As Magnelibra pointed out months ago, the dislocation between spot Gold and Futures or Basis was way out of line and a “basis” arbitrageur would simply have to arb the spread and lock in profit, Back when the Futures were below the spot, an arb would simply Buy the Futures and Deliver the Physical at prevailing agreed current spot price. Let’s break this basis down simply:
Mar 15th Spot gold Trading $1750 and May Gold futures trading $1650 per oz = a spot premium of $100 oz.
The Comex gold futures contract is a 100 Troy ounces and margin requirement $9000 per contract
An arb locks in $100 an oz and delivers futures.
Same trade can be done in reverse when futures trade above spot!
Massive Gold Delivery (Basis Players)
As Magnelibra pointed out months ago, the dislocation between spot Gold and Futures or Basis was way out of line and a “basis” arbitrageur would simply have to arb the spread and lock in profit, Back when the Futures were below the spot, an arb would simply Buy the Futures and Deliver the Physical at prevailing agreed current spot price. Let’s break this basis down simply:
Mar 15th Spot gold Trading $1750 and May Gold futures trading $1650 per oz = a spot premium of $100 oz.
The Comex gold futures contract is a 100 Troy ounces and margin requirement $9000 per contract
An arb locks in $100 an oz and delivers futures.
Same trade can be done in reverse when futures trade above spot!
So we see this article today out of Zhedge, Gold Delivery Comex
I spent over a decade doing this in the US Treasury markets with my own fair value model!