Gold and Silver Futures Contracts: How the Specifications Work
A futures contract is a standardised agreement to buy or sell a set quantity of a commodity at a set price on a future date. For gold and silver, the most closely followed contracts are traded on COMEX, a division of the CME Group in the United States. Every detail of these contracts is fixed in advance by the exchange, which is what allows them to trade quickly and in large volumes. Knowing the specifications makes it easier to read market reports and positioning data.
Why standardisation matters
In an informal deal, buyer and seller agree on everything: quantity, purity, delivery place and date. On an exchange, all of that is fixed. Traders only negotiate the price. Because every contract of the same month is identical, positions can be opened and closed easily, and a central clearing house can stand between buyers and sellers.
The standard gold contract
| Feature | COMEX gold futures (GC) |
|---|---|
| Contract size | 100 troy ounces |
| Price quotation | US dollars and cents per troy ounce |
| Minimum price fluctuation | $0.10 per troy ounce, or $10 per contract |
| Delivery | Physical delivery of gold bars from approved refiners, held in exchange-licensed vaults |
| Deliverable bars | One 100-ounce bar, or three one-kilogram bars, meeting exchange fineness rules |
A one-dollar move in the gold price therefore changes the value of one contract by $100.
The standard silver contract
| Feature | COMEX silver futures (SI) |
|---|---|
| Contract size | 5,000 troy ounces |
| Price quotation | US dollars and cents per troy ounce |
| Minimum price fluctuation | $0.005 per troy ounce, or $25 per contract |
| Delivery | Physical delivery of silver bars from approved refiners, held in exchange-licensed vaults |
Because the contract covers 5,000 ounces, a move of one cent in silver changes the value of a contract by $50.
Exchanges also list smaller contracts aimed at individual traders, such as mini and micro versions of the gold and silver futures. Their sizes and rules differ from the standard contracts, and exchanges change these products over time, so the current specifications should be checked directly with the exchange.
Contract months
Futures are listed for specific delivery months. Both gold and silver contracts are listed for many months ahead, but trading concentrates in a few of them, the “active” months. For gold these are traditionally February, April, June, August, October and December; for silver, March, May, July, September and December. Most trading volume sits in the nearest active month, and traders roll their positions forward as expiry approaches.
How most contracts end
Only a small fraction of futures contracts ends in physical delivery. Most are closed out before expiry by an offsetting trade: a buyer sells, a seller buys back. Those who stay in a position into the delivery period must either deliver metal, if short, or take it, if long, following exchange procedures that use warehouse receipts for metal held in approved vaults.
The relationship between futures trading and physical metal is discussed in COMEX, Paper Gold and Physical Metal.
Daily settlement
At the end of each trading day, the exchange sets a settlement price for each contract month. Positions are marked to market: gains are credited and losses debited to each trader’s account through the clearing house. This daily process is what keeps the system solvent, and it is the reason traders must post margin, covered in Futures Margin and Leverage.
Who regulates the market
In the United States, futures markets are overseen by the Commodity Futures Trading Commission (CFTC). The exchanges themselves set and enforce many day-to-day rules, including position limits and accountability levels. The CFTC also publishes weekly data on who holds positions, explained in Reading the Commitments of Traders Report.
Reading the price structure
Prices for different delivery months are usually not the same. The pattern between near and distant months tells analysts about interest rates, storage costs and the tightness of physical supply. That is the subject of Contango and Backwardation in Precious Metals.
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