Apr 2024


Apr 2024

What is Comex?

By StoneX Bullion

There are three major gold trading centers in the world: London, Shanghai, and New York. In London, the OTC Loco London market has a long-standing history and is the most widely traded global market for precious metals. In China, the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange (SHFE) have more recently emerged and now account for the highest volumes of spot gold and gold futures trading in Asia. In New York, there's COMEX.

COMEX, short for The Commodity Exchange Inc, is the world's leading futures and options market for trading metals like gold, silver, platinum, and aluminum. In this article, we look at ‘What is COMEX?’, including the history of COMEX, how COMEX works, what COMEX Deliverable bars are, and answers to frequently asked questions.

What is COMEX?

COMEX specializes in trading futures in metals like gold, silver, copper, aluminum, platinum, steel, and palladium. It essentially serves as a clearing house that trades these futures in standardized contract sizes as well as mini and/or micro versions.

COMEX has the highest traded volumes of gold futures of the three global trading centers, with more than 400,000 futures and options contracts executed each day. This makes it the most liquid metals exchange on earth. Because of its sheer size and relevance, COMEX’s prices and daily activity have a strong impact on global precious metals markets.

History of COMEX

COMEX was first established in 1933 through the merger of four New York-based exchanges - the National Raw Silk Exchange, the National Metal Exchange, the New York Hide Exchange, and the Rubber Exchange of New York. Gold futures only began to be traded on COMEX in 1982, and in 1994, Commodity Exchange Inc. merged with the New York Mercantile Exchange (NYMEX) to create the largest physical futures trading exchange in the world.

Today, both COMEX and NYMEX operate as subsidiaries of the Chicago Mercantile Exchange (CME Group), one of the largest derivatives exchanges in the world. Although COMEX is based in the United States, traders from all over the globe can buy and sell metals on the exchange. By offering virtual trading round the clock, COMEX allows access to the market 24 hours a day, no matter where they are. For this reason, it’s one of the most well-known and recognized exchanges worldwide.

Understanding COMEX

COMEX provides a platform where market participants can lock in the price of commodities for future delivery through futures contracts. These contracts specify a specific amount of a particular commodity at a predetermined price and delivery date. By entering into a futures contract, you can hedge against the risk of rising prices, ensuring that you can buy a particular commodity at a predetermined price when you need it, regardless of market fluctuations.

The commodities traded on COMEX are metals. Gold is the most actively traded, with other metals such as silver, copper, platinum, palladium, aluminum, and steel. COMEX participants include producers, consumers, traders, speculators, and investors:

  • Producers and consumers use COMEX to mitigate risk and hedge against future price movements.
  • Traders and speculators buy and sell contracts to profit from short-term price changes.

The continuous buying and selling of futures contracts on COMEX reflect market sentiment and serve as a reference point for metal prices globally.

Keep reading: When is the Best Time to Buy and Sell Gold?

Although COMEX trades are backed by physical commodities, there is rarely any actual exchange of metals. Instead, trades are made on the promise of the metal and the knowledge that it does exist. Because futures markets are mostly a hedging vehicle for mitigating price risk, most futures contracts are never delivered. When a futures contract nears its first notice day, it’s usually closed by speculators or rolled to another contract month.

That said, it is possible for traders to take actual delivery on a futures contract, although the warehouses would be unable to meet demand if every COMEX trader decided to take physical delivery of their contracts. In any case, less than 1% of traders choose to do so and there is a process involved. Those who wish to take delivery of physical metals through COMEX have between the first notice day and the last trading day of the contract. They must notify the clearinghouse and other relevant personnel of their intentions and ensure they have the required receipts to make or take delivery.

Precious metals marked as ‘good delivery’ by COMEX must have an assay certificate from an approved assayer. Gold bars are required to be a minimum 995 fineness and meet other specifications (see below).

How does COMEX work?

At its core, COMEX serves as a marketplace where two types of traders (long and short) can engage in activities such as speculation or hedging within specific commodities markets. Rather than physically exchanging metals, most transactions on COMEX occur in paper form through futures contracts. These contracts have a set expiration date, usually monthly, after which they can be rolled over to the next month if desired. Rolling over a contract means the investor closes the current contract, realizing any profit and loss, and opens a new contract for the next month.

See: What Drives the Price of Gold?

Investors in COMEX futures contracts only need to deposit a fraction of the contract’s total value, known as a margin, to participate. This provides investors with leverage, allowing them to control a larger position with a smaller upfront investment. For example, instead of purchasing 100 ounces of gold outright, which would cost around $238,300 at current gold prices, an investor might only need to deposit 15% of that amount, or just $35,745 to gain exposure to the same amount of gold.

While most COMEX investors prefer to settle contracts financially, some opt for physical delivery of the metal itself. To do so, they must meet certain requirements, including posting additional margin by the First Position Date. When an investor takes delivery, it signifies their intention to take ownership of the metal. This means the short seller must deliver the metal to the long contract holder.

COMEX allows deliveries to be executed smoothly each month, and delivered metal is typically registered and remains within the COMEX system. Only registered bars, which have a warrant attached to them, can be delivered. Tracking delivery data provides insight into the physical demand for different metals. Taking delivery of physical metals comes with additional costs, such as storage and fees, as well as the need to post 100% of the contract value. For that reason, investors who opt for delivery usually have a specific purpose in mind.

Continue reading: Basel III and the Gold Market

What are COMEX Deliverable bars?

COMEX Deliverable bars, also known as COMEX Acceptable bars, are produced by approved refineries according to strict purity, weight, and size standards set by the exchange. Investors who request delivery on COMEX are given a Deliverable bar. Characteristics of COMEX deliverable bars include:

  • Assay: Each bar must come with an assay certificate that verifies its purity. The certificate must be issued by a COMEX-approved assayer who independently authenticates the purity level of the bar. The minimum purity requirement of gold bars is 995.
  • Size: COMEX Deliverable bar sizes vary depending on the metal being traded, however specifications guide the length, width, and thickness of bars as well as the degree of the 'undercut' (the slope found on the sides of the bar).
  • Marks: COMEX Deliverable bars should also include marks, such as a stamp indicating the metal's purity as well as the year of production.
  • Serial number: Each bar is required to have a unique serial number that allows for easy tracking and verification of individual bars.

FAQ: What is COMEX?

Understanding COMEX and how it works can be complex, especially for new investors. Below, we answer some commonly-asked questions about COMEX.

What is the most active issue on the COMEX?

The most active issue on COMEX is the futures contract with the highest trading volume. For gold, the most actively traded futures contract is usually the Gold(GC) futures contract which represents 100 troy ounces of gold.

How much gold does COMEX trade?

COMEX trading volumes can vary depending on market conditions and other factors. Daily trading volumes can fluctuate between thousands to tens of thousands of contracts, representing millions of troy ounces of gold.

Where else is gold traded beside COMEX?

Gold is traded on various other exchanges and markets globally, including the London OCT, Shanghai Gold Exchange (SGE), Tokyo Commodity Exchange (TOCOM), Dubai Gold & Commodities Exchange (DGCX), and other markets in Singapore, Hong Kong, and India.

How does leverage work on COMEX?

COMEX allows traders to leverage their positions through margin trading. When trading futures contracts on COMEX, trades are required to deposit a fraction of the contract value (margin) as collateral. This allows them to control a larger position than their initial investment would otherwise allow. Leverage amplifies both potential profits and losses, so it's important for traders to manage their risk carefully.

Continue reading: How to Invest in Platinum: Tips & Strategies

Can individual investors trade on COMEX?

Yes, individual investors can trade on COMEX, typically through brokerage accounts or trading platforms. Opening an account with a futures broker allows individual investors to access COMEX and trade futures contracts in metals like gold, silver, platinum, and palladium.

Does COMEX sell precious metals?

No, COMEX doesn't sell precious metals. These are made available by the seller as part of the contract rules. If a short seller doesn't have the metals required to deliver, they must liquidate their position by the last trading day. A short that goes to delivery must have the physical metal in an approved depository, represented by electronic depository warrants or receipts which are needed to make or take delivery.

Does COMEX have enough metal to make good on all open contracts?

No. The relationship between open interest and warehouse stock is not equal, with interest generally more than the amount of metal housed by the exchange. This means that if every trader wanted to take delivery at the same time, the exchange would not be able to meet demand. That said, in order to make deliveries, sellers of contracts can source the metal from outside the warehouse.

Registered vs eligible vs pledged metals on COMEX

Physical metal stored in COMEX warehouses is categorized as either Registered, Eligible, or Pledged:

  • Registered:This refers to metal bars that have a warrant attached, indicating they’re fully available for delivery to investors holding long positions who stand for bullion delivery. This means they’re ready to be delivered according to the terms of futures contracts.
  • Eligible:This is metal that is stored in COMEX warehouses but doesn’t have a warrant attached to it. While it still meets exchange standards, Eligible metal is being stored on behalf of a private party and isn’t available for delivery to contract holders. That said, Eligible metal can become Registered when a warrant is attached to it.
  • Pledged:This newer category is a form of Registered metal, with metal that has been used as collateral with a warrant attached to it. This category is often grouped under Registered metal in reports.

Summary: What is COMEX?

As the world's leading futures and options market for metals trading, it’s essential for every investor to understand how COMEX works and its role in the global precious metals market. But if owning physical metals is where your interest lies, then you may be better off buying bullion from a reputable dealer.

At StoneX Bullion, we stock an extensive range of gold, silver, platinum, and palladium bars and coins from the best-known mints in the world. Whether you’re seeking collectible coins or high purity bars, you’ll find a valuable investment on our website. As an affiliate member of the London Bullion Market Association (LBMA), StoneX Bullion is a reliable and trusted bullion retailer for your physical metal investments. Browse our collection to start growing and preserving your wealth today.