This month, the conclusion is going at the top because it can be hard to read through and interpret all the data. It is sending mixed signals. Delivery volume is slowly drifting lower but some of the underlying data is starting to show large deviations from the mean. Silver saw a lot of contracts wait until the last minute to roll, similar to gold last month. Why?
Because it is profitable to do so! Why is it profitable? Probably because traders are collecting a premium to roll instead of standing for delivery. To be clear, this is pure speculation, but this seems like a game of chicken. Inventory at the Comex is getting thin. The data is available for anyone to see, so traders realize the Comex would not like to see continued delivery volume, but traders also don’t want to take delivery. Traders are not after physical metal or true price discovery; they are looking to trade for a profit. By holding out longer, the Traders put the Comex on edge because the Comex does not have enough metal to meet delivery requests if there was a big month. It’s likely, traders can collect a premium by holding on longer and being incentivized to roll. This really showed up in Palladium this month as well.
Again, this is speculation, but the data supports this thesis. Delivery volume has been falling across all metals, but the open interest into close is seeing relative strength with big rolls on the final day. Arbitrage situations do not last long, so the conclusion of this game should manifest in the months ahead.
Gold: Recent Delivery Month
Gold saw 1,383 deliveries on the first day after First Notice. At the moment, this looks quite underwhelming compared to recent months.
Figure: 1 Recent like-month delivery volume
Interestingly, the open interest was actually higher this month than last month. As has been the trend in minor months, net new contracts have driven much of the volume.
Figure: 2 24-month delivery and first notice
The chart below shows the lead into the close. The data was very average heading in and has finished that way as well.
Figure: 3 Open Interest Countdown
BofA is on the sidelines this month (so far) after their massive delivery requests over the last three months totaling almost 10k ounces.
Figure: 4 House Account Activity
The slower delivery volume has also meant less metal leaving the Comex vaults. Both Eligible and Registered continue to drift lower, but the massive outflows seen in the second half of 2022 have slowed.
Figure: 5 Recent Monthly Stock Change
The chart below shows the net between both Eligible and Registered. The flurry after the February delivery can be seen, but the activity was more muted in the weeks leading up to February.
Figure: 6 Recent Monthly Stock Change
Gold: Next Delivery Month
Looking ahead, gold open interest is well below the previous months at the same time.
Figure: 7 Open Interest Countdown
Looking at it as a percentage of Registered shows it is in the higher range, but below both December and February.
Figure: 8 Countdown Percent
February was a much smaller delivery month than what we have been seeing in the major months recently.
Figure: 9 Historical Deliveries
Despite lower open interest, the spread in the futures market is the highest it has been since at least 2021.
Figure: 10 Spreads
The cash market looks very well controlled, but with spreads getting a bit wider at each roll period.
Figure: 11 Spot vs Futures
Silver: Recent Delivery Month
Similar to gold, silver is also looking quite weak. Even with 1,883 contracts remaining in open interest, March is set to be the lowest month since pre-Covid.
Figure: 12 Recent like-month delivery volume
Silver really started falling a few days ago. It finished at 49% of total Registered, which is still fairly high. For comparison, September was only at 25% of Registered; however, December came in at 68% of Registered.
The chart below further shows the day before First Notice (blue bar) and then right after (green bar). You may notice quite a large drop in the final day to roll. This has become a theme lately as mentioned in the intro.
Figure: 14 24-month delivery and first notice
The chart below shows the drop on a relative basis. This month was a drop of almost 60% on the last day. December was only 36%, September was 22% and July was 52%. This was the biggest drop into the close since July 2021. This represents a lot of contracts holding up until the last day.
Figure: 15 Drop into Close
Why are contract holders waiting so long to roll their contracts forward? It’s likely because there is a game of chicken going on right now. Holders know there is a lot less metal available than there used to be. If they stand for delivery, it could expose the weakness and lack of supply in the system. Holders are likely being incentivized to roll.
BofA was back in the market for a fourth month in a row accumulating silver. They are clearly still recovering from backstopping the market in September. In Dec 2021 when they also backstopped but were able to restock in the following months. Restocking this time around has proven much more difficult.
Figure: 16 House Account Activity
Someone was definitely ready to take ownership of metal this month. Registered saw its largest daily inflow since March of 2022, and surpassed all days in 2021. Over 3.3M ounces flooded into silver Registered yesterday, or 660 contracts worth of silver. While delivery volume and open interest fall, the actual movement at the vault clearly indicates something more is going on under the surface.
Figure: 17 Recent Monthly Stock Change
Silver: Next Delivery Month
April silver is a minor month and starting weak/below trend.
Figure: 18 Open Interest Countdown
On a relative basis, this month is also well below average.
Figure: 19 Countdown Percent
Delivery volume has clearly dropped off in the last several months compared to where it was last year.
Figure: 20 Historical Deliveries
The spot market has jumped back up out of backwardation with the contract roll.
Figure: 21 Spot vs Futures
Finally, we turn to Palladium which was rather disappointing after looking like it had some major potential.
Figure: 22 Platinum Delivery Volume
The dive into close is simply astonishing. OI actually saw an uptick with 7 days to go before being brought lower rapidly. Palladium has been relentlessly crushed for over a year, down 45% since last February. The market is very small and thin relative to silver and gold, but seeing the action below is still quite surprising. Similar to silver, holders are waiting longer to roll.
Figure: 23 Platinum Countdown Percent
Palladium is still not seeing a major exodus in the vaults like the other metals (yet).
Figure: 24 Platinum Inventory
See first paragraph
Figure: 25 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Feb 27, 2023
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