After having dropped at one point to below $1,200 in recent weeks, gold has pushed back to $1,240 an ounce and the "rally looks quite likely to settle prices
at around $1,315 by end December," according to Abdul Salam K.
Near-term gold, closest to delivery silver and all copper futures (the latter only wi th settle prices at delivery) are good predictors of the future cash price, except for silver and copper deliveries on the last day of delivery months.
This research examines the relation between futures prices for gold, silver, and copper, and their realized cash or settle prices, for fixed delivery or maturity dates.
The use of these cross-sections for gold, silver, and copper to examine the relation between their futures prices and realized cash or delivery settle prices over a fixed maturity time period is a major contribution of this research.
Settle prices for 15-, 30-, 45-, and 60-day to maturity contracts for futures on gold, silver, and copper, as well as their respective realized cash or delivery settle prices, were obtained from the Futures Industry Institute.
The relation between the futures and its realized future cash or settle price is examined for all combinations of futures prices (15, 30, 45, and 60 days to maturity) and realized cash or settle prices (FD, MD, and LD deliveries).
Hence, data from a sufficient cross-section of fixed maturity contracts for the same commodity is necessary to examine the relation between futures prices and realized cash or settle prices for a fixed maturity.
The regression results are based on simple regression using delivery date cash and settle prices as dependent variables in separate regressions and the futures settle price with a fixed pre-delivery maturity as the independent variable.
In contrast, the first and middle business day of month delivery results show that when both dependent and independent variables are in terms of settle prices, unbiased expectations are consistent with the futures pricing of copper, regardless of the days to delivery (Tables 7 and 8).
The hypothesis is also satisfied for the closest to delivery (15-day) silver futures and for all copper futures (using settle prices at delivery), except for delivery of silver or copper on the LD of delivery months.