Maybe Gold futures are different from other future contracts. I always thought there was the option to take delivery or settle in cash. The wording below is a bit confusing, because here it sounds like you have the option to settle in cash. I'm a bit confused now. http://www.businessinsider.com/how-gold-actually-gets-traded-2013-7/?r=AU&IR=T
Gold futures are not different... it depends on the contract specs. The sentence you refer to in the article is poorly worded, and reading it I can understand the confusion. Remember, it is the shorts who initiate intention to deliver. Also, remember that each long is matched exactly with a short for the expiring month. So, if a long wants to close out, but say for eg... leaves it too late, and there are no open shorts left willing to close out with him, then he may get stuck long in an expiring contract, and the holder of a futures contract is obligated to fulfill the terms of the contract. His intention may have never been to take delivery, but now he is unlucky enough to be assigned delivery on expiry. He is stuck with the purchase of 100 oz phys gold. What does he do? There is a possible "out" - you can "retender" your delivery notice to another willing buyer who will take delivery on the notice and underlying assets through the exchange. This process is subject to a fee, and subject to the price a willing buyer is prepared to "tender" for the notice. It costs the guy who was not diligent enough to close out before expiry. This is, in effect, cash settlement of a contract whose delivery terms specify the underlying physical asset. Not so easy as the permi's like to have you believe.
Getting good info off the internet can be hard some time, it appears i had the wrong understanding of Gold futures. Thanks for being patient and clearing it up. One last question, the article i linked above stated that a settlement mainly just consist of a receipt/accounting changes ownership of the metal and that in most cases no real delivery is made (no metal is moved out of storage). Is this part true or is that incorrect too?
This is true if contracts are settled using COMEX registered or eligible warehouse inventory - the metal stays on the shelf, and a depository receipt (warrant) for ownership is exchanged. However, the overwhelming majority of COMEX deliveries occur outside of this system using EFP's (Exchange for Physical), which is an entirely legitimate, normal and efficient mode of transferring ownership of physical metal inventory without a warrant ever being attached. It is more popular because it avoids the costs and fees associated with COMEX warehouse stock settlement. EFP's are privately negotiated settlements by delivery, and may be used to either initiate or liquidate a futures position, effectively bypassing the COMEX warehousing system. Futures contracts and a physical commodity equivalent can be exchanged outside of the exchange and an EFP form can be filed to the clearing department at the COMEX. It is this process which makes an absolute joke of ZeroIdea's or Seekingbrain's constant wailing that COMEX is short on inventory (besides the fact that the current month is always covered by multiples of COMEX inventory before EFP's are even processed).
I have to spend some time reading up on this in more detail to get my head around it. It's not as simple as i originally thought. Anyway sorry to the OP for changing this thread from Bitcoin futures to Gold futures. Bitcoin futures will open soon, so hopefully we will see how that all plays out.
So.. Bitcoin futures will create "paper" Bitcoin just like Ag?! Plus they never settle in Bitcoin so it really involves no Bitcoin at all?
