CME to seize on popularity of gold/silver ratio with new futures

The gold/silver ratio has been a fashionable topic in analyst reports and financial blogs for the past several years but trading the ratio has been complicated

The CME Group is looking to remedy this problem – on October 23, the exchange will launch precious metals spread and ratio futures contracts for gold/silver, gold/platinum and platinum/palladium.

“This is a real example of our basic strategy going forward. We want to solve people’s problems using the liquidity that we already have,” Miguel Vias, CME group head of precious metals, told FastMarkets.

“The gold/silver ratio is something that I used to trade frequently when I was a trader but it was relatively cumbersome to do on the OTC market. This will make it very easy to do. It will also be sized in a way that’s accessible to a myriad of market participants. So it’s just not meant for intuitional investors,” he added.

The contracts will be financially settled with the gold/silver ratio futures 500 index points in size and will reference the ratio of the Comex gold and silver futures price for each day of the contract month.

For example, the gold/silver ratio currently stands at about 70. So the notional value for a single contract would be $35,000 using the 500x multiplier. This would be about a quarter of the size of the CME’s benchmark gold contract.

“The ratio has gained a lot of popularity but for a lot of people it’s like watching something behind a piece of glass – it’s something that they can’t quite touch. But this will make the ratio more accessible to our smaller retail traders,” Vias said.

Gold/Platinum Spread futures will be 100 ounces in size and reference the difference between the Comex gold and Nymex platinum futures price for each business day of the contract month.

Platinum/Palladium Spread futures will be 100 ounces in size and reference the difference between the Nymex platinum and palladium futures price for each business day of the contract month.

Staring with the December 2016 contract month, all three contracts will be available for trading electronically via CME Globex as well as submission for clearing through CME ClearPort.

(Editing by Mark Shaw) 

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