Just how does the COMEX futures market really work?

Viking Analytics provides basic understanding of Commitment of Traders report
By , Coin World
Published : 08/29/17
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Understanding how the COMEX futures market works provides indications on how the price for physical gold is set, according to Viking Analytics.

Gold futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of gold at a predetermined price on a future delivery date.


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According to Viking Analytics, precious metals investors and traders pay attention to the Commitment of Traders, or COT, report, released each Friday, based on the settlement of trading from the Tuesday closing.

The COT report dated Aug. 27 reveals more than 500,000 contracts of open interest for gold futures and more than 741,000 contracts of open interest for futures and other major risk-weighted options. Open interest means contracts that have not been settled by physical delivery of the metal purchased.

The price of physical gold is closely tied to the futures market price. According to Viking Analytics, “as a result, it it not necessarily the physical supply and demand for gold that sets the price, rather this is done by the supply and demand for the digital gold derivative.”

Physical gold is gold that has been purchased and for which delivery has been made to the buyer. Digital gold is gold purchased that may be part of an exchange-traded fund or purchased by an individual, while the physical metal is stored elsewhere.

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The figure of 741,000 contracts from the Aug. 27 COT report suggests the presence of 71.41 million ounces of digital gold cumulatively held by buyers and sellers in the futures market, with the majority in the December contracts that close in three months, according to Viking Analytics.

“With average annual quarterly mine production of gold near 25 million ounces, we can see that the current COMEX open interest is currently nearly three times quarterly mine production,” according to Viking Analytics.

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