In assigning a forward price, we set the price such that the value of the contract is zero at the start. During the life of the forward contract, the value will fluctuate as market conditions change. The original contract price, however, remains the same.
Unlike forward contract prices, however, futures prices fluctuate in an open and competitive market. The marking-to-market process results in each futures contract being terminated every day and reinitiated.
If we ignore the credit risk issue (futures contracts are essentially free of default risk as they are settled daily but forward contracts are subject to default risk), we should conclude that:
|danlan2: Positively related to interest rates: gold futures; negatively related: fixed income futures.|
|bmeisner: I'll tell you what, gold futures are definitely not positively correlated with interest rates these days. If interest rates are falling then the dollar is falling and usually gold is rallying in that case.|
|mcspaddj: Gold typically follows the rate of inflation. As inflation rises, rates generally rise, leading us to believe gold is more strongly tied to rates rather than inflation. The current market is certainly reminding us of this phenomenom right now. Rates are falling, but inflation is rising, so gold is rising. If we were to run the regression after the current market mess is over, we should see the correlation between gold prices and interest rates decrease relative to the correlation before the Summer of 2007.|