What Is COMEX?
COMEX is one of the most well-known and recognized exchanges for the trading of metals such as gold, silver, copper and aluminum. The COMEX exchange was founded in New York in 1933. The nameCOMEXwas short for Commodity Exchange, Inc. In 1994, the COMEX exchange merged with the New York Mercantile exchange and became the division for metals trading. Both the New York Mercantile exchange and the COMEX exchange are now part of CME Group, the largest commodity exchange operator. The COMEX division of CME group is based out of New York, and this is where pit-traded metals transactions occur. The COMEX division of CME group trades futures contracts in the following markets:
Some of these contracts are traded as a standard size contract as well as a mini and/or micro version. According to CME Group, there are on average over 400,000 futures and options contracts executed on COMEX daily making it the most liquid metals exchange in the world.
What About Buying Gold or Silver on COMEX?
While one can take delivery of physical metals through COMEX, the fact is that the vast majority of futures contracts are never delivered on. The futures markets are really designed to be a hedging vehicle for those looking to try and mitigate price risk. Typically, as a futures contract approaches its first notice day, speculators will either simply close positions or they will roll them to another contract month.
For those who are looking to take actual delivery on a futures contract, there is a process involved. Deliveries may occur between the first notice day and the last trading day of the contract. Should one desire to take delivery, he or she must make their clearing firm aware of their intentions. In addition, he or she must make the exchange aware of their intent to take delivery. One must get all
appropriate receipts in order to make or take delivery.
For metals to be considered “good delivery” by the exchange, the metal must have an assay certificate from an approved COMEX assayer. Gold bars, for example, must be of .995 percent minimum fineness and must meet other specifications. The CME Group website may be consulted for further details on good delivery gold, silver and precious metals products. The metal can then be moved without being re-assayed as long as it remains within an approved loop of refiners, depositories and couriers. These approved refiners, depositories and couriers are listed on the CME Group website.
Open Interests vs. Warehouse Stocks
One question that comes up often is: Is there enough metal housed by the exchange to make good on all open contracts? The answer is no. The open interest is greater than actual warehouse stocks. This means that every holder of a long contract would not be able to take delivery at the same time. The relationship between open interest and warehouse stock is not a one-to-one type of relationship. Sellers of contracts who have to make deliveries, however, may also source the metal from outside the warehouse in the physical market.
The COMEX exchange is a very large and very liquid metals trading platform. The spot price of metals like gold and silver is determined by trading on the COMEX exchange. While the exchange is key when it comes to price discovery and price risk hedging, it is not commonly used for actual physical deliveries. Should one wish to take delivery of metals from the COMEX, one needs to understand the process and expense involved in such a transaction.
All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of JM Bullion Inc. and should not be construed as financial advice.