Comex April Countdown: Silver Pops Higher with Gold Trending Strong
The big action in silver occurred early in the month, making March a pretty large outlier. First, it continues the recent trend of increasing deliveries. Second, deliveries were 8.7% of the max open interest for the month. This is the highest percentage since July 2020 when prices took off. There are still 24 open interest contracts remaining.
Silver Current Delivery Month
Figure: 1 Recent like-month delivery volume
In terms of net new contracts, the latest month has actually surpassed the figure from September 2019 and stands well above any recent month.
Figure: 2 24-month delivery and first notice
Looking at the cumulative value shows the big spike up earlier in the month. Even though the trend flattened, there were still steady increases in contracts opened mid-month.
Figure: 3 Cumulative Net New Contracts
The appetite within the BofA house account took more than the combined outflow of all the other house accounts. BofA continued to increase deliveries throughout the month, having another 200+ deliveries since the mid-month report.
Figure: 4 House Account Activity
This March was unable to take out the March last year, but that should come as no surprise because that was when the market fell under intense pressure from the Reddit squeeze. Coming so close to last year shows the market is seeing strong physical demand even without the focused retail attention.
Figure: 5 Notional Deliveries
Silver: Next Delivery Month
The April contract has finally come to life in the final days, jumping upwards by more than 300 contracts.
Figure: 6 Open Interest Countdown
The spike up mirrors what was seen right before the February contract rolled. As shown in the chart below, February was a decently strong month given that it fell between another minor month and the major month of March.
Most impressive about February was that deliveries represented 232.4% of max open interest for the month. Could April have a similar mid-month surge that has become normal place recently?
Figure: 7 Historical Deliveries
Gold: Recent Delivery Month
Gold continues to show trend deviations. The largest minor month on record has continued to increase in recent days. It sits well above any minor month and exceeded Nov 2020 by more than 600 contracts.
Figure: 8 Recent like-month delivery volume
The chart below shows the day before First Position (blue bar) and then the day of First Position (green bar). As shown, one thing is very clear, the roll into close has gotten much smaller since the start of Covid. This means that more people are holding on and taking delivery instead of rolling at the last minute.
Figure: 9 24-month delivery and first notice
Similar to silver, gold saw a big jump early in the month and then just drifted a bit higher throughout the month.
Figure: 10 Cumulative Net New Contracts
BofA is taking delivery in massive quantities. More than 16k contracts have been delivered to BofA house in the last three months. This completely dwarfs any other activity going back to 2018.
Figure: 11 House Account Activity
From a dollar perspective, this March was nearly $500m larger than March last year.
Figure: 12 Notional Deliveries
One other thing to note. Last weekend, the stock report showed banks restocking gold after seeing several months of outflows. This is thought to be in anticipation of the next three months that all have the potential to see big delivery volumes.
During the last week, Eligible saw increases from new metal flowing in and also transfers from Registered into Eligible. This means investors were taking their metal off-market and can no longer be used for delivery in the upcoming month.
Figure: 13 Recent Monthly Stock Change
Gold: Next Delivery Month
April gold has picked up a bit of momentum in the final days before First Position. It now sits a bit above average with 3 days to go. Given the environment, gold could see higher delivery volume than December or February. The next report will be published on March 31 detailing the positions.
Figure: 14 Open Interest Countdown
Both December and February were lower than the current April contract with three days to go. As the chart shows, December especially saw high delivery volume. February would have been higher but actually saw significant cash settlement volume.
Figure: 15 Historical Deliveries
Spreads continue to widen. This is making it more expensive for April holders to roll to June. The market has entered solid contango. This may be because of the massive interest in June contracts (see below).
Figure: 16 Roll Cost
Don’t count out May though. Despite being a minor month, the chart below shows that investors are clearly positioning for a big month. Minor months are not usually meant for trading, and investors are far more likely to take delivery. This is why deliveries typically exceed 100% of max open interest for the month (vs major months where it’s closer to 3-4%)
Figure: 17 Open Interest Countdown
Finally, a look at June open interest shows it’s well above trend. Current pace is equal to that of April 2020 in the depths of the market turmoil. It’s hard to see on this chart, but 2022 June gold is now more than 100k higher than June gold in 2020 or 2021. Remember that it was June 2020 that set the all-time record for deliveries and kicked off the summer surge in price.
Figure: 18 Open Interest Countdown
Gold showed resilience this week in the face of Powell talking tough and a technical analysis that showed potential near-term downside pressure in a healthy bull market. April, May, and June are all showing strong indications of heavy delivery volume to come.
While it is easy to print paper money and even paper gold contracts, delivering metal requires a short to have metal registered in their name. Long delivery windows, restocking of inventory, and other data points indicate supply may be far more constrained on the Comex than the market realizes. It could be an interesting few months in the gold futures market. Stay tuned!
Figure: 19 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Mar 25, 2022