CME resolving physical gold squeeze with delivery of 100-ounce, 400-ounce and 1-kg bars
CME resolving physical gold squeeze with delivery of 100-ounce, 400-ounce and 1-kg bars by Neils Christensen for KitCo News
Increasing pressure from market players and significant liquidity issues in the gold market are prompting CME Group to make some changes in how it delivers its physical gold.
Tuesday evening, the futures exchange announced the launch of a new gold futures contract with expanded delivery options that include 100-troy ounce, 400-troy ounce and 1-kilo gold bars.
The new contract is expected to launch with the first expiration of April 2020, pending regulatory approval, the exchange said.
“This time of unprecedented market conditions has led to growing demand for a broader range of delivery needs for our clients worldwide,” said Derek Sammann, Senior Managing Director and Global Head of Commodity and Options Products, CME Group in a press release.
“By offering a choice of delivery sizes as well as inter-commodity spreads with our benchmark gold futures, this new contract will provide customers with maximum flexibility in managing physical delivery,” Sammann added.
The news comes after an intense trading day in the gold space as the market has seen strong physical demand and dwindling supply.
According to reports, bullion banks across the board reported massive liquidity issues Tuesday in the physical market. The problem, according to many banks, was the Exchange For Physical (EFP) market, which allows traders to switch gold futures positions to and from physical. Spreads in EFP are typically around $2, but on Tuesday, because of a lack of supply, the spread increased as high as $40.
Part of the issue is the lack of specific gold bars. CME contracts are for 100-ounce bars. However, Good Delivery listed bar from the London Bullion Market Association are 400 ounces.
The move from the CME will help relieve some of the liquidity issues as future contracts could be filled with 400-ounce bars from the London Bullion Market Association.