Jul 062015

A reader asked for some information on Comex warehouse stocks, open interest and deliveries, which is timely as for gold we are currently in a very unusual phase historically. First, warehouse stocks (all charts from Nick at Sharelynx.com).

comex stock

Over the past two years we have seen inventories building but the standout feature is the reduction in registered stocks, both in ounces and as a percentage of total stocks for gold. When we divide open interest by registered stocks the unusual nature becomes more clear.

comex opo

For gold, ignoring the temporary spikes, we are at historically high owners per ounce, or if you want to convert the 85.455 into a percentage, only 1.2% of open interest is covered by gold in the warehouses. For silver we are at elevated levels, but nothing as dramatic.

As gold’s open interest has been relatively stable over the past few years at around 40 million ounces the decline in “coverage” is entirely due to the drop in registered stocks. For silver, open interest has increased from 500 million ounces at the beginning of 2012 to close to 1000 million today but registered stocks have also almost doubled over that time to 60 million ounces, hence we don’t see much change in silver’s “coverage” ratio.

When gold first moved into these very high owners per ounce figures there was a lot of chatter about the potential or certainty of failed settlement and Comex default. At the time, I noted that such commentary was ignoring eligible inventory and the fact that such inventory can be converted to registered relatively quickly. After two years of low coverage rates and no Comex default, one would have to consider eligible to be relevant and when you look at owners per ounce for total warehouse stocks, you get a very different picture.

comex opo.eligpng

The chart shows that owners per ounce for gold has been stable between 4-6 and is currently 4.9, or a coverage ratio of 20.5%.

Another thing that has to be considered when looking at Comex warehouse stocks is the actual percentage that stand for delivery. The charts below show cumulative deliveries made each month versus open interest.

comex deliveries

For gold we can see that it used to range between 2-4% taking delivery but in mid 2013 around when registered inventory declined, we can see that the delivery rate does not exceed 2% and is historically quite low.

So even if you want to ignore total stocks of 9.1 million ounces versus 44.6 million ounces of open interest and just focus on 0.522 million ounces of registered stock versus the 44.6, that coverage ratio of 1.2% is well within current delivery rates, with plenty of metal in eligible stocks potentially available.

I would note that the decline in registered gold stocks and delivery rates occurred soon after gold’s dramatic crash through $1550 and into the 1300s, and the stocks and rates have stayed low since then during the subsequent weak/sideways gold price phase we are currently in. A reflection of lacklustre western investor interest in gold? However, I note that eligible inventories have increased from 6 million ounces at the time of that price drop to 8.5 million ounces today, and such accumulation has usually been considered an indicator of positive western investor sentiment to gold.

I don’t have an answer at this stage as I hadn’t noticed this discrepancy until delving into the figures for this post but it is another sign of the exceptional state of the current gold and silver markets, which in my opinion hasn’t been this pessimistic since 1999 when gold was pushing $250. If ever there was a contrarian trade …

  • JanNieuwenhuijs

    I’ve been told by the Spanish Inquisition (this gentleman http://disq.us/8nvog0 …) that eligible inventory can be settled much more rapidly through EFP. No need to “deliver” registered stock, which takes ages to get out of the warehouse.

    • The_Spanish_Inquisition

      I stand by that view, Koos: there is absolutely no way of knowing what is happening within the Eligible inventory if settlements are occurring via EFP

      To recap:

      1. Eligible and Registered relate to warehouse inventory, not to Ownership or to Customer/House or “Dealer”. Consider the case of Brinks (which has a proportionately large Registered inventory), but no own-account trading or market-making activity

      2. The Daily Settlement reports relate to Exchange Members, and not warehouses: you will never find an entry for Brinks in these reports, because in this particular instance Brinks has no “customers”, because it is not a Clearing Member, just a warehouse.

      3. The COT and Open Interest reports are once again entirely opaque, and independent of the Inventory and Settlement reports; they are also to some extent anonymised (although it is possible to get a general estimate of who is doing what via a combined analysis of all 3).

      Whether this paucity of information is a deliberate ploy I cannot say: however, on its own, it shows no “smoking gun” evidence of either settlement shortfalls or of manipulation. What I can say with great confidence is that those commentators who would have you believe that “Registered” = “Dealer”, “Eligible” = “Customer” and that only Registered is available to settle open positions are charlatans intent on creating a misleading impression.

      • JanNieuwenhuijs

        I assume with “settlement” you mean “delivery”? Then everybody should understand what you just wrote. Thanks for your comprehensive explanation.

        • The_Spanish_Inquisition


          I won’t bore you with the reason for using “settle” and if “deliver” helps make things clearer, then that’s a good thing

      • http://goldchat.blogspot.com/ Bron Suchecki

        Some additional charts and detail from Nick that you may find useful to your question on the other post http://www.sharelynx.com/newsblog/index.php?post/2015/07/02/COMEX-Trading-From-Physical-to-Paper.

    • http://goldchat.blogspot.com/ Bron Suchecki

      Just to be clear, “delivery” in terms of Comex means electronic warrant change in title (ie settlement of the contract) and does not mean anything was physically delivered out of the Comex warehouses.

  • costata001

    Opaque like the rest of the gold market. “Nothing to see here, move along!”

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