The Precious Edge: Metals, Markets and Trading Dynamics

Join industry experts Jin Hennig and Andrew Wilkinson as they explore the vital role of precious metals in global markets. Get insider insights on trading strategies, market trends, and the forces driving demand for gold, silver, and other metals shaping the future of finance.

Summary – IBKR Podcasts Ep. 199

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this week’s edition from Interactive Brokers. Joining me to discuss Global Metals and Futures Market is Jin Hennig. Welcome, Jin. 

Jin Hennig 

Thank you for having me. 

Andrew Wilkinson 

Jin serves as the Chicago Mercantile Exchange Group’s Managing Director and Global Head of Metals Products. Jin, why don’t you start with just giving us an overview of the metals markets at the CME Group? 

Jin Hennig 

Sure. CME Group is the destination for global metals risk management. So we provide deep and liquid global benchmark futures and options product. We have a very long, you know, served as premier marketplace for trading precious metals, but also growing fast in our industrial metals, including base, ferrous and battery metals as well.  

It’s indeed a very interesting time for metals as we are seeing a lot of demand for our products in this environment. We got interest rate uncertainties, recession risk, a sluggish slowdown economy out of China, you know, ongoing inflation concerns. Geopolitics all play very much of a key factor within the metals portfolio. 

And these factors are reflected in our markets with increasing volume because that is really very much correlated to how are we growing our liquidity for our market participants.  

Andrew Wilkinson 

I was going to say, you just talked about precious, base and ferrous metals there. Can you talk about their different applications? 

Jin Hennig 

Sure. So, precious metals is, as we know, gold, silver, platinum, and palladium, so PGM group. So they are very much of the, you know, what you think of the jewelries and other things, but also gold for a very long time being sort of used as a semi currency and very much in place of Monetary Policy and used as a financial product. 

And then you’ve got the base metals, which is aluminum, copper would fit under that. And it’s a very much of industrial usage of what you think of typical, you know, building buildings, the pipes, the electricity, et cetera, goes into under that. The ferrous is anything to do with iron in it.  

And we have a product such as the steel scrap, iron ore, would fall under that category. And then you’ve got battery metals, which is sort of the newest group of metals that are really booming now is that any application that goes into manufacturing batteries, so a good example behind that would be cobalt and lithium products which we have seen a great amount of growth so far. 

Andrew Wilkinson 

So are you able to tell or distinguish between what retail traders are trading on the metals side and that differs from the volume flow from commercial traders? 

Jin Hennig 

I mean, different market participants have different market needs, right? So as we have healthy mix of participation across all client segments. Traditional hedgers like our commercial clients typically utilize our markets to protect them from adverse price movement, or they have a structural long-term agreement referencing our pricing that just needs to be hedged. 

So there is that.  

So our retail clients are sophisticated active traders and we tend to see retail interest gain exposure to different assets and activity tends to be correlated when those commodities are high in demand. 

So for example, we are seeing record levels of interest in our micro gold contract, which is one tenth of the size of our flagship, which is our flagship contract’s a $100.00/ounce contract, as the gold prices hit record highs. In fact, last week it hit another record high in prices. So commodities have always attracted high level of interest in general. 

As a part of the diversification portfolio, an opportunity to profit from fluctuations in supply and demand. And I would say that gold is one of the top retail products that a lot of market participants have seen and shown interest in.  

And while we do see retail interest in our benchmark gold and silver contracts, our microcontracts have become a highly utilized tool for our individual traders. 

You know, in terms of a microcontract, we offer gold, silver, and copper contracts. And a lot of them tend to be, for example, in gold and copper, one tenth of the size, and silver, in this case, one fifth of the size, and it just helps a broader base of customer access, liquidity, and transparency of our market. 

And the benefit of these micro contracts are it’s a less margin upfront due to the smaller contract size. 

Andrew Wilkinson 

What are the benefits of trading futures and how are they different from ETFs, Jin? 

Jin Hennig 

Futures can be a great investment tool, especially for shorter term investment with better leverage. Our markets provide capital efficiency, deep liquidity, and price transparency. And the benefit of that is that you have this nearly 24-hour round the clock access, which enables you to act and not wait as a major event unfolds. 

And nowadays, those major events tend to be just shorter and shorter in time cycle. Another benefit of our futures are there’s no management fees. ETFs can be charged 50% margins plus broker fees. We do not have that.  

Again, if you’re thinking about some of the tax treatments, we have blended 60 long term, 40 short term tax treatments on any of the gains. 

So that’s another benefit with that. But, you know, just like any other investment vehicle, it’s important for traders to educate themselves before using these futures. And we work very closely with our brokers and FCM partners around the world to educate and support the needs of our retail clients. 

Andrew Wilkinson 

You mentioned the precious metals group earlier. Can you describe what you’ve been seeing specifically in that segment this year?  

Jin Hennig 

So interest rates, inflation, central bank purchasing, and geopolitics have all contributed to a strong year for the precious metals market. Mostly importantly, that “safe haven” appeal for capital during times of financial uncertaintie s, like a global economic environment that we’re in you know, is really calling for that precious metals exposure. 

An analyst that continued this year has noted gold as one of the best performing assets this year, and, you know, reflecting of that, as we just discussed earlier, gold just hit the record price again last week, and this has been, I would say, multiple of many that we’ve seen so far this year, and we are seeing that reflected in our market as our clients seek safe haven appeal of gold and silver with a significant increase in volume and liquidity across all our precious metals contract. 

For example, like our micro contract on the gold side is up 170% year on year through August this year. Our gold options volume is up 127% year on year in August, and micro silver future is up 131% year on year. And silver options up 102% year on year. So it’s a great year for metals. And again, it just is reflective of three-digit interest growth that we’re seeing in our precious metals contracts. 

Andrew Wilkinson 

What about the base metals and then increasingly metals used to produce batteries and anything solar power related? What products are you seeing most actively traded?  

Jin Hennig 

We have been focusing on growing our base metals market for over a decade now, and we are seeing a strong momentum in all areas, and most notably on copper, aluminum, and as you mentioned, the battery.  

And when we talk about this whole thing, we really see what’s on the news quite a bit, is that demand for these materials are expected to increase with energy transition economy in the next decade or so. 

So base futures, for example, in our contract, which includes copper and aluminum, average over 158,000 contracts traded a day, which is up 29% year to date. And copper is definitely leading that way. Another thing to really highlight is the copper options this year has been hitting a record volume at 14,000 contracts. For the very first time, our open interest on copper options surfacing the open interest of our copper futures at over 300,000 contracts.  

Aluminum, on the other hand, also continues to grow with our year-to-date volume at 7,000, which is up 90%. As you mentioned about lithium and cobalt, such as the suite of the battery metals, continues to grow. 

And our top three volume ones for lithium hydroxide occurred over the last three months from June being our record at 453 contracts, and our open interest, which is the aggregated position that goes further out, broke over 30,000 contracts. And then lastly steel, as a ferrous I mentioned earlier, steel makes up second largest underlying physical market, second only to crude oil. 

And we see this as a large opportunity to grow in these markets with the seven consecutive years of record volume. And we offer U.S. HRC Steel Contract, and European HRC Contract, which is hot rope oil, as well as scrap. 

Andrew Wilkinson 

Jin, let’s talk a little bit about growth outside of the United States. It’s come to my attention recently that Mexico and the region has become extremely important. Tell us about the CME Group’s focus on that region and specifically what products are most popular there. 

Jin Hennig 

Sure. I mean, Mexico has a huge amount of industrial metals demand and supply as well. So it’s important as a producing country as well as you know, demand country.  

And one thing to note on metals business overall here at CME Group is metals is one of our most global businesses at CME Group. At any given time, roughly about a half of our businesses come from non- U.S. clients. And, you know, we have been steadily growing our footprint outside of the U.S., as our key focus area for the past decade. And when we look at some of the around the clock access has contributed to more volume, both occurring during non- U.S. hours and originating outside of the U.S.  

For example, this year in 2024, 33% of our gold volume was traded during non-U.S. hours. And roughly about 46% year to date this year gold volume originated outside of the U.S.  

Commodities in general have always attracted strong interest in the region, and that certainly extends to metals when it comes to LATAM and Mexico. And if you look at our business results this year, metals are one of the fastest growing asset classes, not only in Latin America, but specifically in Mexico. And we have a dedicated team in LATAM focused on responding to the regions’ needs and demands, as well as providing more education to the trading community.  

And precious metals have among the top performing products in the region, followed by base metals and ferrous. Year to date, we’re seeing double digit growth in all three LATAM countries, with the total metals volume in LATAM of 44% year to date. And gold, silver, and copper are seeing strong participation level, but other industrial metals are also growing. 

In Mexico specifically, precious metals are most actively traded. Gold, silver, and copper are popular products in Mexico as well, with exceptionally strong year on year growth in all areas, but I also see a lot of potential in industrial metals, given Mexico is one of the major industrial metals producers and users. 

Andrew Wilkinson 

Now Jin, my final question is really in terms of education or progression by an investor. You mentioned that your people who tend to trade futures are a little bit more savvy, sophisticated and they graduate towards the futures complex. What steps should somebody take as an investor wanting to get involved in futures? 

Jin Hennig 

I think the first is to work with the brokers or find a broker so you can work with. There’s a lot of education programs out there, so I highly recommend getting educated about the futures and finding retail brokers that can access our markets. And then I really think that microproducts, we have seen a huge uptick on that, but I think it’s a really great product for retail participants to access our markets because it’s a smaller size in nature of it. So price tends to be cheaper and money that you have to put down tends to be less as well. So I think it’s a really great products to get exposure into the futures market. 

Andrew Wilkinson 

Thank you to my guest, Jin Hennig, who is the CME Group’s Managing Director and Global Head of Metals Products. Thank you for joining me today and don’t forget to rate our recent podcasts wherever you download your podcasts from and look out for more episodes at IBKR Podcasts.  

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