If a straight forward question was put forward regarding whether physical bullion is the best form of saving in comparison to gold futures, the straight forward answer to that question would be a big YES. This is due to the fact that the not everything that glitters is gold.
Although futures are structured to give the impression that they are the safest and cheapest form of gold investment, they are not as a matter of fact the gainers in the gold futures market is relatively low if compared to losers, The futures market is volatile and the only people that really benefit from it are the traders who work on a percentage omission basis for each trade.
In the beginning futures were developed for the sole purpose of protecting investor’s investments and also to manage their risks. However, hedging prices and activities that involve the futures market such as speculation can change the prices of gold significantly over time and investors are more often than not left with the short end of the stick.
From a basic perspective a gold futures contract is basically an agreement that is made between buyers and sellers to complete a gold transaction at a predetermined rate in the future. To put it even more plainly, a buyer and seller come into an agreement about the price of an amount of gold that they HAVE to buy and sell in the future regardless of gold price on that specific date.
That means, the buyer essentially agrees to buy a certain amount of gold at current prices when the agreed date arrives. Thus if the buyer holds on to the contract to the point of expiration, the buyer is obligated to complete the transaction on that date.
See http://www.firstgold.com.au/site/page/view/gold-futures for more on futures.
Added the fact that buyers and sellers of gold futures contracts almost never take delivery of the actual gold as the gold futures contract is either bought back or sold for profit well before the expiration date arrives.
However, speculating on gold prices is rarely easy, as an example a potential gold futures contract buyer or seller speculates on which direction the price of gold will move and if the buyer is bullish and believes that the price will increase in the contract period and if the price does increase, your contract will be worth more and you will be able to sell the contract for ‘cash’ and on the other hand if the price of gold drops, you are left with a contract that is overvalued and thus you would be forced to sell it at a lower price than what you bought for.
This is akin to gambling and thus, owning physical bullion is the best way to go about investing in gold as in essence, gold investments are long term investments and the best way to go about investing in it is to buy gold and keep it for a decade or more.
Why? Because gold prices have been on a steady rise over the last 100 years!