December gold is having the weakest major delivery month since February. This is surprising given the recent strength in gold and considering that last December saw quite a large number of contracts deliver (36k). I commented on this a few weeks ago, suggesting that the lower volume was a result of thinner supplies. I think the silver shortage is well underway and it is just starting in gold. This is why gold is showing signs that silver showed 6-12 months ago.
The drainage of silver from Comex vaults since the start of the year has been nothing short of spectacular.
This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.
Before digging into history, let’s look at the recent data. The latest seasonally adjusted inflation rate for November came in at 0.08%. The YoY rate was 7.17%, below median forecast of 7.3%.
The Federal Government ran a deficit of $249 billion in November. This is the highest monthly deficit since July 2021 if you ignore the one-time student loan forgiveness-driven deficit in September.
The October Trade Deficit increased for the second month in a row to $78.2B. The Deficit had been getting help from exports out of the Strategic Petroleum Reserve, but the pull from the SPR has slowed in recent weeks.
The Treasury added $175B in new debt during November, hitting the debt ceiling of $31.4T. New debt issuance was focused on the short end of the curve with $145B in Treasury Bills issued.
While demand for physical gold and silver have been robust, managed money has dominated the market. So, is it buying this bull market?
Please note: the CoTs report was published 12/02/2022 for the period ending 11/29/2022. “Managed Money” and “Hedge Funds” are used interchangeably.
The Fed has a targeted balance sheet reduction of $95B a month. Up until this point, the Fed had failed to reach its target almost every month since QT began.
In the latest month, the Fed made up for their recent shortfall with a big balance sheet reduction of $139B, exceeding their target by 50%! Despite the larger-than-expected reduction, the Fed still missed its target on Mortgage Backed Securities (MBS).
According to the BLS, the economy added 263k jobs in November with a modest revision up in October from 261k to 284k but a revision down in September from 365k to 269k. October was a beat against median expectations of 200k. The employment rate (black line) stayed flat at 3.7% while the labor force participation ticked down from 62.2% to 62.1% This is the weakest labor force participation since December of last year.
While the data this month looks weak, I think there is more to the story. My hypothesis is speculative in nature, so I will save it for the end after going through the data.
