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/... .

Step-By-Step

Fund your account with the full contract value of the nearby NYSE Liffe futures (multiply the current offered price by the number of ounces in the contract, then throw in a few dollars extra to cover fees and commissions; we'll get to those in a moment).

Keep in mind that delivery takes place only in the contract's specified termination month. Taking a position in November futures, for example, entitles you to stand for delivery any time in November. The last trading for an NYSE Liffe contract is the third-to-last business day of the delivery month. November 2008 contracts can be purchased through November 26. October 2008 futures go off the board on October 29.

"Any time" means just that. In futures, it's the seller who controls delivery. You can't demand delivery. The seller initiates the process by tendering a notice of intent to deliver through his or her broker, which is, in turn, passed through to your broker, then to you or someone like you. The smaller the open interest in the expiring contract, the greater the likelihood that you'll be the recipient of a given delivery notice. The day before trading stopped in the October mini gold contract, for example, open interest was down to two contracts; that same day, the open interest in the October mini silver contract had been whittled to only one contract. Stick around with an open long position and you will get assigned.

Once you're assigned the notice, the delivery process begins in earnest. Your account will be first debited for the purchase price based upon the price at which your entered your futures trade. Your brokerage firm will also charge you its normal round-trip futures commission at this point. You may also be charged an additional flat-dollar fee for handling a delivery.

Don't expect metal bars to arrive by FedEx at your doorstep, though. The default form of delivery is by certificate - known as a vault or depository receipt - through your brokerage. The certificate can either be held in your account or delivered to you. This doesn't mean you can't get the physical metal. You certainly can but, for now, let's look at certificate delivery.

The certificate is good for redelivery through futures, so it's liquid and requires minimal transaction charges to transfer. No assay or recertification of the underlying metal is required if it's transferred.

The certificate represents undivided title to a specific bar held in one of four exchange-approved depositories in the New York metropolitan area. The certificate will specify the exact weight at assay (there may be as much as a 10% variance in weight from the contract standard; you'll be invoiced and credited or debited for underweights or overages accordingly). The metal's quality (minimum .995 fineness for gold, .999 for silver) will also be certified, as well as the bar's serial number and hallmark. The exchange approves some five dozen brands of metal as good delivery against its futures contracts.

You may be invoiced, too, for prepaid storage charges. If there's time left on the seller's storage contract, you'll pay the prorated balance (at either $4 or $5 a month, depending upon the depository) from the day after delivery to the end of the outstanding contract.

Physical Delivery

If you'd rather take physical delivery of metal, you'll need to instruct your broker before a certificate is issued. You'll be charged a withdrawal fee ($8 to $10 a bar for mini gold and $15 to $20 a bar for mini silver), plus storage charges through the date of withdrawal, together with transport and insurance charges for a bonded carrier.

Keep in mind that, once metal is removed from an exchange-approved depository, it's not good for delivery without being re-assayed by the exchange's New Jersey-based assayer, Ledoux & Company, or an approved substitute.

We've only presented an overview of the delivery procedure here. Procedures vary from firm to firm. Requests for delivery are more complicated and subject to delay if your account is maintained at an introducing rather than a clearing broker, so make allowances. The commodity firm representatives with whom you deal may have had limited experience handling deliveries as well, so there may be a learning curve on both ends of the telephone.

Be patient and persistent, though, and you'll get your metal.