Gold: Recent Delivery Month
Gold deliveries in January have reached 6,327 contracts with only 178 remaining in open interest. While this fell shy of the last 5 minor months, there are a few signs that are noteworthy. First, delivery volume was greater than last January. This is important because January is typically a slow month after the major December contract.
Figure: 1 Recent like-month delivery volume
The second point of interest is that gold entered the January contract on a very weak note (shown by green bar below). It has been catapulted higher by contracts opening mid-month for immediate delivery (red bars below).
Figure: 2 24-month delivery and first notice
Even more noteworthy is how late the deliveries started. The red line below shows that net new contracts did not pick up until day 8 and then climbed rapidly. In fact, activity typically levels off at this point in the contract, but new contracts continue to be opened for immediate delivery.
Figure: 3 Cumulative Net New Contracts
As noted above, January is usually a low delivery month. However, this January has set an all-time record for dollar delivery volume with more than $1.17B of gold standing for delivery. This is 15% higher than the record set last January and almost 3x higher than the previous record set in Jan 2020.
Figure: 4 Notional Deliveries
Activity in the bank house accounts was fairly muted compared to previous months. They took net delivery of about 30% of the total delivery volume. BofA was a big participant making up 583 of the 1,893 net increase. This was the lightest net activity going back to November 2021.
Figure: 5 House Account Activity
The recent stock report mentioned how the epic drawdown seen in 2022 had slowed. Since then, momentum has picked back up in gold, seeing 3 consecutive days of outflows exceeding 160k. The restock in December has been completely wiped out.
Figure: 6 Recent Monthly Stock Change
Gold: Next Delivery Month
Jumping ahead to February shows strength. February is a major month and it’s currently at the higher range of recent contracts with 4 days to go.
Figure: 7 Open Interest Countdown
When looked at on a percentage basis relative to Registered, February looks even stronger. It is well above where all other contracts were at a similar point and sits at 133% of all Registered metal. Contracts will continue to roll, so gold will not have its platinum moment yet. But that day looks to be coming!
Figure: 8 Countdown Percent
Major month delivery volume has slowed some but remains at historically high levels.
Figure: 9 Historical Deliveries
The market remains in strong contango with the highest spreads seen since at least summer 2021.
Figure: 10 Futures Spreads
The spread in the cash market is dropping as contract expiration nears, but it will spike back up once February rolls.
Figure: 11 Spot vs Futures
Silver: Recent Delivery Month
Silver delivery volume did see its largest minor month since August, but is still relatively quiet compared to the activity seen in 2021. This may be because there is simply not much metal to deliver!
Figure: 12 Recent like-month delivery volume
Net new contracts (red bar) is very low compared to recent history.
Figure: 13 24-month delivery and first notice
This can be seen further in the chart below where there was a large cash settlement when the contract started and then very modest net new activity throughout the delivery period.
Figure: 14 Cumulative Net New Contracts
The bank house accounts are quiet this month after a very busy December. BofA has started the process of restocking the inventory they delivered in September, but progress is quite limited. In September, they delivered 5,013 contracts to hold up the market. Since then, they have only restocked 1,006 ounces (~20%).
Figure: 15 House Account Activity
Unlike gold, this January was not a record in silver. It came in behind 2021, 2022, and even 2014.
Figure: 16 Notional Deliveries
Perhaps the most interesting data point is the inventory report. Registered metal has completely flat-lined for the last two weeks. No metal in or out. Why? This runs counter to everything that has happened over the last year plus that has seen major activity in Registered.
I have a theory that a lot of Registered is optics. It’s not really available for withdrawal. My theory is the floor of registered is not 0, but somewhere higher where the market starts to break. In platinum, this level was 130k. In silver, that level appears to be 33M ounces. It will be interesting to see how this plays out over the coming weeks.
Figure: 17 Recent Monthly Stock Change
Silver: Next Delivery Month
February silver is another minor month and is not yet showing much strength. There was a pickup in recent days, but nothing of note. Total open interest is still below 500.
Figure: 18 Open Interest Countdown
When viewed as a percentage of registered, we are barely above 5%. This pales in comparison to the strength seen in the January contract that was coming into the close at a record level.
Figure: 19 Countdown Percent
The silver spot market has stayed out of backwardation for a few weeks now.
Figure: 20 Spot vs Futures
February is a major month in gold and current open interest suggests it could be a strong delivery month. This is a promising sign after December delivery volume underwhelmed and January started weak.
Silver is a bit more complicated. Activity is muted, but the enormous drop in Registered cannot be ignored. Combined with the fact that it has completely flat-lined in the last two weeks implies that the market is under much more pressure than what the current price suggests.
The physical market remains under stress. Best to get bullion while you can!
Figure: 21 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Jan 24, 2023
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