COMEX and Futures Gold Trading

Commodity Exchange Inc., the primary exchange for futures gold contracts, was first established in 1933 through the merger of four smaller exchanges based in New York: the National Metal Exchange, Rubber Exchange of New York, National Raw Silk Exchange, and New York Hide Exchange. The consolidation of Commodity Exchange Inc. and the New York Mercantile Exchange (NYMEX) in 1994 created the world’s largest commodity futures trading exchange, abbreviated as COMEX.

COMEX and Futures Gold Trading

How COMEX Operates

COMEX operates outside the World Financial Center in Manhattan and is a division of the Chicago Mercantile Exchange (CME). According to the CME Group, there are over 400,000 futures contracts and options executed on COMEX daily, making it the most liquid metals exchange in the world. Prices and daily activities of global traders on the exchange impact the metal markets worldwide.

COMEX acts as the central clearinghouse for futures contracts on gold, silver, and copper, all traded in standardized contract sizes, or smaller versions (mini and micro) thereof. Other types of futures contracts traded on COMEX include aluminum, palladium, platinum, and steel. Because the futures market is primarily used as a risk management tool against price fluctuations, most futures contracts do not result in physical delivery. Most transactions are simply based on agreements and understanding between the buyer and seller regarding the existence of the metal. This does not mean that a trader or hedger cannot take delivery of physical metal through COMEX, but the amount of contracts executed in this manner is typically small, less than 1%.

For traders wishing to take physical delivery on futures contracts, delivery is available starting on the first notice day and extends until the last day of the contract’s term. To take delivery, the contract holder must first notify the clearinghouse of their intention and inform COMEX of their intention to take possession of the physical commodity in their trading account. For example, someone wishing to take delivery of gold would establish a long-term futures position and wait for a delivery notice from the seller.

Some Notes on Trading at COMEX

It’s important to note that COMEX does not provide precious metals. They are provided by sellers as part of the contract terms. A short seller who does not have the metal to deliver must liquidate their contract position before the final trading day. Of course, when delivering, the seller must have the metal, such as gold, in an approved depository account. This is evidenced by holding electronic warehouse receipts or COMEX-approved warehouse receipts, required to facilitate delivery.

Investors requesting delivery will be provided with bars of metal approved by COMEX as deliverable. These are precious metal bars produced by refineries approved by COMEX and manufactured to strict standards set by COMEX. To be considered deliverable or deliverable, they must meet certain standards regarding minimum purity, as well as weight and size. For example, delivered gold bars must have a certificate from a COMEX-approved assayer and the gold bars must have a minimum purity of 995 parts per thousand, or 99.5% pure.

Delivery occurs by transferring ownership rights of the pledged metal within two business days after the seller gives notice of their intent to buy/sell. The settlement price is also established on that same day. COMEX does not determine or set prices for commodities. Prices are established by buyers and sellers depending on market supply and demand.