Dec 112015

Back in July I pondered what happened to 110 tonnes of gold in one of the Hong Kong gold warehouses registered by CME for its kilo futures contract. The chart below updates the figures and shows that wherever the gold went, its is gone for good.


Note that the straight line marked (1) is just an extrapolation between the last figure reported in the CME’s submission and the first figure reported on CME’s warehouse stocks report (see previous post for an explanation) and is not reflective of the actual movements during this “blackout” period.

The Malca-Amit warehouse dropped down to one tonne when the contract started trading and has only increased to 1.148 tonnes since. The Loomis warehouse I haven’t shown as there was no history reported by CME and it is only held around half a tonne since it came online mid this year.

All the action in Hong Kong is in the Brink’s warehouse, which appears to average 1 million ounces (or 31,103 kg). However, this has no relation to the volume that is being put through the CME kilobar contract.


As the chart above shows, the average daily volume is about 300 contracts and open interest at say 30 contracts (30 kg). In terms of an Owners per Ounce metric the contract is running at 0.001, or to put it another way, there is 1 tonne of gold “backing” each contract. Those that get worked up about Comex “leverage” ratios should be interested in the fact that the Hong Kong warehouse report only shows eligible stocks and has never shown any registered, which probably has something to do with the fact that the delivery notice report shows no issues/stops for the kilo contract so far this year. Forget your 300:1 Comex “leverage” – that would put the OI/Registered Stocks ratio as divide by zero error, or in other words, the CME’s Hong Kong contract has infinite leverage!

While the CME Hong Kong kilo contract is basically dead (even though they have 12 firms on their Market Maker Program), the Brink’s warehouse is far from morbid. This chart from Nick at Sharelynx shows that there has been over 840 tonnes of gold withdrawn (and pretty much that much received in) since the futures contract started trading.


Obviously this activity has nothing to do with the kilo contract and must be related to other over-the-counter (OTC) trading. For example, company A has gold with Brink’s and does a private sale to company B, the trade is settled between the two banks by their settlement departments, and then company B then instructs Brink’s to ship it out, at which point Brink’s reports that to CME as a withdrawal. These movements are only now visible to the market because the gold in the Brink’s warehouse is in the form of kilobars, which are eligible for the contract, and therefore have to be reported even if they have nothing to do with futures trading.

So even though the CME kilo contract doesn’t seem to be getting any traction, we can at least thank them for doing it because it now gives us visibility into the Hong Kong gold trade. One part of that trade that can be shown from the warehouse stocks data is the inventory build up prior to the Chinese New Year. The chart below shows the warehouse stocks in Brink’s leading up to Chinese New Year, indexed to 100 so they are easily comparable between each year.


The data is a bit chunky as CME only reported monthly average historical stocks in its submission, but it is clear that there is generally an inventory build two to three months before the new year. So far for this year, leading to the 2016 new year, we see the stock build up and now it is being worked down as metal gets delivered to jewellery firms for production into finished pieces.

Just one final observation. As per CME storage fees note, Brink’s charges $6.50 per contract per month, which works out at around 0.22% per annum storage rate. Malca-Amit only charges 46% less at $3.50 a month, but that hasn’t got them any business. By my estimation, Brink’s has earned over $13 million in storage fees since January 2011, and $2.3 million so far for 2015 – a lot of money Malca-Amit and Loomis are missing out on.

  • That Other Guy

    If anyone was after 999/loco Hong Kong, then this would be a prime candidate for EFP settlement on the main COMEX contract

    The attraction of having it in Brinks/COMEX is that, once its inside the Chain of Provenance, there is no doubt about its quality and origin