The COMEX, short for The Commodity Exchange Inc., is the world’s largest futures and options market for trading precious metals, with a primary focus on gold and silver. It was established in 1933 through the merger of several smaller exchanges in New York and later merged with the New York Mercantile Exchange (NYMEX) in 1994. In 2008, the CME Group acquired NYMEX, including its COMEX division. Today, COMEX is part of the CME Group, serving as the go-to exchange for metal futures trading.
- Approximately 42 million ounces (1,306 tons) of gold are traded daily on the COMEX.
- Contract unit for gold trading on the COMEX is 100 troy ounces.
COMEX operates out of the World Financial Center in Manhattan, where it facilitates over 400,000 futures and options contracts daily. These contracts are vital for hedging against price fluctuations, although most of them do not result in physical metal delivery, as they are based on the understanding that the metal exists. However, traders can choose to take physical delivery of metals, such as gold or silver, through COMEX, though this is a rare occurrence, with less than 1% of contracts leading to delivery.
Notably, COMEX does not supply the metals itself; rather, it relies on sellers to provide the metals according to contract rules. Sellers who are unable to deliver must liquidate their positions. For those who wish to take delivery, they must notify the clearinghouse and COMEX and establish a long position, waiting for a short seller to provide notice for delivery.
The COMEX is the global leader in trading options and futures on gold and silver. It operates within strict quality standards, ensuring that gold bars meet specific purity, weight, and size criteria. These bars are produced by COMEX-approved refiners and stored in COMEX-approved storage locations. The exchange does not set the prices for precious metals; instead, prices are determined by market forces based on supply and demand.
Comex’s gold futures contracts can be leveraged by investors, requiring only a small margin of the contract value rather than the total amount. Additionally, investors who seek physical gold can obtain it through expiring gold futures contracts, honored by COMEX. However, the exchange itself does not deliver gold; the gold comes from sellers, while COMEX enforces stringent quality standards.
It’s essential to differentiate between two types of gold trading: the spot market, where physical gold is traded, and the futures market, which involves paper representations of gold. Typically, the futures market is in contango, where the future price is higher than the spot price due to various factors, including storage costs. Arbitrage opportunities exist for those buying physical gold and simultaneously selling futures contracts, aiming for a profit based on the price difference. The convergence of futures prices toward spot prices occurs as futures contracts approach their maturity date, driven by arbitrage effects.
In conclusion, COMEX is a pivotal platform for precious metal futures and options trading, primarily gold and silver. It serves as a marketplace for hedging against price fluctuations and occasionally facilitates physical metal delivery, but its main role is as an intermediary in the global precious metals market.
- Official website (COMEX)
- The London OTC market, historically dominant in the gold trade, now accounts for approximately 70% of global notional trading volume. It sets the LBMA Gold Price, trading ‘Good Delivery’ bars stored in secure vaults, making it a key global benchmark. Known as the ‘terminal market,’ London’s strategic time zone and financial hub status contribute to its importance, despite a recent decline in relative market share. The introduction of LMEprecious by the World Gold Council aims to address these challenges and modernize the market.
- In the US, the COMEX derivatives exchange, operated by CME Group, plays a vital role in gold price discovery. It focuses on the ‘active month’ contract, closely linked to the spot price. Though few contracts result in physical delivery, the COMEX remains connected to physical markets through an active Exchange for Physical (EFP) market. Notably, an increasing share of COMEX trading occurs during Asian market hours, reflecting its success in tapping into Asian market growth.
- The Chinese gold market, primarily represented by the Shanghai Gold Exchange (SGE) and the Shanghai Futures Market (SHFE), has rapidly grown in importance. SGE, established in 2002, introduced the Shanghai Gold Price benchmark to assert China’s role as a price-setter, promote RMB internationalization, and encourage global participation. Active futures trading on SHFE complements SGE’s spot and deferred contracts, even though the two exchanges are not directly linked.