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How does spot-futures arbitrage work in the gold market?
As proposed: Buy 100 oz of gold at $1240 spot = -$124,000 Sell 1 Aug 2014 Future for $1256 = $125,600 Profit $1,600 Alternative Risk-Free Investment: 1 year CD @ 1% would earn $1240 on $124,000 investment. Rate from ads on www.bankrate.com "Real" Profit All you are really being paid for this trade is the difference between the  profit $1,600 and the opportunity for $1240 in risk free earnings.  That's only $360 or around 0.3%/year.   Pitfalls of trying to do this: Many retail futures brokers are set up for speculative traders and do not want to deal with customers selling contracts against delivery, or buying for delivery. If you are a trader you have to keep margin money on deposit.  This can be a T-note at some brokerages, but currently T-notes pay almost 0%.   If the price of gold rises and you are short a future in gold, then you need to deposit more margin money.  If gold went back up to $1500/oz, that could be $24,400.  If you need to borrow this money, the interest will eat into a very slim profit margin over the risk free rate.   Since you can't deliver, the trades have to be reversed.  Although futures trades have cheap commissions ~$5/trade, the bid/ask spread, even at 1 grid, is not so minimal.  Also there is often noisy jitter in the price.  The spot market in physical gold may have a higher bid/ask spread. You might be able to eliminate some of these issues by trading as a hedger or for delivery.  Good luck finding a broker to let you do this... but the issue here for gold is that you'd need to trade in depository receipts for gold that is acceptable for delivery, instead of trading physical gold.  To deliver physical gold it would likely have to be tested and certified, which costs money. By the time you've researched this, you'll either discover some more costs associated with it or could have spent your time making more money elsewhere.