This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
Silver: Recent Delivery Month
Silver is wrapping up April which is a minor-month contract on the Comex. Delivery volume has dropped to the lowest levels in at least a year. The chart below shows that 1,343 contracts have stood for delivery with only 6 remaining in open interest.
Figure: 1 Recent like-month delivery volume
Part of the low delivery volume can be attributed to a smaller than average number of net new contracts. These are the contracts that open mid-month and stand for immediate delivery. Ignoring the anomaly in December where there was cash settlement for contracts, April had the smallest mid-month delivery since September of 2021.
Figure: 2 24-month delivery and first notice
The chart below shows the cumulative direction of net new contracts. While April still has some time left, it seems unlikely it will catch up with more recent months.
Figure: 3 Cumulative Net New Contracts
One of the main drivers for this lack of volume is the absence of Bank of America. For the past three months, BofA has been a major driver of mid-month contracts standing for delivery. BofA is noticeably absent this month for the first time since November.
Figure: 4 House Account Activity
Despite the low volume, this April will still be strong from a historic perspective. It will not top the old April record set last year in the aftermath of the silver squeeze, but it will be the second-largest dollar volume delivery on record for April.
As shown below, April is historically a quiet month; however, delivery so far this year has reached $166M which is almost double the old record of $105M set before 2021. In fact, this year is almost triple the volume of 2020.
Figure: 5 Notional Deliveries
Silver: Next Delivery Month
Jumping ahead to May, which is a major delivery month, shows much lower than average open interest.
Figure: 6 Open Interest Countdown
This is surprising given the recent surge in delivery volume for major months. After bottoming in September, delivery volume had started to rebound. Based on current open interest, it seems unlikely this resurgence will continue.
Figure: 7 Historical Deliveries
Even the Trade at Settlement contract volume has been lower than normal. This is a tactic that could be used to control prices into contract close.
Figure: 8 Trades at Settlement
Spreads have also come back in line. The difference between July and May went into backwardation briefly before bouncing back with contango increasing. This is usually a sign of expected price increases in the future. In recent days, the spread has come back down to normal levels.
Figure: 9 Roll Cost
Gold: Recent Delivery Month
While silver does seem to be losing momentum, the gold market is still showing relative strength. April is a major month in Comex gold contracts and has seen 25,768 contracts stand for delivery with almost 600 contracts still open.
This will make April the second-highest delivery month since last April.
Figure: 10 Recent like-month delivery volume
Another sign of strength was the activity into close. As shown by the difference between the blue and green bar below, April saw one of the smallest drops in open interest on the final day of the contract.
Figure: 11 24-month delivery and first notice
That being said, net new contract delivery is low relative to recent volume. The end of the month has grown very quiet.
Figure: 12 Cumulative Net New Contracts
This is even more surprising when looking at the bank activity. Not only have banks been aggressively restocking gold, but the chart below shows delivery volume for house accounts.
As shown below, banks have pushed net delivery volume in their house accounts to record levels.
Figure: 13 House Account Activity
Looking at April historically shows that this month is very near the delivery volume in 2020. With the remaining open interest, it’s likely this month will exceed the total from 2020 but will come in just under the total from 2021.
Figure: 14 Notional Deliveries
Gold: Next Delivery Month
May was looking historically strong a few weeks ago but has pulled back in recent days. That being said, open interest remains higher than any contract except for March this year. this suggests that the higher delivery volume will continue.
Figure: 15 Open Interest Countdown
As shown below, delivery volume saw a massive surge in March which continued a recent uptrend in off-month delivery volume.
Figure: 16 Historical Deliveries
Looking ahead to June
Open interest for June remains historically high. Only April 2020 and April 2022 had a higher open interest at this point in the contract cycle.
Figure: 17 Open Interest Countdown
One final indication of strength is the spread between June and August. It continues to grow which indicates market participants pricing in higher gold prices in the future.
Figure: 18 Spreads
Precious metal prices took a hit this week in the wake of a “hawkish” Fed. Unfortunately for the Fed, they will find it much easier to talk tough than to actually deliver on their proposed rate hike and QT trajectory. Despite these hawkish comments, gold held up relatively well. Furthermore, the Comex data shows continued strength in the delivery market.
It also appears that banks have decided to forget about silver and focus all their attention on gold. This is an interesting turn of events and may indicate concern in the market. Aggressively restocking gold along with record delivery volume in-house accounts shows that the banks are preparing for something. With spreads in gold continuing to increase, the big money is still clearly bullish on gold.
Short-term pullbacks are healthy in bull markets. Even if there is more downside in the near-term, prices could turn in a hurry when market participants realize the Fed is all bark and no bite. This realization could come as soon as July.
Figure: 19 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Apr 22, 2022
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