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Usually people trade futures speculatively, ie. they buy and sell contracts without actually delivering the goods. However, technically the futures are contracts for delivery of a certain amount of goods.
Can't you then simply buy a gold futures contract, then instead of selling it, just hold on to it and then take delivery, thereby acquiring gold at an advantageous price? How difficult is the process for doing this? Who pays for the shipping? Who decides on location of the delivery?
Here's a good link that can answer your question:
How to take delivery of a futures contract
The relevant part states:
Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short positions are informed that they must close out their trades or prepare to deliver the underlying commodity. In this case, they must have the required quantity and quality of the deliverable commodity on hand. On the few occasions that a buyer accepts delivery against his futures contract, he is usually not given the underlying commodity itself (except in the case of financials), but rather a receipt entitling him to fetch the hogs, wheat, or corn from warehouses or distribution points.
Not all futures contracts are deliverable. Some futures are specified as cash settlement only.
In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations. As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts traded on CME, CBOT, NYMEX, and COMEX.
Assuming your agreement with your broker allows you to exercise your right to take delivery, your broker will facilitate your delivery. You will be required to pay the contracted amount (your buy price x contract size x number of lots), as well as a delivery fee, insurance, and warehousing fees. In addition, your broker may charge you a fee for facilitating the delivery. You will be required to continue to pay insurance and warehousing fees so long as your holding of the underlying commodity is held in the exchange's designated warehouse. If you wish to take delivery yourself by having the commodity removed from the warehouse and delivered to you personally, then you will need to arrange this delivery yourself. Warehouse/delivery points obviously vary according the contract being exercised. See the CME Rulebook for available delivery points. Some exchanges are more accommodating than others.
The practicality of taking delivery very much depends on your personal circumstances. An investment bank taking delivery of treasury bonds would be more practical than an individual investor taking delivery of treasury bonds. This is because the individual investor would be required to deliver the bonds to a brokerage in order to sell them. In the case of non-financial futures deliveries, it is hard to imagine any circumstance where an individual taking delivery would be practical.
As mentioned in other answers, you find out by reading the Rulebook for that commodity and exchange. I'll quote a couple of random passages to show how they vary:
For CME (Chicago Mercantile Exchange) Random Length Lumber Futures, the delivery is ornate:
Seller shall give his Notice of Intent to Deliver to the Clearing House prior to 12:00 noon (on any Business Day after termination of trading in the contract month.
20103.D. Seller's Duties If the buyer's designated destination is east of the western boundaries of North Dakota, South Dakota, Nebraska, Kansas, Texas and Oklahoma, and the western boundary of Manitoba, Canada, the seller shall follow the buyer's shipping instructions within seven (7) Business Days after receipt of such instructions. In addition, the seller shall prepay the actual freight charges and bill the buyer, through the Clearing House, the lowest published freight rate for 73-foot railcars from Prince George, British Columbia to the buyer's destination. If the lowest published freight rate from Prince George, British Columbia to buyer's destination is a rate per one hundred pounds, the seller shall bill the buyer on the weight basis of 1,650 pounds per thousand board feet. The term "lowest published freight rate" refers only to the lowest published "general through rate" and not to rates published in any other rate class.
If, however, the buyer’s destination is outside of the aforementioned area, the seller shall follow the same procedures except that the seller shall have the right to change the point of origin and/or originating carrier within 2 Business Days after receipt of buyer’s original shipping instructions. If a change of origin and/or originating carrier is made, the seller shall then follow the buyer's revised instructions within seven (7) Business Days after receipt of such instructions.
If the freight rate to the buyer's destination is not published, the freight charge shall be negotiated between the buyer and seller in accordance with industry practice.
Any additional freight charges resulting from diversion by the buyer in excess of the actual charges for shipment to the destination specified in the shipping instructions submitted to the Clearing House are the responsibility of the buyer. Any reduction in freight charges that may result from a diversion is not subject to billing adjustment through the Clearing House. Any applicable surcharges noted by the rail carrier shall be considered as part of the freight rate and can be billed to the buyer through the CME Clearing House.
If within two (2) Business Days of the receipt of the Notice of Intent the buyer has not designated a destination, or if during that time the buyer and seller fail to agree on a negotiated freight charge, the seller shall treat the destination as Chicago, Illinois. If the buyer does not designate a carrier or routing, the seller shall select same according to normal trade practices. To complete delivery, the seller must deposit with the Clearing House a Delivery Notice, a uniform straight bill of lading (or a copy thereof) and written information specifying grade, a tally of pieces of each length, board feet by sizes and total board feet. The foregoing documents must be received by the Clearing House postmarked within fourteen (14) Business Days of the date of receipt of shipping instructions.
In addition, within one (1) Business Day after acceptance by the railroad, the Clearing House must receive information (via a telephone call, facsimile or electronic transmission) from the seller giving the car number, piece count by length, unit size, total board footage and date of acceptance. The date of acceptance by the railroad is the date of the bill of lading, signed and/or stamped by the originating carrier, except when determined otherwise by the Clearing House.
For some commodities you can't get physical delivery (for instance, Cheese futures won't deliver piles of cheese to your door, for reasons that may be obvious)
6003.A. Final Settlement
There shall be no delivery of cheese in settlement of this contract. All contracts open as of the termination of trading shall be cash settled based upon the USDA monthly weighted average price in the U.S. for cheese. The reported USDA monthly weighted average price for cheese uses both 40 pound cheddar block and 500 pound barrel prices.
CME gold futures will deliver to a licensed depository, so you would have to arrange for delivery from the depository (they'll issue you a warrant), assuming you really want a 100 troy oz. bar of gold:
CONTRACT SPECIFICATIONS
The contract for delivery on futures contracts shall be one hundred (100) troy ounces of gold with a weight tolerance of 5% either higher or lower. Gold delivered under this contract shall assay to a minimum of 995 fineness and must be a brand approved by the Exchange.
Gold meeting all of the following specifications shall be deliverable in satisfaction of futures contract delivery obligations under this rule:
Either one (1) 100 troy ounce bar, or three (3) one (1) kilo bars.
Gold must consist of one or more of the Exchange’s Brand marks, as provided in Chapter 7, current at the date of the delivery of contract.
Each bar of Eligible gold must have the weight, fineness, bar number, and brand mark clearly incised on the bar. The weight may be in troy ounces or grams. If the weight is in grams, it must be converted to troy ounces for documentation purposes by dividing the weight in grams by 31.1035 and rounding to the nearest one hundredth of a troy ounce. All documentation must illustrate the weight in troy ounces.
Each Warrant issued by a Depository shall reference the serial number and name of the Producer of each bar.
Each assay certificate issued by an Assayer shall certify that each bar of gold in the lot assays no less than 995 fineness and weight of each bar and the name of the Producer that produced each bar.
Gold must be delivered to a Depository by a Carrier as follows:
a. directly from a Producer;
b. directly from an Assayer, provided that such gold is accompanied by an assay certificate of such Assayer; or
c. directly from another Depository; provided, that such gold was placed in such other Depository pursuant to paragraphs (a) or (b) above.
