Gold & Silver EFPs (Exchange for Physical)
Introduced by Robert Gottlieb
What Are Gold and Silver EFPs and Why Do They Matter?
In the precious metals market, an Exchange for Physical (EFP) is a transaction that allows market participants to exchange a COMEX futures position for an equivalent position in the London OTC spot market, or vice versa. The gold and silver EFPs represent the price difference or premium between COMEX futures and London spot prices.
Under normal market conditions, EFPs remain relatively stable, reflecting the costs of financing, storage, insurance, transportation, and the mechanics of moving metal between the COMEX and London OTC markets. However, during periods of market stress, heightened volatility, or constrained liquidity, these spreads can widen dramatically.
Some of the largest EFP dislocations in history occurred during the COVID-19 pandemic and again during periods of tariff uncertainty, when concerns over supply chain disruptions, transportation bottlenecks, and the potential movement of physical bullion into the United States caused COMEX gold and silver futures to trade at unusually large premiums to London spot prices. These episodes demonstrated how quickly structural imbalances can develop when the normal flow of bullion between global markets is disrupted.
A significant widening of the EFP, particularly when gold premiums reached $50 to $55 per ounce or when silver EFPs traded at unusually elevated levels, often indicates that liquidity between the COMEX futures market and the London OTC market has deteriorated. As fewer market participants are willing or able to facilitate large EFP transactions, COMEX futures can trade at increasingly large premiums to London spot prices. Strong speculative buying on COMEX can further amplify these premiums.
A persistently wide gold or silver EFP, especially when accompanied by declining aggregate open interest and subdued trading volumes despite rising prices, can provide valuable insight into changing market structure. Rather than simply reflecting bullish sentiment, it may signal tighter liquidity, reduced arbitrage activity, constraints in moving physical bullion, or changing positioning by institutional market participants.
Because EFPs sit at the intersection of the futures and physical markets, they are among the most important indicators for understanding the health and efficiency of the global bullion market. Monitoring both gold and silver EFPs helps investors identify periods of market stress, evaluate liquidity conditions, and better understand the relationship between the COMEX futures market and the London OTC market. For sophisticated investors, EFPs offer a unique window into structural market dynamics that are often invisible when looking at price alone.