Did Someone Call the Comex Bluff?

The CME Comex is the Exchange where futures are traded for gold, silver, and other commodities. The CME also allows futures buyers to turn their contracts into physical metal through delivery. You can find more detail on the CME here (e.g., vault types, major/minor months, delivery explanation, historical data, etc.).

The data below looks at contract delivery where the ownership of physical metal changes hands within CME vaults. It also shows data that details the movement of metal in and out of CME vaults. It is very possible that if there is a run on the dollar, and a flight into gold, this is the data that will show early warning signs.

Gold

The Comex has seen unprecedented delivery volume in gold since the election as highlighted in previous articles. This has been driven by an arbitrage between the spot and futures market. This can be seen in the chart below. It has normalized some, but is still showing erratic behavior.

Figure: 1 Spot vs Futures

The chart below shows the total delivery volume for major months in gold. As can be seen, April had the second highest delivery volume on record, clocking in at 64,514 contracts delivered, equivalent to $21.3B!

Figure: 2 Recent like-month delivery volume

There was something particularly wild about April. The chart below shows a few metrics:

• The contracts outstanding the day before delivery starts (blue)
• The contracts on delivery day (green)

• • This is usually a big step down from the day before as contracts roll
  • This number is the sum of contracts open + delivered on day 1 to show what the outstanding amount was on day 1 of delivery

• Net new contracts opened during the month for immediate delivery (red)
• Delivered contracts (orange)

As highlighted above, you typically see a big drop in contracts from the day before to the day of, presented by the blue and green bars respectively. This month the opposite happened! On the final day, someone took on a huge position. The next day, they then settled these without delivery. This is represented by the negative red bar as the contracts were cash settled rather than delivered.

Figure: 3 24-month delivery and first notice

This activity can also be seen below. A huge number of contracts came into the first delivery day but then cash settled.

Why? What happened? Is it possible someone was smelling blood in the water and wanted to test the Comex? Did someone get incentivized to cash settle since there might not have been enough physical gold to satisfy demand? If so, I bet they got paid a big premium to do cash settle.

Unfortunately, the data can only tell us so much. We can conclude that something happened behind the scenes in a way that has never happened before. The pressure continues to build!

Figure: 4 Cumulative Net New Contracts

Even with the large cash settlement, we then saw over 10k contracts open for immediate delivery (upward slop the in the red line above). This would have ranked second all-time behind only the large amount from February ~17k contracts.

Switching to physical inventories….

Inventory levels have actually dropped since the beginning of April. This could be tied to the event from above. Maybe someone was promised some gold and some cash for cash settling. That suspected investor(s) apparently pulled the physical right out of the vault.

Figure: 5 Inventory Data

Once gold and silver were announced to be excluded from tariffs, people started suggesting that the arbitrage would collapse and movement of gold from London to the US would be halted. While inventory levels have stabilized and even dropped some, demand for futures and physical delivery is not slowing. First, as shown above, April was a huge month. As we approach May, we are seeing an increase of demand into the delivery period. See chart below.

Figure: 6 Open Interest Countdown

With the massive surge in inventory the open interest relative to physical stocks is not as massive as the raw number.

Figure: 7 Open Interest Countdown Percent

Silver

Silver is a minor month in April. While delivery volume was elevated (second only to February), it was a big step down from where it was in April.

Figure: 8 Recent like-month delivery volume

A similar situation took hold in silver with the large cash settlement (albeit on a smaller scale).

Figure: 9 Cumulative Net New Contracts

Silver inventories have continued to increase unlike gold which has leveled off.

Figure: 10 Inventory Data

Registered silver is also seeing a massive increase.

Figure: 11 Inventory Data

As we approach April, the silver contract is right in line with recent trends.

Figure: 12 Open Interest Countdown

On a relative basis, open interest is actually quite low because of how much the Comex has restocked silver inventories.

Figure: 13 Open Interest Countdown Percent

Conclusion

The data continues to show that there is a lot of movement going on behind the scenes in the gold market. The price of gold has reflected this, hitting new all-time highs multiple times in April before seeing some profit taking.

This is not your ordinary gold market. The market is under pressure and there are a lot of people fighting over limited supply of physical gold. The tariff exclusion did not seem to slow the demand of physical.

It may take several more months for all this to play out, but one thing is for sure… the fireworks are not slowing. The Comex data is sending up loud signals. Physical gold is in demand. Do you have enough?