Comex June/July 2021 Update

This analysis focuses on gold and silver data provided by the Comex/CME Group. The Comex allows investors/traders to gain exposure to commodities using futures contracts. Contracts can settle for delivery of the physical commodity. Tracking the demand for physical metal can give better insight into the market. See the article What is the Comex for more detail.

Silver: Recent Delivery Month

“First Position Day” is when contracts must post 100% margin to stand for delivery. First Position Day typically occurs a few days before the delivery month starts (e.g. May 29 for a June contract). Throughout the delivery month, contracts can settle in cash, or more contracts can be opened and stand for immediate delivery (usually a sign of strong physical demand). Figure 1 below shows the last 24 months of silver delivery data when compared to First Position and the day before First Position. As can be seen, Open Interest falls rapidly between the two days. This can be seen more clearly in Figure 4 below, the Open Interest countdown chart.

Silver is wrapping up a minor delivery month. The data is much more positive than that of gold (below). At 679 contracts opened for immediate delivery, this is the second most for a minor month since Jan 2020, trailing only Feb 2021 — directly after the attempted Reddit squeeze.

Figure: 1

We can see how this most recent month stacks up more directly with other minor months below. Figure 2 shows that silver deliveries fell just slightly behind the total deliveries for April. Another important data point to note is the total deliveries as a percentage of max Open Interest (black dot), which came in at 130%. This means that total delivery exceeded by 30% the maximum amount of Open Interest at any given time for the June contract.

Strong overall deliveries and strong indication by investors opening and settling for immediate delivery.

Figure: 2

To put this past June in historical perspective, see the chart below. This shows the month of June dating back to 2011 when silver had its last major run up to $50. The chart shows the dollar amount of silver being delivered rather than the number of contracts. Because there are 5,000 ounces per contract, this is calculated by taking the (Number of contracts) * (price of Silver) * (5,000).

It is important to highlight specifically how this June compares to June 2020. As can be seen in the gold charts below, June last year set a historical record for gold delivery. At the time, silver was experiencing very high premiums and was about to enter its major run-up for July, but delivery volume was still within range. As the chart below shows, this past June exceeds every other June by at least 4 times!

Figure: 3

Silver: Next Delivery Month

We can now jump ahead to July to see if momentum is continuing. July is a major delivery month for silver. The chart shows how contracts roll with the lines diving into First Position Date. The contract currently shows the data up to June 28, which is one day before First Position (June 29).

At 19,920 contracts still open, silver is sitting much higher than in past months. Only July 2020 was higher when silver went into the weekned around ~22k contracts with First Notice on a Monday. Keep in mind the chart above that shows how many contracts can roll in the final day before First Notice, so it’s too early to think this will be a record-setting month.

Figure: 4

The chart below provides historical contracts, showing the delivery activity in the last major months. As can be seen, after setting a record in July 2020, deliveries have been coming down. If this month were to exceed 12,000 in delivery it could show a trend reversal.

Analysis shows that premiums in the silver market have remained stubbornly high. It’s possible that the shortages are starting to manifest, which is why contracts standing for delivery could start increasing.

That being said, in an attempt to rein in expectations, the number of contracts that close or roll in the final day can be quite large. For example, March of this year saw 6,000 roll in on the final day. The data will be posted tonight on the Comex around 11 p.m. Eastern.

Figure: 5

A final chart to consider is the “cost to roll.” Future months will be priced slightly higher than the current month due to the time premium. For example, July silver might be trading at $26 and September silver might trade at $26.25 (nearly a 1% premium). This premium is a roll cost because the investor loses the premium immediately.

When the premium is extremely low, the investor may be more likely to roll because it allows them to extend out their contract at almost no loss in value. The chart below shows that the roll cost is currently the lowest it has been for the past 15 months. While this should incentivize more July contracts to roll in the final day, it could also represent another important market signal if they don’t: investors are prioritizing taking delivery over just having exposure to silver.

This chart makes the data coming in tonight even more interesting. With higher volatility and prices down over 1% as of publication this morning with little movement in other markets (DXY, rates, and major averages), it could be an indication of activity on the Comex to try and encourage contracts to roll.

Figure: 6

Gold: Recent Delivery Month

The charts below follow the same order as the silver charts above.

In the most recent delivery month, there was a much larger dive into the First Position than had been seen over the previous several months. June shed almost 17k contracts. This is the largest change since Feb 2020 before deliveries started to take off. Another data point worth noting is the number of contracts that opened mid-month to settle immediately for delivery (red bar below). At 756 contracts, it was the second smallest amount since Februrary 2020, only ahead of December 2020. This drop in immediate delivery contracts and a large drop into First Position could be an indication of waning interest in physical delivery for gold.

Figure: 7

The waning interest in physical delivery can also be seen below in the downward trend of contracts delivered for the last 7 major months. Especially compared to the record deliveries in June of 2020, this June fell far short of the recent trend.

Figure: 8

Despite falling short of recent trends. It is important to put the latest delivery figure in historical perspective. The chart below shows historical notional deliveries for the month of June. Notional deliveries is the dollar amount of the metal being delivered. Because each futures contract represents 100 ounces of gold, this calculated by taking (number of contracts) x (price of gold) x (100). As the chart below shows, the $4B in total deliveries is more than double any other June excluding 2020.

Figure: 9

Gold: Next Delivery Month

Looking ahead to the next delivery month can provide a glimpse into the trends noted above. Although July is a minor month for Gold, the recent activity in minor months continues to show interest for physical. As the chart below shows, we are only 1 day away from First Notice. Again, it appears that July is coming in far lower than the last 8 minor months. Current positioning is the lowest it has been in 15 months with 1 day to go.

Figure: 10

This is not to say we won’t see large deliveries after First Notice closes. The chart below shows recent total deliveries for the last several minor months. As can be seen, some months had a large number of contracts open and stand for immediate delivery. This can also be seen in Figure 1 above. Last July and even as recently as March 2021, there were large deliveries far in excess of the max Open Interest seen throughout the contract (black dot). Watching how this contract plays out during July will indicate whether interest is truly waning for physical.

Figure: 11

Wrapping up

Silver is showing a lot of strength. The data coming in tonight will be a great indication of how much demand there is for physical. Even though the appetite for physical gold appears to be shrinking, that can change in a hurry. Furthermore, the chart below shows that delivery volume is still well above historical norms in both gold and silver. Gold looks to be falling short of the 2020 record, but silver still has a chance to exceed!

Figure: 12