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Comex Countdown: What’s Really Going on With Silver?

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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 June which is a minor-month contract on the Comex. Delivery volume was modest, beating out the last minor month (April), but falling behind both Jan and Feb. In terms of OI delivered at the max point in the period (orange dot), June will be the lowest month since last October.

Figure: 1 Recent like-month delivery volume

Much of this is driven by mid-month activity, or the lack thereof. As shown below by the green bar, June went into First Notice quite elevated but has then seen much smaller mid-month activity (red bar).

Figure: 2 24-month delivery and first notice

At this point in the contract, most of the mid-month activity should have taken place. You can see below how much this month is lagging behind prior months (red line below).

Figure: 3 Cumulative Net New Contracts

The house accounts are also noticeably quiet when compared to recent months. BofA took two months off after being extremely aggressive Dec-Mar. They have been nibbling this month, but the remaining house accounts are having their quietest month in either direction since Oct 2020.

Figure: 4 House Account Activity

Silver: Next Delivery Month

Jumping ahead to July (a major month) shows silver way below trend in terms of open interest.

Figure: 5 Open Interest Countdown

The last major month (May) also saw a collapse in delivery volume when compared to December and March.

Figure: 6 Historical Deliveries

When looking at the commitment of traders’ report, interest in silver from Managed Money is at multi-year lows. Total open interest is also near the lowest levels since 2014 if you ignore the flash crash in March 2020.

So, what gives? Has silver been left for dead? Not quite. There have been articles showing that silver could have gone into a technical default earlier this year. The theory states that too much delivery volume overwhelmed actual supplies and off-market deals were done to settle contracts. Since then, the major players have left the market to make it look like the market is dead. No pulse. Nothing to see here.

Looking at a few other data points shows there is more activity going on under the surface. First was the 12 standard deviation event that took place right around the potential default.

Second, the stock report shows that more and more metal is leaving Registered (metal available for delivery). After seeing a major surge in March around the technical default, Registered has seen a steady depletion of metal. More than 22m ounces have been taken out since the peak. Metal is flowing into Eligible which is not available for delivery.

Figure: 7 Recent Monthly Stock Change

Third, the Trade at Settlement activity has been very strong. It has been suggested (and supported with data) that these trades are designed to help keep prices under control and prevent delivery.

Figure: 8 Trades at Settlement – All

It can be hard to see in the chart above, but Trade at Settlement activity this month has reached a new all-time high. This is shown in the chart below which isolates just the surges.

Figure: 9 Trades at Settlement – Isolated

Finally, we can look at spreads. The July/September spread had been sitting at the highest level between two major contracts since 2020. It only very recently dipped back to normal. Higher spreads suggest that the market anticipates higher prices in the future.

Figure: 10 Roll Cost

So, is silver without a pulse? Or is it possible that the supply of silver is much thinner than it looks? With thin supplies, the major players have stepped out hoping to relieve pressure on the market.

Consider a few facts:

    • The house accounts are on the sidelines, but delivery volume in June was still a healthy 1,820 contracts. Not bad for a minor month with minimal house activity
    • Trade at Settlement activity is the highest in at least 2 years and probable ever
    • Metal continues to leave Registered at a rapid pace
    • The market had been in healthy contango up until 2 days ago

Open interest may be at the lowest level in almost 8 years, but a lot of other indicators suggest there is more going on behind the scenes. If the big players are out, and July open interest is still relatively high, then it’s possible there could be a strong delivery volume next week. It’s harder to make off-market deals with a lot of little players, but that could be the exact situation the Comex is facing.

Gold: Recent Delivery Month

The situation in gold is a bit easier to see than silver. The tight trading range and lower volume might suggest a lack of interest, but the other indicators showing strength are a bit more obvious. First, delivery volume was quite healthy, even beating out last June and well ahead of February. It was behind April, but that was peak Ukraine crisis.

Figure: 11 Recent like-month delivery volume

The strong delivery volume exists despite the lack of mid-month activity. Similar to silver, current activity (red line) is well below trend.

Figure: 12 Cumulative Net New Contracts

And this is even with the banks being quite active this month. The net house account activity (excl BofA) is positive by the highest amount ever.

Figure: 13 House Account Activity

The stock report shows that metal has been leaving both Registered and Eligible at a pretty fast pace. Vaults were restocked in March/April but have seen almost all that gold leave the Comex vaults entirely.

Figure: 14 Recent Monthly Stock Change

Looking at the Trade at Settlement volume also shows elevated activity. The market is getting close to seeing the activity for August which will come in early July.

Figure: 15 Trades at Settlement – All

Isolating the data to just the surge days shows that this May is almost double the amount last May. It’s just below March, but the trading activity in July (for August) could set a new record.

Figure: 16 Trades at Settlement – Isolated

Gold: Next Delivery Month

Not every indicator is flashing strength. The open interest into July (a minor month) is drifting lower and does not look to be on pace to set any records.

Figure: 17 Open Interest Countdown

It’s highly unlikely that a repeat of March will happen unless there is a major event (Ukraine/Russia drove the record set 3 months ago). See below for record set in March.

Figure: 18 Historical Deliveries

August is also not very elevated at the moment. On the higher side of average, but below the last few major months (red line below).

Figure: 19 Open Interest Countdown

That being said, the August/October spread is the highest spread seen since at least the start of 2021.

Figure: 20 Spreads

Wrapping up

Okay, lots of data and charts, but what is the real point? In short, don’t get fooled by tight trading ranges that might suggest the market is quiet. It’s not. Gold has held up incredibly well in the face of the most hawkish Fed talk in decades. The economy cannot withstand the hikes and the gold market must know this. The smart money is taking delivery and then removing it from Comex vaults. When the rest of the market wakes up to this reality, physical supplies will end up being much thinner than anyone thinks.

Figure: 21 Annual Deliveries

Data Source: https://www.cmegroup.com/

Data Updated: Nightly around 11 PM Eastern

Last Updated: Jun 23, 2022

Gold and Silver interactive charts and graphs can be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/

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