Why Futures Markets Exist
Futures markets, including COMEX, were created to allow merchants and producers to transfer risk. Historically, global trade faced enormous uncertainty. Ships carrying goods could sink, be delayed, or be attacked. To manage these risks, merchants sold their price exposure to investors willing to speculate on the outcome. This innovation enabled trade to flourish and drove global economic growth after centuries of stagnation.
Today, the same principle applies. Commercial participants use futures contracts not primarily to exchange physical commodities but to offset price risk. Speculators and investors, in turn, provide the capital and liquidity needed for these markets to function efficiently.
COMEX vs. Physical Gold Purchases
One of the most common misconceptions about COMEX is that its contracts are equivalent to retail gold purchases. In reality, COMEX trades contracts promises to deliver or accept delivery of gold, not coins or small bars. Retail investors typically buy one ounce coins, rounds, or small bars at premiums over the spot price. By contrast, COMEX contracts reference 100-ounce bars, and most are settled financially rather than by physical delivery.
This distinction explains why retail buyers pay above “spot”they are buying finished products that must be refined, minted, and distributed, while COMEX operates at the wholesale level.
Delivery and Settlement Explained
Another frequent misunderstanding is the belief that all contracts must result in physical delivery. In fact, the vast majority of futures contracts are closed out or rolled forward before delivery. For example, a trader with a long September contract may choose to take delivery, but more often will offset the position by selling and opening a new December contract.
When delivery does occur, ownership is transferred via depository receipts at COMEX-approved vaults. The metal itself often remains in place while its ownership changes hands.
Clearinghouses and Market Integrity
The clearinghouse is central to COMEX’s resilience. It guarantees performance of all contracts by requiring participants to post margin and maintain solvency. During the 2008 financial crisis, when banks doubted each other’s creditworthiness, clearinghouses provided the trust mechanism that kept futures markets functioning. Regulators worldwide later reinforced clearinghouses as systemic safeguards.
This framework prevents individual traders from “breaking” COMEX. Naked short positions do exist, but they are subject to strict collateral and margin requirements. While traders can lose money, the system itself remains stable.
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