CME Group Launches New Gold Futures Contract Amid Liquidity Squeeze

As brokers and liquidity providers struggle with a liquidity squeeze on gold, CME Group announced on Tuesday that it will launch a new gold futures contract to give traders increased flexibility.

Specifically, the new contract has expanded delivery options and includes 100-troy ounce, 400-troy ounce and 1-kilo gold bars. The contract is expected to launch with a first expiration of April 2020, the derivatives exchange said, pending regulatory approval.

Derek Sammann of CME Group

Commenting on the new product, Derek Sammann, Senior Managing Director and Global Head of Commodity and Options Products, CME Group said in the statement: “This time of unprecedented market conditions has led to growing demand for a broader range of delivery needs for our clients worldwide.”

“By offering a choice of delivery sizes as well as inter-commodity spreads with our benchmark gold futures, this new contract will provide customers with maximum flexibility in managing physical delivery.”

CME Group is yet to announce the specific launch date, with the company planning on clarifying this later in the week. However, the exchange did reveal that the new futures contract will be available for trading on CME Globex.

The contract is also available for submission for clearing via CME ClearPort and it will be subject to the rules and regulations of COMEX.

Gold liquidity squeeze amid COVID-19

CME Group’s announcement comes as demand is far outweighing supply for the commodity. In fact, liquidity providers have been struggling to price gold, leading to increased spreads. Brokers, such as Alpari, have switched all XAU and XAG symbol to “Close-Only” mode until further notice.

As reported by the Financial Times on Tuesday, traders have signaled a growing shortage of gold bars, as the coronavirus pandemic has caused an increase in demand whilst at the same time, has disrupted supply, “with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll.” 

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