Gold Futures Pricing with the Cost-of-Carry Model: From Formula to Real Data
A gold futures price is little more than the spot price plus the cost of carry — but real data makes the arithmetic seriously accountable.
The model in one paragraph
The cost-of-carry logic is explicit: instead of buying futures, one can buy gold spot and hold it to maturity; so the futures price must equal the spot price plus all carrying costs (financing and storage) minus asset income (such as the gold lease yield). If the relation breaks, arbitrage pulls it back — at least in efficient markets.
What the real data showed
In this financial-engineering project I computed theoretical prices for XAU/USD contracts in Excel from real market data: the interest rate, carrying cost and time to maturity were inputs, and the output was a table of fair prices across maturities.
Comparing theoretical with traded prices gave a clear picture: at short maturities the differences are small and explainable; at longer maturities market expectations (and sometimes a risk premium) carry more weight. The methodological lesson mattered more: every parameter must be measured separately with its source logged — otherwise the final calculation is not repeatable.
Take the limits seriously
The cost-of-carry model is simple — and that is its strength; its blind spots are equally clear: a fixed-rate assumption, ignored margin and credit constraints, and high sensitivity to inputs. Good pricing means knowing where the model works and where it is only an approximation.
Key takeaways
- Futures = spot + carry − asset income; simple but strict.
- The theory–market gap is data, not error; at long maturities it tells of expectations.
- Repeatable calculation is the validity condition of an analytical project.