Why Do Traders Pay a Premium on COMEX Gold Futures Over Spot?

Investors and traders sometimes pay above the spot price for gold on the COMEX futures exchange, even though physical gold can be acquired near spot. This apparent puzzle has solid explanations.

I knew about the leverage used but didnt understand some of the other aspects so researching this was interesting. In this blog, we’ll explore the individual and institutional drivers behind these premiums, look at why arbitrage doesn’t close the gap straight away, and examine recent episodes—such as in 2020 and 2024/25—when COMEX prices diverged sharply from spot.

Understanding COMEX vs. Physical Gold

COMEX gold futures differ from spot or physical gold in London’s OTC market in several ways.

COMEX offers smaller 100-ounce contracts, traded on margin, with high liquidity and transparent pricing. London’s spot market deals in 400-ounce “Good Delivery” bars, typically requires full payment upfront, and involves storage or delivery logistics. In calm conditions, COMEX and spot prices align closely.

Futures generally trade at a minor premium to spot (known as contango), reflecting storage and financing costs. However, when market disruptions arise—such as refinery shutdowns or sudden policy announcements—the COMEX price can jump well above spot.

Leverage and Capital Efficiency

One of the biggest attractions of COMEX futures is leverage. Instead of paying the entire cost of physical gold, traders post only a fraction of a contract’s value as margin. A single 100-ounce contract, worth, for instance, US$300,000, might require margin of only a few thousand dollars. The leftover capital can be directed elsewhere or held to earn interest.

(Ive personally used 50-100x leverage on unallocated accounts with LBMA members so I dont see this as the biggest factor to be honest.)

Either way this flexibility encourages speculators, hedge funds, and other participants to buy futures even at a premium, viewing it much like paying a financing or convenience fee for high-octane exposure to gold.

Liquidity, Hedging, and Market Access

COMEX gold futures rank among the most liquid gold instruments in the world, often trading tens of thousands of contracts daily. This scale allows participants to open or close large positions swiftly at published prices.

Physical bullion, by contrast, involves arranging vault storage, insurance, or sale to a dealer. COMEX also provides a standardised marketplace for hedgers such as miners, jewellers, and banks.

The exchange mechanism simplifies short sales, allowing producers or speculators to hedge efficiently in times of rising or falling prices. These factors boost trading activity on COMEX, sometimes lifting futures above spot when rapid buying meets limited near-term physical supply.

Institutional and Regulatory Factors

Various funds and institutions are effectively required—or strongly encouraged—to use futures rather than own physical metal:

• Fund Mandates

Many funds, including index and pension funds, are restricted to securities or exchange-traded products. They may be unable (or unwilling) to deal with the custody, insurance, and compliance aspects of holding physical bullion.

• Clearinghouse Guarantee.

A futures position is backed by the exchange clearinghouse, which reduces counterparty risk. By contrast, holding unallocated gold in a bullion bank carries credit risk if that bank encounters problems.

• Internal Policies.

Large institutions often have internal rules making futures straightforward to trade, while physical gold calls for separate approvals and operational arrangements. In all these cases, institutional buyers may pay more on COMEX simply because it’s part of their regulated or approved framework.

Storage, Delivery, and Logistics

Futures also spare buyers the practical burdens of handling real metal.

Physical gold must be stored securely, incurring fees and insurance. COMEX contracts sidestep those hassles unless a participant insists on taking delivery—which happens rarely.

Transporting gold between vaults (such as recasting 400-ounce London bars into 100-ounce COMEX bars) can cost several dollars per ounce.

Shipping, assaying, and delays further widen the potential spread between physical and futures. Many buyers accept a price gap to avoid these pitfalls altogether.

Timing Differences and the Cost of Carry

Spot gold settles within a couple of days - referred to as T + 2.

Futures, however, settle in specific months, matching the schedule of traders needing gold at a later date. That timing adds value for those who prefer not to pay (and store) gold upfront.

Meanwhile, higher interest rates can raise the futures premium by increasing the cost of carry. Participants who want exposure but also want to keep cash free may willingly pay for a future instead of holding bullion immediately.

Why Arbitrage Doesn’t Instantly Fix the Gap

If COMEX futures trade too far above spot, an arbitrageur could buy physical gold cheaply, then deliver it against a short futures contract for a profit. In practice, several hurdles can slow this process:

• Transport Bottlenecks

Moving bullion to the COMEX delivery point requires flights, refineries, and logistics. During crises—such as in March 2020 when flights were limited and refiners shut—metal could not reach New York fast enough to close the spread.

• Credit and Capital Constraints

Large arbitrage trades depend on bank credit lines, which can be restricted in volatile markets. Heightened risk aversion discourages traders from taking big positions.

• Costs and Risks

Shipping, insurance, recasting, and potential price swings eat into profits. The premium must be large enough to justify all the costs and effort.

Case Studies: 2020 and 2024/25

In March 2020, COVID-19 disrupted gold refining and transport at the same time demand for COMEX futures soared. The gap between futures and spot surged to US$60–$70. Physical deliveries were hampered by refinery shutdowns and flight cancellations, so few could move metal to exploit the difference right away.

Late in 2024, rumours of possible tariffs on commodity imports caused another premium spike of around US$40–$50. Fearing higher future import costs, participants scrambled to source gold in the United States, bidding up COMEX prices and prompting large shipments into New York. Though these premiums eventually receded, neither disappeared overnight, illustrating how logistics and policy uncertainty keep futures elevated above spot.

Finally....

Paying more for gold on COMEX versus buying physical at spot can appear irrational, but many practical factors help explain it. Leverage, vast liquidity, regulatory mandates, and the avoidance of physical handling make COMEX attractive even at a higher price per ounce.

Arbitrage ties physical and futures prices together over time, yet real-world frictions slow the process. When disruptions happen, COMEX can outpace spot for weeks, until fresh supply arrives and normal trading patterns resume. This premium represents the cost of liquidity, convenience, and flexibility—a trade-off that suits many participants in modern gold markets.

I still have questions around who is taking delivery on a short contract, why Comex doesn’t just have a vault in London to save international freight, what happens if deliveries dont turn up in time or because of a desire to roll the contract, and also some detail on whos taking the financing and storage costs to justify a premium in the first place. Maybe some content for another day, or an interview with someone who really knows the detail.

Thanks for reading.