Investors continue to look at zinc as a profit, despite being unlucky in 2015. This is due to the zinc price rebounding in 2016 as a result of there being a higher demand from China and over 60% gains.
Many remain hopeful about the zinc price forecast for 2017, however, it is important that zinc-focused investors spend some time making sure that they understand how zinc pricing works (for instance, what is the zinc price per pound). Here is an overview of everything you need to know about the basics of zinc spot price and zinc futures.
Zinc Spot Price: What Is It?
According to InvestingAnswers, zinc spot price is “the current market price at which an asset is bought or sold for immediate payment and delivery.” Elaborating even further, Investopedia has stated that spot price “is regarded as the explicit value of the security at any given time in the market.
To further one’s understanding, InvestingAnswers provides an example. On November 29, 2010, the spot price of gold was $1,367.40 per ounce on the COMEX, which one out of the four exchanges that make up the CME Group. According to InvestingAnswers, $1,367.40 was the price at which one ounce of gold could be bought at that specific moment in time.
In simpler terms, zinc spot price is the price that zinc supply is currently being bought and sold for. If you are looking for information on current zinc spot prices, check out Kitco. This website provides investors with a 24-hour zinc spot price chart. Additionally, Kitco publishes 30-day, 60-day, six-month, one-year, and five-year charts for zinc spot prices. The charts published by Kitco are a great educational resource for those looking for information on current and historical zinc spot prices.
The London Metal Exchange (LME) is another great resource for those looking for the zinc spot price. Just keep in mind that the LME puts out zinc spot price information in US dollars per ton rather than the zinc price per pound in US dollars.
Zinc Futures: What Is It?
One’s grasp on the concept of zinc spot price would not be complete without an understanding of zinc futures. According to InvestingAnswers, despite zinc spot price is important on its own, it “becomes an even more important concept when it’s viewed through the eyes of the $3 trillion derivatives market.”
When a contract whose value is derived from how well an underlying entity performs, this contract is known as a derivative. For instance, a derivative could be forwards, options, or futures. As noted by InvestingAnswers, derivatives “allow buyers and sellers to ‘lock in’ the price at which they buy or sell an asset in the future.” Overall, most zinc-focused investors find derivatives to be enticing as it allows them to reduce risk.
This might seem complex, but essentially what one needs to understand is that the zinc spot price is the current price in which the metal is being bought or sold for, while the zinc futures price is a term that refers to set future prices. Taking the concept even further, Investopedia stated that future prices are “determined using the commodity’s spot price, the risk-free rate and time to maturity of the contract.”
In regards to zinc, The Options Guide has stated that if investors are interested in zinc, they can trade zinc futures on the London Metal Exchange under the ZS contract code in lots of 25 tons. Keep in mind that there are specifications for these lots including a call for zinc at a minimum of 99.995% purity obedient to BS EN 1179:2003.
Mentioned previously, zinc futures lets investors better manage risk when dealing with zinc supply. The chart below, taken from an article on The Options Guide, further explains this process.
Put simply, the chart is displaying that the zinc price moved 10%, however, the return on investment was 61%. The publication noted that “this leverage was made possible by the relatively low margin (roughly 17%) require to control a large amount of zinc represented by each contract.”
What Investors Can Take Away
For investors interested in Zinc supply, it is important to understand the basics of zinc spot price and zinc futures. Even more so now with the path, that zinc seems to be taking in 2017. As always, the market can fluctuate regularly, so it will be interesting to watch the zinc price forecast and see if any profits can be made.
Featured image: kitco.com
