COMEX, Paper Gold and Physical Metal: How the Markets Fit Together

The price you see quoted for gold or silver is not set in a coin shop. It emerges mostly from futures trading in New York and over-the-counter dealing in London, markets where enormous volumes change hands every day while relatively little metal actually moves. The gap between this “paper” market and physical bars and coins is a frequent source of confusion and of heated debate. Here is how the pieces fit together.

What COMEX is

COMEX is the metals futures exchange operated as part of CME Group, the Chicago-based exchange company that also owns NYMEX. Gold and silver futures traded there are among the most watched contracts in the world, and their prices serve as a reference for much of the physical trade.

A futures contract is an agreement to buy or sell a set quantity of metal at a set price on a future date. The standard sizes are:

Most participants never intend to take delivery. Producers hedge future output, banks offset positions from their client business, and speculators bet on direction.

Margin and leverage

Futures are traded on margin. A trader posts a deposit that is a small fraction of the contract’s full value, and gains and losses are settled daily. That leverage is what makes futures efficient for hedging, but it also means a modest price move can produce a large gain or loss relative to the money committed.

Leverage explains why futures markets can move so violently. When prices fall, leveraged buyers face margin calls and may be forced to sell, pushing prices lower still. Exchanges can also raise margin requirements during volatile periods, which can force further liquidation, as happened in silver in 2011.

Delivery, registered and eligible stocks

Contracts that are held into the delivery period can be settled by transferring warehouse receipts for metal held in exchange-approved depositories. COMEX reports two categories of inventory:

• Registered: metal for which a warrant has been issued, making it available for delivery against futures.
• Eligible: metal that meets exchange standards and sits in an approved vault but has no warrant. It belongs to someone who has not made it available for delivery, though it can be converted to registered.

Watchers of the “paper versus physical” debate track these figures closely, pointing out that open interest often represents far more metal than the registered stock. That is normal for a futures market where only a small share of contracts ever go to delivery, but it means a rush to stand for delivery could strain available supplies.

London, the LBMA and ETFs

The largest physical trading center is London, where banks deal directly with one another in an over-the-counter (OTC) market. The London Bullion Market Association sets standards for Good Delivery bars, roughly 400 ounces for gold and 1,000 ounces for silver, and accredits refiners. Most London trading is in “unallocated” accounts, where a client holds a claim on the bank rather than identified bars.

Exchange-traded funds add another layer. A physically backed ETF holds bars in a custodian’s vault and issues shares that trade like stocks. Investors get price exposure without handling metal, and the fund’s holdings are disclosed regularly. Large ETF inflows and outflows can move real metal between vaults and the market.

Why paper volumes dwarf physical

Daily trading volume in futures and London OTC dealing represents many times the world’s annual mine supply. This is not in itself proof of anything sinister: currency and bond markets also trade far more than the underlying stock of money or debt, because positions are opened and closed repeatedly and netted against each other.

The concern raised by critics is different. If price discovery happens mostly in leveraged, cash-settled trading, the price may at times diverge from conditions in the physical market. Supporters reply that arbitrage between futures, London and physical products keeps prices aligned under normal conditions.

When physical gets tight

The two worlds do occasionally separate. In 2013, after a sharp futures-driven sell-off, retail buyers rushed into coins and small bars, and premiums over spot widened as dealers and mints struggled to keep up. In 2020, pandemic lockdowns closed some refineries and disrupted flights that normally carry metal between hubs. The spread between New York futures and London prices widened unusually, and premiums on coins and small bars jumped. Readers can see similar patterns in our guide to mint bullion coin sales.

These episodes show that “the price” of gold or silver is really a family of prices, which usually move together but not always.

Manipulation cases

Allegations of price manipulation in metals markets are long-standing. Some have been substantiated. In September 2020, JPMorgan agreed to pay $920 million to resolve investigations into spoofing in precious-metals and Treasury futures markets, a practice of placing orders with the intent to cancel them before execution to mislead other traders. Other banks and individual traders have faced regulatory action over similar conduct.

Proven spoofing distorts prices over seconds or minutes; it does not by itself show that long-term price levels are set artificially. Regulators publish positioning data partly to make markets more transparent, as explained in our guide to reading the Commitments of Traders report.

Key points

• COMEX, part of CME Group, hosts the benchmark futures: 100 ounces for gold, 5,000 ounces for silver.
• Margin creates leverage, which amplifies price moves and forced selling.
• Registered stocks are available for delivery; eligible stocks are not, unless converted.
• London’s OTC market and ETFs link paper trading to physical bars.
• In times of stress, physical premiums can widen even when futures prices fall. More in the CFTC and markets section.

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