Gold Futures v Physical Question

Discussion in 'Metal Futures' started by J-S, Apr 17, 2006.

  1. J-S


    I understand that the total value of all open gold futures contracts significantly exceeds the value of available supply of physical gold in the world. Can anyone explain how this can be so? If a future allows for delivery in the future, how can the value of outstanding contracts exceed the value of available supply? For example what would happen if all holders of gold futures wished to take delivery of their long future positions at expiry - the commodity would not be deliverable, then what?
  2. *Most* gold futures contracts are just 2 players making a paper bet or gold users/commercials doing a temporary hedge.

    The only way your scenario could occur is if all of the sellers *wanted* to deliver. Most sellers of futures contracts couldn't deliver if they had to, so they don't allow themselves to be put in that position.

    If someone really wants delivery, he can just buy the physical. There are comparatively few of these.
  3. Less than 1% of contracts traded are held to delivery. Used purely as speculation or hedging, depending on the player, and then covered before close of last trading day.
  4. J-S


    thank you for the clear explanations

  5. is it conceivable that in a currency or major geopolitical event, spec holders of futures would wish to take delivery en masse?

    for a trader looking to buy in quantity, it seems like a deliverable futures contract would relieve one of the burden of identifying a reputable dealer who offers highly standardized spot metal without undue transaction costs, plus we're familiar with the pricing and negotiation system in the electronic market, and can lock in a price with ultimate flexibility

    i've just been toying with the idea of what would be involved in delivery of one yg or yi contract. what is the current delivery infrastructure?
  6. Aaron


    I believe that on the day of delivery, through your clearing member, the gold buyer wires his money to the gold seller and the gold seller delivers a warehouse receipt for the gold bar or bars to the buyer. I believe the exchange has a list of approved warehouse firms.

    For more details (as I, personally, have never delivered or taken delivery of gold) talk to the NYMEX and your broker. I wouldn't be surprised if some brokers have a policy against deliveries.

    Aaron Schindler
    Schindler Trading
  7. this is simply wrong. I don't know off the top of my head, but the comex open interest in futures across all months is maybe 350,000 contracts. this is about 1300 tons of gold. world gold supply in marketable, available form is several times this, maybe 20K tons or so (though the exact figure is tough to pinpoint)
  8. so roughly a 15x increase in comex open interest has the potential to commit all marketable supply. what is comex's % of global open interest?
  9. not sure exactly, but it is the vast majority