Gold News

Gold Futures Exchange Targets Physical Traders

WORLD LEADING Gold Futures exchange CME Group is allowing short-term gold contracts to be settled for physical gold transfer.

"Based on customer demand, we made the decision to amend our Short-Term Gold option contract to a physically delivered contract," said CME spokesman Chris Grams to Reuters.

"Investors had wanted a physically delivered contract as opposed to a financially settled contract," said another spokesman, Damon Leavell, to CNBC.

Also known as the Weekly Gold Option from the CME, which processes an average $1 trillion of daily trading in foreign exchange contracts alone, gives investors the chance to take a short-term position with a five-working-day expiry.

The CME now permits the options to be settled with Gold Future contracts, rather than cash only, on expiration. Those futures can then be settled for physical Gold Bullion.

"We believe this change will enhance the contract," said the spokesmen, "making it even more competitive and will attract over-the-counter traders to the exchange."

Over-the-counter (OTC) is when financial instruments such as stocks, bonds or commodities contracts are traded directly between two parties, without the need to use a formal exchange such as the CME.

The CME's Short-Term Gold Options were established in July 2011, with settlement exclusively in cash. Gold Bullion delivery was not possible.

The product had failed to arouse much investor interest and was little traded according to floor traders quoted by Reuters.

In contrast to the Weekly Options, open interest in the CME's popular monthly Comex gold options – which can already be settled with Gold Futures, and then converted into physical metal – totals well over 1 million contracts today.

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Robin Molinas is working as a research assistant at BullionVault, the No.1 gold and silver ownership service for private investors.

See the full archive of Robin Molinas articles.

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