When a trader buys a futures contract, the price represents the price at which the trader is committed to buying the underlying commodity when the futures contract expires. Similarly, when the trader sells a futures contract, the price represents the price at which he is committed to selling the underlying commodity when the futures contract expires. The price of gold futures constantly fluctuates in response to several factors such as supply and demand, interest rates, and prices of other precious metals.
Futures prices are often different than cash prices for the same commodity.
One may find in some cases that futures prices are consistently above cash prices, in which case the futures are said to be trading at a forward premium , or he may find that futures prices are consistently below cash prices, in which case the futures are said to be trading at a forward discount. Price limits Some futures markets have daily price limits that restrict prices from moving by more than a prescribed amount from the previous day's settlement price. If prices reach the upper or lower limit, trading is suspended for a period of time, referred to as the cooling off period, that may last anywhere from several minutes to the remainder of the trading day. The cooling off period helps to discourage panic buying or selling. Following this period, price limits are usually expanded and trading may resume.