How to Buy Gold and Silver on the COMEX

To protect your wealth from the economic disturbances, inflation etc. you may consider buying gold and silver future contracts on the COMEX. But, the Futures market is subject to several risks and the investor might lose more than the invested amount. So, it is highly recommended to consult the financial advisors and find excellent the brokers before entering into it.

Real Gold & Silver and their Spot Price

The rising economic uncertainty has led the people to possess metals like, gold and silver, in their physical form. It is not an easy task to buy gold or silver bullions due to their high prices and the premium associated with them. But still, the bullion markets of gold and silver are undergoing through a shortage in their supply.

The precious metals, gold and silver, encountered an increase in their price, but during the credit crisis it was seen that the spot price of both gold and silver began to fall, which is unusual to the past experiences in crisis. Earlier it was seen that in crisis, the prices of gold as well silver soared high.

 

These days, it is being observed that the real price of gold and silver in market is no longer dependent either on the COMEX price, or on the spot price. A shortage in the commodity occurs when the demand is higher, but the supply is unable to fulfill it. In such cases, the prices of the commodity increase due to the existing deficiency. To compensate this deficiency, more amount of the commodity is brought into the market. Finally, equilibrium is established between the price and the availability of the commodity.

Trading in Futures

The trading in Futures deals with the establishment of an acknowledged transaction between the two trading parties. They both are involved in the dealings of assets (may be precious metals, interest rate or, stock) or, money having a certain value at a particular time in future, along with its proposed price in future. It is basically an agreement that will take place in future, requiring the exchange of the assets and money. Quality, quantity, and delivery place are fixed, but the price of the commodity being exchanged is unsettled.

In a way, it is similar to taking a risk that the price of the assets, being exchanged, is going to be at a definite value on the agreed upon time in the future. When the defined time (or, the settlement date) comes, the contract is completed and both the trading parties need to make up the difference between the settlement price and the price paid before.

On the settlement date, it is requisite for both the trading parties to complete their part of the contract. The seller has to deliver the commodity mentioned in the contract on the settlement date. There is a transfer of cash between the traders, from the one who has gone through a loss to the one who has made profit.

The benefits of doing trading in Futures is that there is no need of paying the full amount in advance, only a partial amount need to be paid and the remaining difference is to be made up at the settlement date. So, it only takes a small investment to start your trade in Futures. Since investing in Futures is based upon predictions, it might happen that the investors may be required to pay more amount of money to the broker due to the falling prices of the commodity in the market. So, the investor is required to have more knowledge and hard work related to the investment in the Future contracts. The gold and silver future contracts offer flexibility as well as financial integrity.

Gold & Silver Futures

One of the commodities of exchange in the Futures is precious metals, which includes gold and silver metals. The trading in Futures is usually done through the COMEX (Commodity Exchange). It is a market for buying and selling of the Future contracts of gold and silver. The commodities are to be delivered at the future price (already set price) on the settlement date.

Both gold and silver futures are traded in terms of cents per ounce or dollars. Normally, the delivery of the precious metals is not done. Rather, a settlement is made in terms of cash.

COMEX: An Introduction

Earlier there were 2 exchanges in New York, viz., New York Mercantile Exchange (NYMEX) and Commodity Exchange (COMEX). But, as of 2006, they both are now combined in the NYMEX only, which is split into 2 divisions:

• NYMEX division: trade in commodities such as, gas, oil, platinum, palladium.
• COMEX division: trade in gold, silver, aluminum and, copper.

On the COMEX division, the precious metals, gold and silver, are traded in form of Future Contracts. COMEX acts in both ways: it is a seller to the buyers and a buyer to the sellers.

The prices offered by COMEX for gold and silver are very less when compared to their actual prices in the market. It is an outcome of the attempt to uplift the dollar. Institutions such as, banks holding gold and silver contracts sold them before the expiry of the contract. It increased the value of dollar, but at the same time there was a decline in the prices of gold and silver. This had its effect only on the COMEX prices, leaving the actual prices of gold and silver unaltered, which have a scarce supply in actual.

Through this, a door has been opened up for the investors to make profit by buying the precious metals from the COMEX at lesser price and, then selling them in the market at the market price.

Buying Gold & Silver at COMEX

It is not common for the brokers to take the delivery of the commodity. So, when you have decide that you want to take the delivery of the precious metals, and not sell them before their settlement date, you need to look for a broker who is determined and willing to take the delivery of them. But, for the delivery there are some charges also, depending upon the broker you choose.

Taking delivery takes a long duration of time during which you cannot buy or sell before the expiry of the future contract and the delivery of the commodities. Institutes such as, banks, go for a short term, i.e. they do not intend to take the delivery and aim at selling the contracts before their expiry. They invest a small amount (around 10%), buy many contracts and, then sell them before the period expires, thus bringing down the prices of gold and silver.

Upon being determined to take the delivery of the commodities, you are required to pay the full amount to accomplish the future contract and wait until the period of the contract is completed. The future markets are subject to price fluctuations and if there is a fall in the price of the commodity, then you are asked to add more funds to your account in order to maintain it. Addition of more funds to your account is required only when the amount in the account drops below the risk maintenance level.

After the contract period expires, the time for the delivery of the commodity arrives, upon which you will receive the notice of delivery and you will be expected to deposit the remaining amount with the broker in your account. There is a processing time taken before the delivery of the commodity, which may be around a few days.

To take the delivery of your gold, there are 3 ways:

• The gold is stored in the vault and there is some storage cost (premium) for it. You are given a receipt, i.e. a certificate, and the stored gold can be taken by you anytime as and when required by you.
• The gold in terms of gold bullion could be shipped to a warehouse and you will be informed about the vault where it is stored, so that you can stay in touch with it and securely transfer it to the warehouse or the bank of your choice afterwards. It also has charges associated with it.
• Upon the establishment of your position, you may then complete the payment of the contract. This method will avoid the extra costs incurred during delivery.

Upon the expiration of the contract, you receive the delivery in the form of a certificate. This certificate is usually held by the brokers, if you intend to sell your contracts in future. But, if you wish to take the delivery of gold, then you have to get the certificate from the broker.

You need to have an account through which you can do trading in commodity futures with the assistance of a broker. There are several costs involved to be paid to the broker in terms of commission, contract, storage and insurance fee. In case, you want to store your gold somewhere else, then you need to bear the charges for removing it from the COMEX warehouse. Also, the whole burden of transferring the physical metal securely lies on you only.

For the purpose of selling the gold or silver back to the COMEX, after taking it out from the warehouse, it needs to be examined for its quality and weight. This process is known as assaying. But, to sell gold or silver to any dealer, it is not required for the metals to be assayed.

Conclusion

Buying of the precious metals on the COMEX can prove to be beneficial, keeping in mind the above points. For amateur investors it is appropriate to consult a financial advisor regarding trading of futures to buy gold and silver on the COMEX. You need to search a broker having a deep knowledge and experience about the future contracts on the COMEX who can guide you for a successful investment.

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