Key takeaways
- Gold and oil behave differently; the route changes the cost structure.
- Futures involve large contract sizes, margin, expiry and roll effects.
- Oil funds usually hold futures and can lag spot prices because of contango.
- CFDs add leverage and overnight financing; you own no asset.
- Physical gold avoids contracts but has dealer spreads and storage costs.
Gold and oil are two of the best-known commodities, yet they behave very differently as investments. Gold is stored and rarely consumed. Oil is used up, expensive to store, and priced through a chain of contracts. The route you choose to access either one often matters as much as the direction of the price.
Four routes at a glance
| Route | What you hold | Typical use | Key cost or risk |
|---|---|---|---|
| Futures | A standardised contract for later delivery | Active traders, hedgers | Margin, daily gains/losses, roll, large contract size |
| ETFs and similar funds | Shares in a fund that holds metal or contracts | Longer-term exposure | Fund fee, roll costs for oil, tracking gaps |
| CFDs | A contract with your broker, not the asset | Short-term trading, short selling | Spread, overnight financing, leverage |
| Physical | Coins, bars or stored metal | Long-term ownership of gold | Dealer spreads, storage, insurance, resale |
Oil cannot sensibly be held physically by retail investors, so the practical routes there are futures, funds and CFDs. Gold has all four.
Futures: precise, but demanding
A futures contract commits two sides to trade a fixed quantity at a set price on a future date. A standard gold contract on a major exchange covers 100 troy ounces, and a standard crude oil contract covers 1,000 barrels, so one contract can represent a very large sum. Margin requires only a fraction upfront, but profits and losses are settled every day on the full contract value.
Futures expire. Traders who do not want delivery close or roll the position into a later month. For commodities that are costly to store, like oil, the price of later contracts often differs from the nearby one, and that difference becomes a cost or a gain every time you roll.
Contango and backwardation
- Contango: later contracts cost more than nearby ones. Rolling means selling the cheaper expiring contract and buying a more expensive one, a drag on a long position even if the spot price is unchanged.
- Backwardation: later contracts cost less. Rolling can add a gain.
Illustrative example: if each next-month contract costs 1.5% more than the expiring one and the position is rolled monthly, the drag compounds to roughly 18 to 20% over a year, with the spot price flat. That is why holding oil exposure through futures-based products for long periods can disappoint even when oil prices barely move.
Illustrative figures: assumes a constant monthly curve step, flat spot price and no fund fees.
ETFs and funds: convenience with fine print
Gold funds that hold physical bullion in vaults let you gain price exposure in a brokerage account without handling metal. The fund charges an annual fee and its price should track the gold price less that fee. Check where the metal is held and whether it is allocated to the fund.
Oil funds usually hold futures, not barrels. They suffer the roll effects described above, so their performance can differ markedly from the spot price over long periods. Some products use a spread of contract months to soften this. Read the prospectus to see how the fund rolls. There are also funds that hold shares of mining or energy companies, which depend on profits, costs and equity markets and not just the commodity price.
CFDs: flexible, leveraged and costly to hold
A commodity CFD tracks the price of a futures contract or spot-like price, and you profit or lose the difference. You can go long or short, with small margin deposits. Leverage cuts both ways, and the position is a contract with your broker, not an asset you own.
Holding costs matter. A position of 100,000 in a gold CFD with an illustrative financing charge of 5% a year costs roughly 13.70 for each night it is open, or around 100 over a week. With 1:20 leverage, a 4% adverse move would use up 80% of the margin you posted. Costs and risk differ by broker, so read the product's disclosure.
Physical gold: ownership with friction
Coins and bars give direct ownership with no counterparty. But you buy at a dealer's price above the market and sell below it, and the gap can be several percent for small items. Storage, insurance and verifying authenticity add cost and effort. Physical gold pays no income, so the return rests entirely on the price.
Choosing a route
Matching route to purpose
- State the aim. Are you hedging a portfolio, speculating on a view or holding for the long term?Tip: Different aims point to different tools.
- Decide the holding period. Long holds favour physically backed funds or metal; short trades suit CFDs or futures.
- Add up the full cost. Include the spread, fees, roll drag, financing and storage across the full period.
- Size the position. Commodities are volatile. Keep the exposure small enough that a sharp fall does not force you out.
- Understand who is on the other side. Fund custodians, clearing houses and CFD brokers each carry different counterparty risk.
Frequently asked questions
Is gold a safe haven?
It has often held value in some crises, but its price can fall sharply and it pays no income. Treat it as a diversifier, not a guarantee.
Why does my oil ETF not follow the oil price?
Funds that hold futures bear the cost or benefit of rolling contracts, and fees apply. Over longer periods this can create a large gap versus spot.
Can I take physical delivery from futures?
Some contracts allow it, but retail traders almost always close or roll first. Many brokers force closure before the delivery window.
Which route is cheapest?
It depends on how long you hold. CFDs suit short holding periods, funds suit longer ones, and physical metal carries high entry and exit costs.