HBS case: Betting on gold using futures-based GOLD ETF
Questions:
1. Review the information on gold futures contracts of the CME Group-based on contract specifications available in case exhibit 4. How do gold futures work?
2. Suppose Michelson took a long position (as a speculator) on the December 2012 gold futures contract on 9/20/2012 and that it closed it on 10/19/2012. Compute the daily gains using the daily futures prices over that month as given in case Exhibit 7. Would Michelson have lost money or made a profit during that period and would he have received a margin call?
3. Case Exhibit 6 shows the prevailing futures prices (settle) for gold on 10/19/2012. Assume that the Oct-12 futures settle price of $1,722.8 is effectively the gold spot price. What total carry cost do you need to assume for the arbitrage-free futures prices to match the observed quoted Dec-12 futures prices? What would it need to be for the Feb-13 futures price?
4. Case Exhibit 6 shows that gold futures prices (settle) are higher for longer maturities: does that mean that gold prices were expected to rise?