Comex Physical Gold: Demand Increases While Supply Falls

The Comex report for last month correctly identified a potential big move in silver while the same report two months ago preceded a massive up move for the price of gold. The data this month is not as obvious or compelling, but it is clear the stress on the Comex continues to build.

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

August is a major delivery month for gold. While total delivery volume did not exceed the June total, it is still the second highest in over a year.

Figure: 1 Recent like-month delivery volume

A trend has developed recently where there is less net-new contract creation mid-month for immediate delivery. That is a word salad, so let’s explain: for the past three years, once the delivery contract opened, you would typically see a lot of investors opening contracts for immediate delivery. That trend has fallen off, but delivery volume remains elevated because more people are going into the month knowing they will take delivery.

Figure: 2 Cumulative Net New Contracts

As delivery volume has increased, the Comex has also seen more metal actually leave their vault. “Delivery” means the physical ownership of a bar transfers from one owner to another; it does not leave the vault until that owner takes it out. That is what the chart below is showing. People are taking their metal out of the vault!

Figure: 3 Inventory Data

The biggest chart this month is the September contract. Take a look below and see if you can identify the line that looks different. As mentioned above, people are coming into the contract ready to take delivery rather than opening mid-month. You can bet that almost all of those 5,559 contracts are going to take delivery in September. Even though it is a minor month, we could see a very healthy September delivery compared to previous months.

Figure: 4 Open Interest Countdown

On a relative basis (relative to available supply), open interest is more than double the average!

Figure: 5 Open Interest Countdown Percent

Silver

Silver is taking a back seat to gold right now, but it’s likely the trend will spill over into silver and we could see prices really take off. As shown below, delivery volume is below trend.

Figure: 6 Recent like-month delivery volume

Net new contracts are also below trend.

Figure: 7 Cumulative Net New Contracts

Registered and Eligible have been plotted separately to make the charts more readable. Eligible took a dive in June followed by a quick recovery. More inventory has been added to backstop the metal.

Figure: 8 Inventory Data

Registered metal had gotten extremely low and the Comex has been trying to rebuild inventory to handle any large increases in demand. If that demand shows up like it has in gold, expect inventories to immediately get depleted and prices to surge.

Figure: 9 Inventory Data

As we approach the delivery period for September, you can see that the silver contract is middle of the pack. There is no panic in silver like there is in gold. It will likely follow suit in short order.

Figure: 10 Open Interest Countdown

On a relative basis, open interest is well below the recent trend. This is due to both the drop in open interest as well as the increase in Registered metal.

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Figure: 11 Open Interest Countdown Percent

Conclusion

The story is gold. Going into September demand has popped higher as inventory levels have been depleted. This is why gold has breached $2500 for the first time ever. Gold’s consolidation has ended as forecasted last month. There is still some technical resistance around $2500, but it will not last long… especially with the stress showing up in the physical market. Silver won’t be far behind once it finally breaks through $30.