Despite the recent swoon in precious metals prices, it seems there's still a dearth of physical gold and silver available for retail investors. Those lucky enough to actually acquire bullion or coins in their local markets complain about paying inflated premiums. Meanwhile, warehouse stocks of gold and silver seem plentiful.

A lot of theories abound for this seeming anomaly. But let's be realistic. There's always been a difference between the retail and wholesale markets for metal. Most of the world's bullion supply is in commercial-sized bars, after all. It's called a wholesale market for a reason. Goods are sold in whole lots, not in bite-sized retail dollops. There are natural economies of scale when you deal in commercial trade. Anybody who's gone grocery shopping should know this: Smaller size equals higher costs per unit.

If you're a coin lover, you should also know that the U.S. Mint can't turn on a, um, dime, to produce Gold Eagles. A 100-ounce bar of gold bullion, while highly refined, is crude in comparison with a highly manufactured bullion coin. Coin production runs are, of necessity, limited. U.S. gold coins are only minted in one location after long lead times in which dies are cut and vendors contracted to produce alloyed blanks to tight specifications.

Commercial dealings in bullion often involve just the shuffling of certificates or movement of bars from one vault shelf to another.

So, is there a way to obtain the efficiencies of the wholesale market while acquiring retail-sized lots of precious metals?

Well, yes. It's called the futures market.

Most futures contracts call for the physical delivery of the underlying commodity through exchange-approved warehouses. Purchasers of these contracts undertake obligations to take the goods if they hold their positions into the delivery month.

Understand that deliveries are not commonly made through futures, though. Historically, only 2% to 3% of futures contracts are settled this way. Commercials, by and large, close out futures by offset and make or take delivery through the cash market. Nonetheless, the mechanism for exchanging futures for physicals is well-established and well-regulated. You only need look at an exchange's rulebook to get a sense of that.

If you're considering futures for delivery of precious metals, you're probably thinking about the COMEX division of the New York Mercantile Exchange (now part of CME Group, the parent of the Chicago Mercantile Exchange and the Chicago Board of Trade). COMEX contracts, however, are hardly retail-sized. Gold is traded in lots of 100 troy ounces, which, at current prices, would mean a capital commitment of $75,000 or so. You'd have to shell out about $44,000 to take delivery of a COMEX 5,000-ounce silver contract now. Those allocations could clearly overwhelm many portfolios. There's an alternative, though, that can shave the cost of metals exposure considerably.

Welcome to the NYSE Liffe.

Mini Futures

In the process of transforming itself into a multiplatform trading bourse, the venerable gray lady of Broad and Wall Streets acquired the metals futures business from the Chicago Board of Trade.

For our purposes, the key acquisitions were the "mini" contracts that call for delivery of a kilo (33.2 troy ounces) of gold and 1,000 ounces of silver. These small contracts allow you to take delivery of gold in $24,000 lots now, while silver can be delivered for less than $9,000.

To get your gold or silver through NYSE Liffe, you first need to open a commodities trading account with a futures commission merchant or an introducing broker and buy a futures contract. You can't use your securities account, so you may have to find a new broker if your current financial advisor isn't registered to deal in commodities. You can locate a broker in your locality through the CME Group's Find-A-Broker site at www.cmegroup.com/cmegroup/education/find-a-broker/.

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