Physical delivery in gold trading

Physical delivery is the settlement of a futures contract by transferring the underlying asset. COMEX gold futures are physically delivered: the seller delivers warrants for gold of the required fineness held in exchange-approved depositories, and the buyer pays the final settlement price. Cash-settled contracts, by contrast, pay the difference in money.

How it applies to gold trading

Delivery is what ties the futures price to physical gold. Because a long holder can demand metal, and a short can deliver it, futures and spot prices cannot drift apart for long beyond the cost of carry. Spikes in delivery requests and movements of metal into or out of COMEX vaults are watched as signs of physical tightness, as in periods when the gap between New York and London prices widened.

For most traders delivery is something to avoid: positions are closed or rolled before first notice day. CFDs on XAUUSD never involve delivery.

Worked example

Example (hypothetical numbers): a fund holds 10 GC contracts into the delivery month and accepts delivery at 4,020. It pays 10 × 100 × $4,020 = $4,020,000 and receives warrants for 1,000 ounces in an approved vault, then pays storage and insurance going forward.

A common mistake

Believing that buying gold futures through a retail broker means owning gold. Without taking delivery, it is a price contract.

See also: First notice day, COMEX, Basis, Paper gold vs physical.

Frequently asked questions