What is COMEX?
The 1933 formation of the Commodity Exchange (the COMEX) brought together the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange under a single trading roof. The COMEX has since gained prominence as the primary clearing house for trading gold, silver, and copper futures.
Contracts come in standardizes sizes with mini and/or micro versions of the contracts as well. As an investment vehicle, the COMEX lets investors bet big on the commodities market, using gold and silver futures contracts, which have the added advantage of allowing speculators the ability to leverage their cash pool to purchase gold or silver by paying only a fraction of the total cost of a futures contract.
For precious metal investors looking to cash in on the possibilities afforded by trading in futures contracts, the COMEX is an excellent vehicle to understand, so you will know exactly what you are getting yourself into by trading on the most liquid metal exchange in the world.
As such, for the investor who is comforted by the close proximity of their precious metal portfolio, dealing with the COMEX is unlikely to be satisfying. Indeed, for this type of investors, there are better avenues to achieve their investing goals. For those who looking for the advantages of trading on the COMEX, the more than 400,000 open contracts offer plenty of opportunities.
Buying Gold and Silver on COMEX
Understanding that the vast majority of future contracts offered on COMEX, or any exchange, does not go to the full completion of its expiration date, taking possession of your precious metal stores, while possible, is extremely difficult to execute.
Deliveries are available beginning on the first notice day and extend to the final day of the contract period. To affect such a move, the investor must first alert their clearinghouse to their intentions, as well as telling COMEX that they intend to take possession of the gold and silver in the trading account.
Although the delivery of COMEX traded precious metals can be problematic, investors know that their investment meets the minimum qualifications of the exchange. Specifically, metals must meet minimum requirements to be considered “good delivery” from an approved COMEX assayer.
Under the terms of the London Good Delivery criteria, bullion meeting these exacting conditions are literally the gold standard when it comes to valuating the bullion market. In fact, the market reports gold and silver prices from that standard. Professionals in the bullion industry adhere to these standards as well.
To earn the London Good Delivery Bars designation, bullion must meet the following criteria:
- Weigh 400 Troy Ounces
- At Least 99.5% pure gold
- Refined by accredited bullion dealer
- Verified through assaying process
To maintain that status, without the expensive recertification process, gold and silver can only move from one-bullion vault to another, which serve to further mitigate against taking physical possession of your bullion.
Open Interest vs. Warehouse Stocks
Owing to the leveraged nature of future contracts, a common concern is whether there are enough stocks in the exchange to simultaneously cash out all long-held contracts at the exact same time. The answer to that is no. While the COMEX is the largest and most liquid metals market in the world, there is still a limit to the amount of storage that they can physically accomplish. Open interest, the value of outstanding future contracts, does not work on a one-to-one exchange rate with available warehoused stock. Sellers who are scrambling to meet buy orders for their clients however, can source metal supplies from outside the COMEX storage by accessing the open market. As mentioned, most contracts do not come near their expiration date so this difference does not become a factor in everyday trading.