Gold is more expensive in future?
Quantitative Finance
Level
2
Why is the future price of gold higher than the spot price of gold?
Image credit: CMEgroup
Gold in future is worth more
Storage and insurance costs
Interest rate
People pay for the privilege of holding physical gold
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The future price of Gold is higher than the current spot price, for it includes fees of storage and delivery of the gold, also includes finance charges because of the delay payment.
Furthermore, the future price is determined based on the spot price.
The money market rate and supply/demand also affects the future price.
Generally, the rising interest rates adversely impact the Gold price.
I think everyone should read this .
According to it, whenever the dollar's real short-term interest rate is below 2%, gold rallies, and whenever the real short-term rate is above 2%, the price of gold falls.
Another rule of thumb is that gold moves eight times stronger than the difference between real interest rates and 2%.