Since the discovery of gold in BC 3,500, it has been traded in different forms using various tools. Among these are gold warrants which are used by several leading investment banks throughout the world. A gold warrant gives the buyer the right to purchase gold at a specified price at a given date in future. It is for this right that the buyer pays a premium. Gold warrants are leveraged to the price of the given underlying asset.
A gold warrant is a commodity warrant which is related to precious metals such as silver and gold. Gold warrants are more especially issued by mints or mining companies. There are different types of gold warrants depending on the trading market in question. It is important to note that with a gold warrant, one doesn’t actually own gold but have the price of gold moving to one’s advantage.
The over-the-counter spot price of gold warrants is usually based on the market value of gold backing, which is 1/100th a troy ounce. In most markets, the minimum price is set at 100 warrants—a price which entitles the investor to deliver one troy of an ounce containing 99.99 percent pure gold. At the time of exercising the gold warrant, an additional fee could be payable depending on the nature and form of settlement agreed upon as well as the annual management fee applicable.
Gold warrants can’t be compared to owning of the physical gold in any way whatsoever. A gold warrant is transitory and therefore one needs to sell the gold at a given time in order to convert the warrant to cash. However, prices are based on speculation and the investor may not necessarily sell the warrant at the most advantageous season. Gold warrants could also have their place for betting in the market. However, a serious investor never substitutes a gamble for the actual ownership of gold.