Are Gold and Silver Approaching a Tipping Point?
Data coming from the COMEX could indicate growing pressure for a breakout in gold and silver.
COMEX data has shown large deviations for several months. Most of this occurred before Russia invaded Ukraine and these deviations have grown larger since. The invasion seems to have accelerated trends that were already in place.
The latest data point showed that the inventory of gold at the banks is now growing at the fastest pace since October 2020. This further confirms pressure building under the surface.
Below is a recap of all that has happened since December. For those unfamiliar with the Comex, this article provides a high-level explanation of the core components. This YouTube video also summarizes the Comex mechanics and details some of the items highlighted below.
- December was the second-largest delivery volume since summer 2020
- December also saw the largest movement out of bank house accounts ever
- January saw the largest delivery volume for a January contract ever by more than double. It was also the largest delivery volume for a minor month since March 2021 and had a substantial volume of contracts open for immediate delivery.
- February saw the largest cash settlement of delivery contracts since 2018
- February also showed Comex vaults losing inventory in 10 of the last 12 months
- March silver had the largest adjustment in data records ever between preliminary and final (at least since data has been captured). It was 50 times larger than average, equating to 28 standard deviations
- The YouTube video linked above also covered the topic in great depth showing it may have been a quiet default on silver
- A recent analysis for March showed:
- March has the largest delivery for a minor month ever and is still not over
- April had seen a pop in open interest to start the roll period
- April also had a widening spread relative to recent history
- May is the highest open interest ever at this point in the contract for May and is also the highest at any point for any minor month in recent memory
- June shows the same trends as May except it’s a major month
- The Comex has been hesitant to raise margin rates
The March analysis concluded with a possible scenario where the price of gold could be allowed to move higher through April and June with potential massive delivery volume. This hypothesis gained more evidence when the Comex stock report showed a rapid and sudden build-up of gold inventory. This analysis has now been picked up by ZeroHedge and Seeking Alpha.
In the immediate future, an analysis of several technical indicators shows potential risks for more short-term downside on the price. Regardless, it is clear that the Comex physical market is under pressure. This data suggests that it’s possible gold and silver could have their own nickel moment at some point in the future. Investors who owned paper nickel contracts saw their trades canceled.
Astute long-term investors should take advantage of current prices and availability to accumulate more physical before a potential market squeeze.