FAQ: Gold (Enhanced Delivery) futures

In light of recent logistical developments in the market for gold, COMEX is introducing a physically-delivered gold contract with additional delivery and trading functionalities. This contract will enable delivery in New York City of Kilo, 100 oz and 400 oz bar sizes for maximum flexibility. As announced in the press release, the contract will also be enabled for inter-commodity spread trading against the GC benchmark gold futures contract, thereby giving existing GC traders efficient access to this new market.

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The Gold (Enhanced Delivery) futures contract (commodity code 4GC) is a physically-delivered gold contract listed on COMEX. It trades in U.S. dollars per troy ounce with a unit size of 100 troy ounces. The listing cycle follows GC market convention. Physical delivery is made via 100 troy ounce bars, or kilo bars, or 400 troy ounce bars in COMEX approved depositories. Because of the three (3) different sizes available for delivery, the Exchange makes use of an Accumulated Certificates of Exchange (“ACEs”) mechanism to facilitate efficient deliveries – more on the ACE mechanism can be found below.

Preliminary specifications are pending regulatory reviews.

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Very little, this contract is similar to GC Gold with the additional ability to deliver 400 oz bars into COMEX approved depositories.

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There are significant legal and regulatory concerns with making changes to any existing contract with significant open interest, and we always work to preserve the integrity of each contract for all open interest holders – short and long.  In this case, we chose to create a new contract that will provide a broader range of delivery size options for all prospective traders while maintaining and complementing the delivery terms of the benchmark GC contract for current open interest holders.  This also creates inter-commodity spread opportunities as well and provides maximum flexibility for all of our clients.

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Yes, the GC contract will not be modified in any way. This includes GC futures and options.

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• Margin requirements – as part of its commitment to the orderly functioning of the market place, CME Clearing proactively monitors market activity in GC futures and adjusts performance bond requirements. The last adjustment became effective on March 25, 2020 (see notice here) which  increased outright margin requirements from 7,000 USD to 8,350 USD. 
• The Exchange applies spot month position limits, thereby limiting the amount of contracts that a participant can take into delivery without formally obtaining a hedge or other available exemption. Currently spot month position limits are set at 3,000 contracts. Those limits become effective on the close of trading on the business day prior to the first notice day of the delivery month. Gold position limits are monitored by the CME’s Market Regulation Department and are set in accordance with Commodity Futures Trading Commission guidance based on material held in COMEX registered depositories. Further regulatory information is available here. 
• Trading activity in COMEX GC is also subject to circuit breakers so that the market may continue to work in an efficient and orderly manner during volatile market conditions. Information on circuit breakers is available here.

• Monitoring of inventories – all COMEX gold depositories are obliged to provide daily inventory figures. These figures are broken down into how much material is Registered and Eligible for futures deliveries. COMEX depository stocks are available here. 
• Market participants can monitor the daily and cumulative delivery notices issued against COMEX GC – delivery notices are available here. 

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No. The new 4GC and benchmark GC contracts are not fungible, meaning that a position in GC cannot be exchanged into an equivalent position in 4GC. However, 4GC will be enabled for inter-commodity spread trading against GC on CME Globex, providing customers the ability to trade 4GC against GC on screen without execution risk on either leg of the trade.

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CME Clearing facilitates 400 oz bar deliveries through the introduction of the Accumulated Certificates of Exchange (“ACE”) mechanism.

A 400 oz bar cannot be used to facilitate delivery of a single contract with a unit size of 100 oz due to its larger size. The ACE mechanism facilitates the conversion of 400 oz bars in fractional units which can be used for delivery. Once a 400 oz bar is warranted, it can be assigned to the Clearing House, and in return the Clearing House will issue four ACEs. Each ACE will represent an equal share of ownership of the larger bar. That means that each 400 oz bar will result in the issuance of 4 ACEs. ACEs can only be issued against the 400 oz bars, not the smaller 100 oz or kilo bars.

Once issued, ACEs can be held as long as necessary. A client can use ACEs to comply with short delivery requirements (1 ACEs reflecting one futures contract of 100 oz) or it can be swapped back against a 400 oz bar by exchanging 4 ACEs. A customer can comply with delivery requirements with ACEs or regular bars, or a combination of both.

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No, we anticipate that all COMEX delivery points for GC will remain unchanged while also facilitating delivery for 4GC. As before, all eligible locations for delivery of GC and 4GC will fall within a 150-mile radius of New York City.

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See an explanation of the physical delivery process for Gold (Enhanced Delivery) futures here.

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While the contracts will not be fungible, we will enable inter-commodity spreads between the two contracts enabling participants to move positions between contracts.

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4GC will settle independently from GC, with details to follow on procedures.

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The new 4GC contract margins will be very similar to the GC contract and may initially have approximately a 90% credit to GC.

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The Exchange is not making any changes to GC, including option contracts where GC is the underlying contract.

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Depending on how liquidity builds up in the new contract, COMEX may consider listing options on 4GC subsequently.

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