This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
As reported last week, Comex May’s open interest activity was looking weak in silver while gold showed a mixed picture. May has been weak so far, but June continues to look strong.
Silver: Recent Delivery Month
Silver has begun May very weak. Assuming the remaining open interest of 2,942 contracts are all delivered, this would be the weakest month since September last year. It would be the second weakest major month since March 2020.
Figure: 1 Recent like-month delivery volume
The chart below shows that the day before First Position, the open interest for May was the lowest back to May 2020. One thing to note is that the drop into the close (difference between blue and green bars) was also relatively minor compared to recent months.
Figure: 2 24-month delivery and first notice
Net new contracts are currently negative indicating that some contracts have cash settled since First Position. This is not atypical for major months as shown below.
Figure: 3 Cumulative Net New Contracts
Looking at the bank house accounts shows that Bank of America has stepped away from the market. This was clearly driving volume Jan-Mar as they looked to recoup the losses in December. In December BofA delivered a net 4,114 contracts. From Jan-Mar they received delivery of 5,006 contracts.
The remaining house accounts in aggregate continue to deliver metal to customer accounts. Their last net positive delivery month exceeding 1,000 contracts was in September 2020 for 1,399 contracts.
Figure: 4 House Account Activity
Isolating the month of May over the past several years shows how this May is very modest so far. If the remaining contracts deliver, then this could challenge May 2020 as the second biggest May on record. It seems improbable at this point that May 2021 will be exceeded without a large volume of contracts opening mid-month. This would be uncharacteristic for a major month.
Figure: 5 Notional Deliveries
Silver: Next Delivery Month
Despite a lackluster May, June is trending strong. As shown below by the red line, it is on pace with June last year at this stage in the contract.
Figure: 6 Open Interest Countdown
Current open interest trails Apr and Oct 2021 and Jan 2022. Jan 2022 and April 2021 were relatively strong delivery months as shown below.
Figure: 7 Historical Deliveries
Gold: Recent Delivery Month
The charts below follow the same order as the silver charts above.
While May gold was looking very strong a few weeks ago, open interest collapsed hard into the close. With 539 contracts currently open, it will most likely exceed last May but will be the weakest month in a year.
Figure: 8 Recent like-month delivery volume
As shown below by the red bar, contracts opened mid-month has been a huge driver of delivery volume in the minor months.
Figure: 9 24-month delivery and first notice
Net-new contracts have started off fairly weak so far in May. Only 268 contracts have been opened for immediate delivery. For comparison, the last minor contract of March had seen 784 contracts at the same point in the contract.
Figure: 10 Cumulative Net New Contracts
The house account activity is quiet so far, but still positive. Excluding BofA, April was the first net-positive delivery month for house accounts since June 2021. Including BofA, it was the largest net positive month going back until at least Jan 2018.
Why are the banks restocking? Why did BofA all of a sudden go quiet after being very active in the preceding 4 months? BofA had more than restocked their December losses by mid-Feb but continued to take delivery through March.
Figure: 11 House Account Activity
Looking at May historically shows that it’s typically a slow month in gold. June and December are always the biggest months of the year which generally leaves May and November forgotten. Once the remaining open interest is delivered, this May will likely be the second largest May on record, trailing only 2021.
Figure: 12 Notional Deliveries
Gold: Next Delivery Month
June gold is looking very strong. It sits just under April 2022 as it prepares to begin rolling. Open interest sits above every other major month going back to at least August 2020.
Figure: 13 Open Interest Countdown
As the chart below shows, April was a strong month relative to recent history. For June to be on par with April is a good sign.
Figure: 14 Historical Deliveries
Cost to Roll
Another good sign is that gold remains in contango, indicating traders anticipate higher prices in the future. Contango has not been this high since 2020 when the gold market was seeing unprecedented delivery volume.
Figure: 15 Roll Cost
Gold and silver have both been under serious pressure lately in the lead-up to the Fed meeting. The delivery strength seen earlier this year has faded some and May has so far been one of the quietest months in a year. That being said, the activity from house accounts combined with the strength in the June contract for both metals shows the story is not over.
Furthermore, increasing contango for gold indicates that higher prices are expected later this year. Precious metals have been selling on the rumors of an aggressive Fed. The selling pressure will likely abate once the rumor becomes fact tomorrow. Likely, they will then get a boost as the market realized the Fed cannot be nearly as aggressive as they say they can.
The underlying data shows that the current sell-off looks more like a correction to shake out weak hands rather than a more structural pullback. Of course, things can always change. That’s why it helps to look at the underlying data. Additionally, as Peter Schiff continues to state in his podcasts, the fundamentals for the stock market look horrible while the fundamentals for precious metals show deep value.
Figure: 16 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: May 02, 2022
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