Demand for precious metals traditionally grows during market downturns. These assets are called protective due to their ability to survive the crisis, sanctions and other economic shocks. Here is a way to play on the growth of gold and silver.

Futures are the cheapest way to make money on these precious metals: the exchange commission for execution ranges from 0.5 rubles (silver) to 5 rubles (gold) per transaction, and the broker’s commission is up to 3 rubles per contract. If one position of silver will cost 13 thousand rubles, and gold – 108 thousand, it will amount to hundredths of a percent of the invested amount.

The Moscow Exchange offers two pairs of contracts: delivery contracts (GLD- and SLV-) and settlement contracts (GOLD- and SILV-). The first pair is not yet available, but it is in any case adapted for large players – metallurgists, banks and the like.

Settlement futures have good liquidity. In aggregate, more than 600 thousand contracts are now open for gold and silver, which is almost twice as much as, for example, for EUR/RUB. More than 20 deals are made with these precious metals per minute. What you should know about contracts:

– When buying or selling a futures contract, the investor receives the difference between the price of entering and exiting the contract

– Voluntary closing of the position is based on the local market, and when the contract is executed, it is fixed in London

– Execution occurs quarterly, i.e. you can choose among March, June, September and December futures.

How to make money on futures Strategy 1. Buy or sell futures – the equivalent of betting on the rise or fall of metals with leverage, the size of which depends on the security.

The nearest contract with gold is GOLD-6.22. Now it costs about $1850, or 108 thousand rubles. To maintain the position, we need a little more than 6.3 thousand rubles. This means that a $10 up or down movement in gold (by 0.5%) gives a 17 times bigger change in the account (by 9.3%).

The nearest contract with silver is SILV-6.22. Silver futures include not one ounce, like gold, but 10 ounces. Thus, at today’s price of $22.1 the cost of the position will amount to $221, or 12.9 thousand rubles. The guarantee of 3 thousand rubles per contract gives a four-fold leverage. Silver is more volatile than gold and fluctuations of 5-10% during the week can give a 20-40% movement on the account.

Strategy 2. Buying and selling the calendar spread. For trades on both metals calendar spreads – they give an opportunity to earn on the difference of far and near contracts. For example, in the spring of 2022, you could see a big difference between the June and September contracts for silver – over 8%.

Example. We simultaneously buy the near-term futures and sell the far-term futures. If the spread narrows from the current $1.75 to $0.5-1, we will make money regardless of the performance of silver itself. 0.75 from each pair of ounces is $7.5 from two contracts, or 800 rubles from both deals. With 26 thousand invested, this is 3% of income.

Strategy 3: Playing on the price difference between two metals is trading on the gold/silver ratio. On the average term this value is relatively stable, and you can also play on its deviation from the average: if it grows – short gold and buy silver, if it shrinks – vice versa.

Now the price ratio of the two metals is about 84 units, which is above the average for the last six months. A signal that gold is overbought against silver would be a ratio of 80 and above, for example, as it was in early December, January and February. If the move out is to 76 and below, it would signal silver is overbought.

Example. We sell gold futures in early February at $1810 and buy them back in early March at $1920 – a loss of 5.7%. During the same days silver rose from $22.5 to $25.3 and gained 12.4%. The high gold/silver ratio gave the right signal and allowed earning a total of 6.7% for the month in dollars.

Bottom line Futures trading is the cheapest option for investing in precious metals – it costs a hundredth of a percent of the invested amount.

A leveraged bet on the rise or fall is more suitable for speculation, while buying or selling the calendar spread and playing on the price difference between gold and silver is for more conservative investors.