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CME Group launches 1-ounce gold futures to divert physical demand
By Jesse Columbo
Money Metals News Service
Sunday, December 8, 2024
In a move that may flood the market with more "paper" gold, CME Group Inc., the parent company of COMEX, the leading U.S. exchange for gold and silver futures, will introduce a one-ounce gold futures contract in January.
This move comes in response to soaring demand from retail investors, spurred by gold's record-breaking rally this year from $2,000 to $2,630—a respectable 32% gain. Smaller-sized gold products have grown increasingly popular among retail investors seeking exposure to precious metals and greater diversification in their portfolios. ...
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While the introduction of this new futures product is intriguing and reflects growing interest in precious metals and financial innovation -- something I wholeheartedly support as a proponent of free markets -- I do have some big concerns.
Chief among them is that this is a cash-settled futures contract rather than a physically-settled one.
This means that upon expiration of the futures contract, traders cannot take physical delivery of a 1-ounce bullion bar or coin, which is a drawback for those seeking tangible ownership of gold.
This also implies that these contracts are unlikely to be backstopped (even unofficially) by actual physical gold, making them yet another form of "paper" gold in a market already saturated with such instruments that include futures, options, forwards, swaps, CFDs, and exchange-traded funds. ...
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