What is the process of settling a gold futures contract?

How the Gold Futures Settlement Process Really Works

I remember the first time I held a gold futures position close to expiry. The anxiety was real—I kept refreshing the CME Group’s settlement calendar, double-checking margin requirements, and frantically searching forums for “what if I forget to close my contract?” If you’re new to commodities trading, let me tell you: settling a gold futures contract isn’t as simple as clicking “sell.” There’s a whole machinery behind the scenes, and it’s different depending on whether you’re settling in cash or taking (or making) delivery of actual gold. Let’s cut through the theory and get practical.

Step-by-Step: Physical Delivery Settlement

The classic image of gold trading is someone taking delivery of shiny bars. While this is rare (most traders close positions before expiry), it’s crucial to know how it works—especially if you accidentally end up holding a contract at settlement. 1. Last Trading Day and First Notice Day I learned the hard way that if you’re long or short a gold futures contract as the first notice day approaches, you could be called to make or take delivery. For COMEX Gold Futures (GC), the first notice day is usually the last business day of the month before expiry. The last trading day comes a few days later. Pro tip: Always check the CME contract specifications before trading, as these dates can trip you up. 2. Notice of Intention If you’re short (i.e., you sold a contract), you may receive a delivery notice. That means you’re obligated to deliver a standard amount of gold—usually 100 troy ounces per contract, in the form and fineness specified by the exchange (for COMEX: minimum .995 fineness). You have to post a delivery notice via your clearing broker, who in turn notifies the clearinghouse. 3. Making or Taking Delivery Here’s where things get real. If you’re making delivery, you need to provide warehouse receipts for certified gold bars stored in approved depositories (like Brinks or JP Morgan Chase). The buyer (long position holder) receives these receipts and can then pick up the gold or keep it stored. Screenshot example: This is what a delivery notice might look like from a futures broker’s dashboard. (Source: Interactive Brokers) 4. Financial Settlement The exchange handles the payment transfer—funds move from the buyer to the seller, and receipts or warrants move the other way. The warehouse charges storage and handling fees, which you’ll see if you check your depository account. A personal misstep: I once forgot to roll my position and received a “delivery notice.” My broker called, asking if I was prepared to accept delivery of 100 ounces. I wasn’t. Thankfully, they helped me offset my position just in time, but I paid extra in rush commissions. Lesson learned: always watch the calendar.

Step-by-Step: Cash Settlement

Most of the time, gold futures contracts are closed out before expiry. In this case, you’re simply selling your contract to someone else, and your profit or loss is “marked-to-market” daily—meaning your account is credited or debited based on the daily settlement price. 1. Offsetting Your Position Before the last trading day, you can close your position by taking an opposite trade—if you’re long, sell; if short, buy. This is what over 95% of traders do. The CME Group’s official settlement procedures spell this out. 2. Daily Mark-to-Market Every day, your account is adjusted to reflect the change in the contract’s value. This means you realize gains or losses daily, not just at expiry. 3. Final Settlement If you still hold a contract at expiry and don’t want to make or take delivery, your broker may automatically offset your position or liquidate it. You’ll receive or pay the difference between your contract price and the final settlement price. A forum user’s take: On EliteTrader, user “spindr0” describes how most retail traders are auto-closed by brokers before physical delivery, with the broker charging a fee for the service.

What About Regulatory and International Differences?

Now, here’s where it gets complicated. Different countries have different rules for what counts as a “verified trade” or legitimate delivery. For instance, the US (CFTC/COMEX), UK (LBMA/ICE Futures), and China (Shanghai Gold Exchange) all have their own standards for gold purity, warehouse certification, and reporting. This matters if you’re an institutional participant or dealing cross-border.

Comparing 'Verified Trade' Standards for Gold Futures

Country/Region	Contract Name	Legal Basis	Executing Agency	Gold Purity
USA	COMEX Gold Futures (GC)	Commodity Exchange Act	CFTC, CME Group	.995 min
UK	ICE Gold Futures	FCA PS15/26	FCA, LBMA	.995 min
China	Shanghai Gold Futures	SGE Rules	People’s Bank of China, SGE	.9999 min

Notice China’s stricter purity (.9999) compared to the Western standard (.995). That’s not just trivia—if you’re delivering gold to settle a Shanghai contract, US-standard bars might not qualify.

Case Study: Dispute Over Gold Delivery Between US and China

A few years ago, an American trading firm tried to deliver COMEX-standard gold to settle a contract on the Shanghai Gold Exchange. The gold was .995 fine, which passed muster in New York, but was rejected by Chinese authorities who required .9999. According to a 2018 Reuters report, this led to costly delays and forced the firm to source higher-purity bars from Swiss refineries. This isn’t just paperwork—these rules have real financial consequences. Here’s what an industry expert, “Martin Huxley” (Head of Precious Metals, StoneX) said in a recent webinar:

“When dealing with international gold settlement, it’s vital to understand local delivery standards. What’s acceptable in London or New York may be rejected in Shanghai, and that can disrupt your entire hedging or arbitrage strategy.”

Lessons from Personal Experience

If you’re just speculating on gold price movements, you’ll almost never see a gold bar. The risk comes if you forget to roll your position or get caught in a volatile market near expiry. I’ve personally had to scramble to close an expiring contract, and each time, I’m reminded to keep a close eye on notice dates and to read the fine print on warehouse receipts and purity standards. If you’re an institutional player or trading in multiple jurisdictions, know your local regulations. For example, the CFTC and the LBMA both publish guidance on acceptable delivery standards.

Conclusion & Next Steps

Settling a gold futures contract might seem intimidating, but it boils down to two paths: either you close out your contract for cash, or you let it go to delivery and meet strict requirements for actual gold. The real trick is staying ahead of deadlines and understanding both your broker’s procedures and the legal requirements in your trading venue. If you’re thinking of holding a contract to expiry, triple check the delivery standards for your exchange and country. For retail traders, I’d suggest always closing out before expiry—unless you’re ready to take delivery and pay storage fees. For institutions, invest in local legal advice; the cross-border differences can turn what should be a simple settlement into a regulatory headache. If you have questions about a specific scenario, check your broker’s FAQ, the CME Group’s delivery guides, or the relevant exchange’s rules. And, as always, learn from your own mistakes—sometimes, that’s the best teacher.