As if the introduction of gold ETFs wasn’t enough to distort the gold market already, the people at COMEX are now introducing a new way for the little guy to take part in gold futures.
Introducing the new ‘E-Micro Gold’ contract.
It allows you to trade 10 ounces of gold at a time, and it’s built for those who couldn’t afford the old 100-ounce contract. So you can now play in chunks of Gold Price x 10 instead of Gold Price x 100.
A great leap forward in the democratization of finance? Maybe, but at the same time according to Hard Assets Investor (HAI), it will create a market full of price distortions:
It’s a safe bet that commercials aren’t going to be providing liquidity for these contracts. They’re just too small for hedge use, so this is bound to be a market populated solely by speculators. That can make for some pretty thin trade. And that raises the possibility of premiums and discounts to the standard contracts’ pricing.
A thinly traded market would mean that it’s one ripe for manipulation since it takes less money to move the price. Great news.