THREE U.S. EXCHANGES VIE FOR GOLD
The glitter of gold has generated a
three-way competition among the world's largest futures
exchanges for a 100-ounce contract for the precious metal.
    When the Chicago Mercantile Exchange (CME) re-introduces
gold futures trading here Tuesday (at 9 a.m. CDT), it will go
toe-to-toe in an uphill battle against the Commodity Exchange
Inc. of New York (Comex), which brokerage executives describe
as the world's precious metals futures capital for
institutional business.
    And by autumn, the oldest and biggest exchange, the Chicago
Board of Trade (CBT), expects to join the fray when the
Commodity Futures Trading Commission (CFTC) approves a pending
application for a 100-ounce gold contract to trade side-by-side
with the CBT's smaller, one kilogram (about 2.5 U.S. pounds)
gold futures.
    The CME introduced a 100-ounce gold futures contract in
1974, but lack of interest forced it to abandon the instrument
in July 1986.
    CME officials said investors and brokerage firms asked the
exchange to reintroduce the contract because of recent
volatility in precious metals. Other factors influencing the
decision may also have been clearing problems in May which
forced the Comex to shorten trading for three straight days in
an effort to clear up a huge backlog of unresolved trades,
especially in silver futures.
    Comex's problems may now create a window of opportunity for
other exchanges to successfully offer precious metals
contracts, industry sources say.
    But it is much too early to predict whether other exchanges
can inflict serious damage on the Comex' daily trading volume
of more than 40,000 contracts which represents commitments to
buy and sell gold of more than 2 billion dlrs.
    While average daily trading in the CBT's smaller gold
contract, aimed at retail customers rather than institutions,
was under 500 contracts per day throughout 1986, it has
surpassed 1,000 contracts daily for the past two months.
    "The climate could not be better for this venture by the
CME," said Merrill Lynch Commodity Marketing Vice President Neil
McGarrity.
    "Everybody is talking about metals now, and interesting
daily trading ranges provide opportunities for bulls and bears.
There's good trading volume in all world outlets," McGarrity
added.
    "The Merc's gold futures would be insurance for dealers,
merchants and customers that there would be a market open for
trading," if heavy gold or silver futures volume causes the
Comex to close early again, said Jack Lehman, senior vice
president and director of commodities for Shearson Lehman Bros.
Inc. and a Comex board member.
    Delivery points vary for each exchange's 100-ounce gold
futures. Comex contracts are deliverable through New York
warehouses while the CME contract specifies London delivery
through a CME account at Samuel Montagu and Co. Ltd., a member
of the London gold market. The CBT gold application specifies
delivery from New York and Chicago vaults.
    The Comex and the CBT have applied to the CFTC for an
earlier precious metals opening to match the CME's starting
time of 7:20 a.m. CDT. The exchanges said the earlier start
allows for trading before many important government reports are
released at 7:30 a.m. CDT.
    CME marketing sources said arbitrage possibilities exist
with side-by-side trading, noting local interests can be
generated by traders dealing in foreign currency and short-term
debt futures along with gold futures contracts to further hedge
their financial risks.
    "If the dollar rises, traders can sell currencies and buy
gold," said David Johnson, CME's manager of currency products.
    The Chicago Board of Trade sees an extra advantage to gold
trading. "Given our night trading session, we could add either
our pending 100-ounce gold or our existing 5,000-ounce silver
contract to attract overseas business," a CBT official said.
    Which market is identified as the precious metal capital
does not appear to be a major issue among professionals.
    "We've seen Chicago bring in a new constituency before, with
perhaps different needs," Mocatta Metals Chairman Dr. Henry
Jarecki said.
    "Merchants will go to the CME or anywhere to trade a liquid
contract. Our firm is no exception," Jarecki said.
    "At worst, even if the CME gold futures fail, the Comex will
be under pressure to improve the integrity of its clearing
processes," a CME official added.
 Reuter
