commodity underlying vs commodity futures

Discussion in 'Commodity Futures' started by orangelam, Dec 31, 2018.

  1. when we refer to commodity price, are we referring to the front month futures price?
    and is there the underlying commodity price, where can we find the underlying price for gold?

    if yes, how does the price work? for futures, we know the bid ask price are made from the transected futures contract in exchange. but how does the underlying commodity price for?
  2. Overnight


    In a nutshell, at what price the underlying commodity is currently valued, based on what people are willing to buy and sell the thing for AT THAT MOMENT IN TIME.

    In my mind, I think there's no need to try to understand what the spot price is, because in the futures derivative market there really is no set spot for immediate delivery, unlike stocks.

    With stock, the price the stock is currently trading is the immediate, this-is-what-you-will-get- for-buying-or-selling-your-shares-right-now price.

    With a stock future, you lock in your ability to buy or sell that stock at a future date for a pre-determined price.

    With something like metals, there are spot prices for which they are physically deliverable AT THAT MOMENT.

    In the case of WTI crude though, I don't believe there is an actual spot price. (At least I haven't found one in my past-looking through the subject.)

    It is a great question, and fun to know for mental trivia, but in the end, knowing the spot price of anything wouldn't (or shouldn't) affect your trading in com futures.

    And yes, that is what they are referring to in futures. :)
    Last edited: Dec 31, 2018
    baijuthomas528 likes this.
  3. LanceJ


    Is there premium in the GC/CL futures price versus the "spot" price. Spot price being the price you would pay to purchase the commodity into your hands today at the Gold/Crude Store.
  4. Overnight


    Well, that's the thing and a tricky one for the physically-deliverables...Where would you actually go to buy or sell something at a spot price? I remember about 12 years ago I had some 20 carat gold jewelry I wanted to sell, so went to a local jeweler. He tested it, weighed it, and then looked up what the current gold price was. (What benchmark he used I do not know.) But the fact that he looked it up in the first place leads me to believe that he was looking at the spot price, probably London. So that day I got whatever price the market was at, at the time of his quote lookup. The only "premium" I paid was the cost the jeweler deducted for their expenses of melting, etc. If you wanted to BUY an ounce of gold? I have no idea where you would go to just BUY a 1-oz chunk of 24K gold on that day. With the CME in GC futures, they have designated locations for the physical transaction to take place at contract delivery date.

    CL is even weirder. Where do you go to buy 1 barrel of crude TODAY? Who knows. But like GC, if you allow your CL future contract to expire and become deliverable/purchaseable, my understanding is that you have to travel to Cushing, OK with your truck to either take delivery, or pump it into their tanks, depending upon your contract side. Of course, on full-sized CL contracts, yer talking 1,000 barrels, or 42,000 gallons. With full-sized GC, it's 100 oz of gold.

    So in essence, is there really a premium on the "spot" purchase of CL or GC? Well, there probably is, on the sellers' markups so they can make profit on the trade.
  5. so where can we find the daily commodity underlying price for gold, brent oil and WTI crude oil?

    something makes me confused, as i know spot price mean the instant we spot the price, so it is still the futures price/depends on what the asset we are talking. so i use underlying price referring to the asset price VS asset futures price
  6. Overnight


    *sighs* No. The future price has no relation to the spot price. The spot is what it is, at that moment. The futures price is what the holders of said future think the spot price will be at expiration of their contract.

    The spot is the "this is now, I am buying or selling right now what the market will give me."

    The futures price is speculation about where the spot price will be in the future. But as mentioned earlier, WTI CL for example has no "spot price". That is the nature of the thing.

    You won't find a way to have the spot guide your future price, or future to guide your spot price.

    You are way overthinking this.

    Not sure I am being clear on this.

    If you want to make money in comfuts, just think about TA and FA. Forget the spot price, it has no bearing on making money in this space!
    Last edited: Jan 5, 2019