin for buyer and seller.

Gold Options Trading

Gold options are contracts where the actual asset behind the trade is a gold futures contract (see above). The gold option gives the purchaser the right, but not the obligation to buy the futures contract. Options are divided into two types or classes, Calls and Puts.

Calls are purchased when a trader is confident in a rising price in the gold markets and Puts are purchased when a fall is expected. These are not the only methods of trading. You can also sell or use a combination of strategies known as a spread.

Trading gold options is often considered a safer bet than gold futures as the gold option buyer often has a lower premium than the margin required with gold futures. Any losses are limited to the purchase price.

You can trade gold options alone or in a combination with gold futures options implementing a broad risk-reducing strategy which can often guarantee excellent returns.

How to Trade Gold Options?

Contracts are traded on both the New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYEX gold options are traded at 100 troy ounces of gold while TOCOM gold options are traded for 1000 grams of gold. These are minimum purchase requirements and non-negotiable.

Gold Options Prices

Options and futures trading prices can be found at this l ​ ​ ink:

This YouTube video explains a lot of what you need to know about gold options trading and highlights how they are infinitely more profitable than purchasing gold itself. It also outlines how you can minimise your losses.

Tips for Trading Options and Futures

Constant Monitoring of The Market

Pay attention to global events. Current affairs often help predict where the price of gold will go. Historically, gold has been rising since 1979 so staying informed will help you time your trades to capitalise on steep uphill price movements.

Set a Limit

Begin by trading with a demo account. This will give you a “feel” for the market. When you do switch to real money, deal in small amounts to begin with. Set yourself loss limits and stick to them.

Don’t be Hasty

You will occasionally need to make quick decisions. Try not to be too hasty and ensure any decision you make is well informed.

Trend Lines

They’re the basis of technical analysis. Learn how to use trend lines – find a trend, confirm it and trade with it.

Hedging

Hedging is sort of like an insurance to help you insure yourself against loses . This is really important to maximise profits.

1-2-3 System Strategy

This is a system based on price action that relies on reversal patterns. Most of the big moves in financial markets are composed on 3 or more up/down waves. It’s a great system for a novice trader.

Never Stop Learning

The gold market is constantly evolving and adapting to the modern world. Keep yourself on top of the trends. There is plenty of information to be found on the internet even on sites such as Wikipedia.

Conclusion

Learning how to trade gold futures and options is an easily accessible entrance into the exchange market.

It gives investors an opportunity to make money whether the market for gold is going up or down and offers a position in gold for substantially less capital than expected.

With gold options and futures you won’t go broke but instead use the leverage and flexibility to profit big from small investments.

Editor’s Note : Buying gold may be a bit daunting, but there are several investor guides that you can get which would help you decide what to do.

Options Expiration Explained

Options can be dangerous.

They have a time limit.

That’s completely different than how stocks trade.

So if you’re going to trade options, you’re going to have to master the ins and outs of options expiration.

This guide will answer every single question

Why Options Expiration (OpEx) is So Important

If you come from a directional trading background (meaning long or short), then you probably only focus on where a stock or market is going.

But that is only one part of the option trading equation. It’s known as delta.

The true risks in the options market come from two things:

Theta – the change of an option price over time

Gamma – your sensitivity to price movement

A failure to understand these risks mean that you’ll put your portfolio in danger. especially as options expiration approaches.

If you’re in the dark about the true mechanics of options expiration, make sure you read this before you trade another option.

How Does Options Expiration Work?

When it comes down to it, the financial market is all about contracts.

If you buy a stock, it’s basically a contract that gives you part ownership of a company in exchange for a price.

But options are not about ownership. It’s about the transfer or risk.

It’s a contract based on transactions.

There are two kinds of options, a call and a put.

And you have two kinds of participants, buyers and sellers.

That leaves us with four outcomes:

If you’re an option buyer, you can use that contract at any time. This is known as exercising the contract.

If you’re an option seller, you have an obligation to transact stock. This is known as assignment.

On the third Saturday of the month, if you have any options that are in the money, you will be assigned. This process is known as “settlement.”

The transaction in these options is handled between you, your broker, and the Options Clearing Corporation. You never will deal directly with the trader on the other side of the option.

If you are long options that are in the money, you will automatically begin the settlement process. If you don’t want this to happen, you will have to call your broker.

Why don’t Out of the Money Options get assigned?

Each option has a price that the buyer can buy or sell the stock– this is known as the strike price.

If it is “cheaper” to get the stock on the market, then why would you use the option?

If the stock is trading at $79, which makes the most sense.

Buying the stock on the market at $79?

Or using the option to buy the stock at $80?

The first one, of course.

So into expiration, these out of the money options will expire worthless.

What are the Options Expiration Dates?

Technically, expiration occurs on Saturday. That’s when settlement actually occurs. But since the market’s don’t actually trade on Saturday, we treat Friday as the effective expiration date.

For monthly option contracts, the expiration is the Third Friday of each month.

With the introduction of weekly options into the mix, we now have options that expire every single Friday.

The CBOE has a handy calendar that you can download and print for your desk.

Are There Exceptions?

There’s a handful of “goofy” expiration dates on specific options boards.

For monthly SPX options, they stop trading on Thursday, and the settlement value is based on an opening print Friday morning. These contracts are “cash settled” meaning there is no true assignment but instead you look at the intrinsic value of the options and convert it into cash.

Here’s where it can get weird. SPX weekly options are settled on Friday at the close. So if you are trading around OpEx with the SPX you need to check if it’s a weekly or monthly contract.

How do options trade at expiration?

When we look at options pricing, we generally follow a traditional model. We can look at the things that affect the options pricing, known as the greeks.

But when the market heads into options expiration, weird things can happen.

It’s very similar comparing traditional particle physics with what happens at the quantum level.

There’s a concept that I call the “gamma impulse.”

If you look at a call option into expiration, it has this risk profile:

Yup. It’s a Call Option.

We know that if the option is out of the money, it will have no directional exposure (0 delta), and if the option is in the money it will behave like stock (100 delta).

notice two different values for delta

The gamma of an option is the change of the delta relative to price.

So there is this discontinuity right at the strike price– and the gamma of the option can be represented by a “dirac function.” This is what I call a gamma impulse.

don’t get caught on the wrong side of this.

If you have an option that switches from OTM to ITM very quickly, your risks change drastically.

What if I don’t have enough cash to cover assignment?

This is where it gets interesting.

And this is why you need to be extra vigilant into expiration.

If you have a short option that goes in the money into expiration, you must fulfill that transaction.

If you don’t have enough capital, you will get a margin call on Monday.

You also have gap risk.

This happened to me back in 2007.

I had a pretty decent-sized iron condor in BIDU.

This was back before their 10:1 split.

I found on Saturday that the short options had expired in the money, and that I now had a sizeable long position on in BIDU.

Not Fun.

I was lucky enough to see BIDU gap up the following Monday and I exited for a gain.

But. never again. Make sure your books are cleared out of all in the money options if you don’t want to get assigned.

What if I’m short a call without stock?

If you have a sold call, you will be given a short position if you don’t own the stock already. This is known as a “naked” call rather than a “covered” call.

Margin to hold this short is determined by your broker, and to eliminate the short you will have to “buy to close” on that stock.

What about options pinning?

See my full guide on options pinning.

Can You Get Assigned Early?

There are two types of options: American and European.

With European-style options, you can’t get assigned early.

With American-style, you can get assigned whenever the option buyer feels like it.

Most options are American style, but you rarely have early assignment.

What if I don’t want to get assigned?

So you’re coming into options expiration with short options that are in the money.

And you don’t want to be short the stock or own the stock.

  • Solution #1: Never get down to options expiration with in the money options. Be proactive with your trades.
  • Solution #2: Close out the in the money option completely. This may be difficult into options expiration as the liquidity will dry up and you will be forced to take a worse price.
  • Solution #3: Roll your option out in time or price. These kinds of rolls, as detailed in my options trading course, will move your position into a different contract that has more time value, or is out of the money. These are known as calendar rolls, vertical rolls, and diagonal rolls.

A good rule of thumb is if your option has no extrinsic value (time premium) left, then you need to adjust your position.

How To Make Money Trading Around Expiration

Because of that “gamma impulse” we talked about earlier, the risks and rewards are much, much higher compared to normal options tarding.

There’s two groups of OpEx trades to consider: option buying strategies and option selling strategies.

Option buying strategies attempt to make money if the underlying stock sees a faster move than what the options are pricing in. The profit technically comes from the delta (directional exposure), but since it is a long gamma trade, your directional exposure can change quickly leading to massive profits in the very short term. The main risk here is time decay.

Option selling strategies attempt to make money if the stock doesn’t move around that much. Since you are selling options you want to buy them back at a lower price. And since option premium decays very fast into OpEx, the majority of your profits come from theta gains. Your main risk is if the stock moves against you and your directional exposure blows out.

Options Expiration Trading Strategy Examples

We do trade around OpEx at IWO Premium. Here are some of the strategies we use:

Weekly Straddle Buys

This is a pure volatility play. If we think the options market is cheap enough and the stock is ready to move, we will buy weekly straddles.

As an example, a trade alert was sent out to buy the AAPL 517.50 straddle for 5.25. If AAPL saw more than 5 points of movement in either direction, we’d be at breakeven. Anything more would be profit.

The next day, AAPL moved over 9 points, leading to a profit of over $400 per straddle:

This trade is risky because it has the opportunity to go to full loss in less than 5 days. Position sizing and aggressive risk management is key here.

Spread Sale Fades

When an individual stock goes parabolic or sells off hard, we will look to fade the trade by either purchasing in-the-money puts or by selling OTM spreads.

With the market selling off hard in December and the VIX spiking up, premium in SPX weeklies were high enough to sell them. So a trade alert was sent out to sell the SPX 1750/1745 put spread for 0.90:

Once the risk came out of the market, we were able to capture full credit on the trade.

Lotto Tickets

These are high-risk, high-reward trades that speculate strictly on the direction of a stock. Generally a stock will develop a short term technical setup that looks to resolve itself over the course of hours instead of days. Because of that short timeframe, we’re comfortable with buying weekly calls or puts. These trades are made in the chat room only, as they are fast moving and very risky.

These are just some of the trades we take within the IWO Premium Framework. If you feel that it’s a right fit for you, come check out our trading service.

Gold Jun ’20 (GCM20)

Stocks: 15 20 minute delay (Cboe BZX is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

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The Futures Options Quotes page provides a way to view the latest Options using current Intraday prices, or Daily Options using end-of-day prices.

Options prices are delayed at least 15 minutes, per exchange rules, and trade times are listed in CST.

Options Type

American Options: An American option is an option that can be exercised anytime during its life. American options allow option holders to exercise the option at any time prior to, and including its maturity date, thus increasing the value of the option to the holder.

European-Style Options: A European option is an option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to their comparable American option because American options allow investors more opportunities to exercise the contract.

Short Dated New Crop Options: The term short-dated refers to a shorter window before the option’s last trading day, otherwise known as option expiration. A traditional (or long-dated) option has a longer window before the option expires. In corn, traditional December calls and puts expire in late November. In soybeans, traditional November calls and puts expire in late October. Short-dated options have the same underlying futures contract (or instrument). The underlying futures contract for corn is December, and the underlying futures contract for soybeans is November. With short-dated, there are fewer days of coverage. As an example, a July short-dated option will expire in late June, even though the underlying futures contract is December.

Calendar Spread Options: A calendar spread is an option spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months. Sometimes referred to as an interdelivery, intramarket, time or horizontal spread.

Weekly Options: Weekly options are the same as standard American Options, except they expire on a Friday.

  • Week 1 options expire on the first Friday of the month
  • Week 2 options expire on the second Friday of the month
  • Week 3 options expire on the third Friday of the month
  • Week 4 options expire on the forth Friday of the month
  • Week 5 options expire on the fifth Friday of the month (if it exists)

Weekly European Options: Same as Weekly Options above but can only be exercised at the maturity date (Friday).

Monday Weekly Options: A weekly option that expires on Monday rather than Friday.

  • Week 1 – 1st Friday of the month
  • Week 2 – 2nd Friday of the month
  • Week 3 – 3rd Friday of the month
  • Week 4 – 4th Friday of the month
  • Week 5 – 5th Friday of the month

Wednesday Weekly Options: A weekly option that expires on Wednesday rather than Friday.

  • Week 1 – 1st Wednesday of the month
  • Week 2 – 2nd Wednesday of the month
  • Week 3 – 3rd Wednesday of the month
  • Week 4 – 4th Wednesday of the month
  • Week 5 – 5th Wednesday of the month

New Crop Options: Options with an expiration date after harvest has been completed.

CSO Consecutive: A calendar Spread where the first leg is the front month and the second leg is the next available month.

Average Price Options: A type of option where the payoff depends on the difference between the strike price and the average price of the underlying asset. If the average price of the underlying asset over a specified time period exceeds the strike price of the average price put, the payoff to the option buyer is zero. Conversely, if the average price of the underlying asset is below the strike price of such a put, the payoff to the option buyer is positive and is the difference between the strike price and the average price. An average price put is considered an exotic option, since the payoff depends on the average price of the underlying over a period of time, as opposed to a straight put, the value of which depends on the price of the underlying asset at any point in time.

Crack Spreads: The spread created in commodity markets by purchasing oil options and offsetting the position by selling gasoline and heating oil options. This investment alignment allows the investor to hedge against risk due to the offsetting nature of the securities.

Crack Spread Average Price Options: Similar to Crack Spreads above, but use Average Price options.

MidCurve Options: Eurodollar Mid-Curve options are short-dated American-style options on long-dated Eurodollar futures. These options, with a time to expiration of three months to one year, have as their underlying instrument Eurodollar futures one, two, three, four or five years out on the yield curve.

Weekly 1-Year Options: Similar to MidCurve options, but expire in 1 weeks.

Weekly 2-Year Options: Similar to MidCurve options, but expire in 2 weeks.

Weekly 3-Year Options: Similar to MidCurve options, but expire in 3 weeks.

EOM Options: End Of Month options are designed to expire on the last business day of each calendar month, offering alignment with month-end accounting cycles.

Additional Selection Criteria

Select an options expiration date from the drop-down list at the top of the table, and select “Near-the-Money” or “Show All’ to view all options.

You can also view options in a Stacked or Side-by-Side view. The View setting determines how Puts and Calls are listed on the quote. For both views, “Near-the-Money” Calls are Puts are highlighted:

  • Near-the-Money – Puts: Strike Price is greater than the Last Price
  • Near-the-Money – Calls: Strike Price is less than the Last Price
Data Shown on the Page

For the selected Options Expiration date, the information listed at the top of the page includes:

  • Options Expiration: The last day on which an option may be exercised, or the date when an option contract ends. Also includes the number of days till options expiration (this number includes weekends and holidays).
  • Price Value of Option Point: The intrinsic dollar value of one option point. To calculate the premium of an option in US Dollars, multiply the current price of the option by the option contract’s point value. (Note: The point value will differ depending on the underlying commodity.)
Stacked View

A Stacked view lists Puts and Calls one on top of the other, sorted by descending Strike Price. Puts are identified with a “P” after the Strike Price, while Calls are identified with a “C” after the Strike Price.

  • Strike: The price at which the contract can be exercised. Strike prices are fixed in the contract. For call options, the strike price is where the shares can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying contract’s current market price and the option’s strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.
  • Open: The open price for the options contract for the day.
  • High: The high price for the options contract for the day.
  • Low: The low price for the options contract for the day.
  • Last: The last traded price for the options contract.
  • Change: Today’s change in price
  • Volume: The total number of option contracts bought and sold for the day, for that particular strike price.
  • Open Interest: Open Interest is the total number of open option contracts that have been traded but not yet liquidated via offsetting trades for that date.
  • Premium: The price of the options contract.
  • Time: The time of the last trade for the options contract.
Side-by-Side View

A Side-by-Side View lists Calls on the left and Puts on the right.

  • Last: The last traded price for the options contract.
  • Volume: The total number of option contracts bought and sold for the day, for that particular strike price.
  • Open Interest: Open Interest is the total number of open option contracts that have been traded but not yet liquidated via offsetting trades for that date.
  • Premium: The price of the options contract.
  • Strike: The price at which the contract can be exercised. Strike prices are fixed in the contract. For call options, the strike price is where the shares can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying contract’s current market price and the option’s strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.
Totals

The totals listed at the bottom of the page are calculated from All calls and puts, and not just Near-the-Money options.

  • Put Premium Total: The total dollar value of all put option premiums.
  • Call Premium Total: The total dollar value of all call option premiums.
  • Put/Call Premium Ratio: Put Premium Total / Call Premium Total
  • Put Open Interest Total: The total open interest of all put options.
  • Call Open Interest Total: The total open interest of all call options.
  • Put/Call Open Interest Ratio: Put Open Interest Total / Call Open Interest Total.

Gold, Explained

Gold often comes into the limelight when there is heightened geopolitical risk because it is viewed as a store of value during volatile times. Yet the gold market and the various methods to access gold are quite nuanced. The following analysis seeks to shed light on gold by answering four key questions:

  • How does the gold supply chain work?
  • What are the main sources of demand for gold?
  • What is the outlook for the supply and demand balance?
  • What are the key differences between the various ways to access gold?

How does the gold supply chain work?

Gold is a rare element, with an average concentration of just 0.005 parts per million. In other words, just 1 gram of gold can be extracted from 250 tons of ordinary gravel. 1 Given its scarcity, it is seldom found in concentrations that make extraction economically viable. In order to support a profitable mining project, gold explorers conduct geological surveys targeting concentration levels that are 1000 times higher than normal. After discovering an ore, geologists and engineers will engage in a feasibility study to determine whether the project has economic value, prior to the commencement of any mining operations. They will also seek approvals from the appropriate governing bodies, including local governments and environmental agencies, to proceed with the mining project.

The next phase focuses on efficiently extracting gold from other natural materials in the mine. There are two processes for doing so: milling and amalgamation. Milling is a chemical process whereby the ore is ground into a fine powder and mixed with water to form a slurry. This slurry is then passed through a carbon-in-leach circuit, which attaches the gold particles to carbon, separating it from other materials. 2 In amalgamation, gold ore is dissolved in mercury and then the mercury is distilled away. 3 Once the gold is purified, it is smelted and pressed into gold bars to be sold in the market.

A more detailed look at the mining life cycle can be found in the chart below.

What are the main sources of demand for gold?

Jewelry: Until relatively recently, jewelry constituted the vast majority of all gold demand. To this day, gold jewelry remains one key source of demand for the precious metal.

Investing: Gold has gained popularity as an alternative asset class that can potentially hedge against inflation and geopolitical risks. Holding gold directly though physical ownership of bars and coins or indirectly through investment vehicles like ETFs and futures are popular ways of gaining exposure to gold.

Central Bank Reserves: Central banks are net buyers of gold. They often fill up their treasuries with gold bullion, which serves as a reserve. This circumstance is partly due to changes in banking regulations, which as a result of Basel III now classify gold as a tier I asset (a primary measure regulators use to evaluate a bank’s financial health).

Currency: Gold continues to be used as a form of non-fiat currency around the globe, particularly in underdeveloped economies which struggle with high inflation.

Industrial: Gold’s malleability, conductivity, and non-reactivity make it a useful component for a variety of applications, including personal electronics, medicine, and aeronautics, among other uses. 4

What is the outlook for the supply and demand balance?

Some commodities, like oil, can demonstrate rapid changes in supply due to changes in spot prices. Gold production, however, has been relatively insensitive to changes in gold spot prices compared to other natural resources. This phenomenon is largely due to the geological challenges that prevent a rapid increase in production. For example, the gold mining industry already faces challenges with the depletion of existing mines and fewer new discoveries, which constrains supply growth. Additionally, increased government and environmental regulations, higher production costs, and falling ore quality, can constrain supply growth. Gold supply constraints have temporarily eased, and production is expected to increase through 2022, backed by higher gold prices and mine investments, boosted by stronger company financials.

Actual supply and demand numbers, however, can change rapidly. The major factors expected to drive supply and demand trends in 2020 include:

    • Geopolitical Risks: With perceived political risks increasing worldwide, demand for gold could increase as investors look for store of value assets in times of uncertainty. We believe the U.S.-China trade war poses the biggest risk. Middle East politics, new dynamics in the U.S.-Saudi relationship and their potential impact on the oil market, uncertainties surrounding Brexit, and an outburst in European populism also remain as risks.
    • Equity Market Risks: In 2020, U.S. equities performance was at a 10-year low, and the market remained highly volatile on concerns about a global slowdown, the Federal Reserve’s (Fed) rate tightening, and inflation fears. 5 In these times of volatility, investors could look to diversify away from equity and increase exposures into low-correlated assets like gold.
    • Weakening U.S. Dollar: U.S. dollar appreciation in 2020 is expected to reverse in 2020 and 2020, and this could possibly make gold a more preferred investment option. With the Fed unlikely to hike interest rates much higher in 2020 and U.S. growth moderating, factors that strengthened the currency are weakening. The U.S.’s high current account and fiscal deficit would also put pressure on the currency. 6,7,8
    • Rising Debts and Deficits: The world has become very indebted, with debts surpassing pre-financial crisis levels. According to recent estimates by Bureau of International Settlement, global debt stood at 217% of GDP. Further, the U.S. budget is increasing and is estimated at 6% of GDP in 2020, a level generally not seen during a period of high growth. These high levels of debts and deficits pose a threat, especially as interest rates are rising. Gold as a real asset can act as a hedge against these rising debts. 9
    • Central Bank Demand: Central banks continued to increase their gold purchase in 2020, reaching the highest annual pace since 2020. Emerging markets, which generally have a small portion of reserves in gold, were ardent purchasers of the yellow metal during the year. This trend is expected to continue in 2020, particularly in China, Russia, and Turkey, and new central banks are expected to focus on gold purchase. 10
    • New Technological Trends: Gold is a component of almost every electronic piece. New technological trends, like the adoption of the Internet of things and shift to hybrid and autonomous vehicles, should lead to an explosion in the sale of electronic goods and components, boosting the demand for gold. 11
    • Supply Constraints: Though supply constraints have temporarily eased and gold production is expected to increase through 2022, in the long run, supply will be constrained by increasing operational costs and inadequate gold discoveries. 12,13

What are the key differences between the various ways to access gold?

There are a variety of methods for gaining exposure to gold, each of which has different characteristics with respect to its correlation to gold prices, fees, taxation, and liquidity.

Segmenting the Gold Equities space

Gold mining companies are distinguished by their role in the supply chain and size.

Explorers

Explorers begin operations at the earliest stage in the discovery process. These companies look to evaluate potential exploration projects, electing to use their expertise and scientific due diligence processes to strategically purchase assets. Often, explorers may have the rights to only a handful of projects. Once gold has been discovered, explorers can elect to engage in M&A activity with a mining company or undergo the mining phase themselves. These companies’ economic success are often tied to their ability to successfully find economically feasible gold ores as well as changing prices in gold. Companies that explore are sometimes equated with venture capital in that investments in gold exploration companies are early stage, high risk, with high potential reward.

Junior Miners

Junior Miners are smaller-sized companies that can be involved in a variety of stages of the gold cycle, including exploration, development, or mining. They are primarily defined by their size, which can make these companies more nimble and more able to pursue smaller opportunities that are overlooked by larger mining firms. These smaller firms can also have higher risks than larger mining companies, as smaller firms tend to have less efficient operations, less access to capital, and fewer mining projects in their portfolios.

Larger Miners

Larger mining firms tend to own a variety of gold projects around the world and have greater access to the capital markets through debt and equity issuances. While these firms can sometimes lower their costs through economies of scale and operational efficiency, they tend to be dependent on acquisitions of new mining projects to grow their production. Therefore, these firms ultimately depend on explorers and junior miners to grow.

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