Comex: Platinum Shorts Live to See Another Day
I typically start this analysis with gold, but the action in the platinum market is impossible to ignore. The next four charts should tell you everything you need to know.
First, similar to gold and silver, platinum has seen a much higher delivery volume since the pandemic struck in 2020.
Figure: 1 Platinum Delivery Volume
Unfortunately, I do not have a deep history of inventory data in platinum, but similar to gold and silver it has seen some major supply drawdowns so far in 2022. Supplies are now down over 50% since the April peak. On the most recent day, Eligible saw 34k ounces leave the vault. This represents 23% of Eligible supply and 15% of total platinum supply in the Comex. In a single day.
Figure: 2 Platinum Inventory
The countdown in platinum was looking very compelling. Three days out, more than 500% of platinum’s available Registered inventory was still open. With one day to go, this value stood at 192%. This was well above the 50% and 78% seen in April and July at the same point in the contract. This means platinum was on pace to see delivery volume nearly 2x higher than available supply.
Then all of a sudden, on the final day of trading the contract dives all the way to 45% of total registered available. Figure 1 shows that every major month since Covid has seen at least 2,000 contracts stand for delivery. October is now looking like volume will be around 600 contracts delivered. This is 2.72 standard deviations below the mean since Covid started.
Figure: 3 Platinum Countdown Percent
To highlight the anomaly seen on the final trading day, consider the chart below. For the past two+ years, platinum dives into the close and then moves laterally on the final day of trading. October 2022 is the lone standout where the contract dives on the final day.
If we again calculate the probability of such an event occurring since Covid, this type of drop is 8.86 standard deviations above the norm. Meaning the chances of such a large drop into close is less than 0.0001%. Hmmm… seems a bit strange. This is a massive outlier. This feels very similar to what happened in silver back in February which saw a 12 standard deviation event occur. The silver delivery markets have been broken ever since.
Figure: 4 Platinum Countdown
It’s hard to know exactly what happened, but it’s easy to speculate. So, let’s speculate.
My guess is that a savvy trader who is willing to take delivery knows the lack of supply in platinum. This trader can see all the data and knows the very limited supply of platinum at the Comex, which is shrinking more with each passing day.
Instead of rolling, the trader holds on, threatening to take delivery. The Comex does not have the metal. This cannot be allowed to happen, it could send shockwaves through the entire futures market, specifically gold and silver. So, the Comex offers cash settlement at a very nice premium. The total platinum held yesterday was $121M. This is a rounding error, but a failure to deliver could create a cascading domino effect.
The Comex would be happy to pay a premium and not put the rest of their markets at risk. A single trader (or perhaps a small group of traders), took on a little risk by playing their hand like they would take delivery. This forced the Comex into paying a huge premium to NOT have to deliver the metal it DOESN’T have!
Again, speculation… but if I had $100M to bluff with… this would be a great way to collect a nice little return. Corner a tiny market and apply maximum pressure to an overstretched entity.
Gold: Recent Delivery Month
Let’s move on to gold. Unfortunately for the Comex, October didn’t offer any relief from strong physical demand. October started the month very hot with 19k contracts delivered on the heels of the strongest minor month ever (September).
Figure: 5 Recent like-month delivery volume
Perhaps most surprising was the lack of contracts that rolled in on the final day. This is the exact opposite of the platinum market. October barely saw any drop in OI which has led to a very strong start to December.
Figure: 6 Open Interest Countdown
This can be seen more clearly in the chart below comparing the difference between the green and blue bars. That difference represents the drop in OI on the final day.
Figure: 7 24-month delivery and first notice
Another standout datapoint in October is the percent of contracts delivered in the final month. 93.3% of open interest was delivered on the very first day of the contract. This shattered the existing major month record of 76.3%.
Figure: 8 Delivery Volume After First Notice
Looking at past Octobers, this is already the second highest October recorded standing at about 50% of the October record set in 2020.
The bank house accounts are on the delivering “out” side of the transaction this month, except for BofA who continues to break from the pack. BofA was the lone house account to receive metal.
Figure: 10 House Account Activity
All this delivery volume is taking its toll on vault inventories of gold. The continued outflow of gold has been relentless for months. Since May, over 9M ounces have left Comex vaults.
Figure: 11 Recent Monthly Stock Change
Gold: Next Delivery Month
November gold is another minor month as the market prepares for the major December contract. As shown below, open interest has turned up quite quickly!
Figure: 12 Open Interest Countdown
The chart below shows the last 9 minor months. There is a solid upward trend forming. The record minor month that just closed last month can also be seen (September).
Figure: 13 Historical Deliveries
Silver: Recent Delivery Month
While platinum and gold continue to flash warning signs, the silver market has been (seemingly) left for dead. There were 55 deliveries on the first day of delivery action.
Figure: 14 Recent like-month delivery volume
This is not totally surprising given the tiny number of contracts headed into First Notice. The action in silver has mainly been seen in net new contracts rather than at First Notice. Time will tell if it occurs again this month.
Figure: 15 24-month delivery and first notice
Even though the delivery volume in silver has been non-existent, the actual physical removal of silver from Comex vaults continues unabated. Every day there is more and more silver leaving Registered. Just like platinum, there is a day looming when deliveries may exceed the available Registered supply.
Figure: 16 Recent Monthly Stock Change
Silver: Next Delivery Month
November silver is starting sluggishly with current open interest well below average.
Figure: 17 Open Interest Countdown
One more thing silver has going for it is that the spot market remains in backwardation. This has been ongoing since July 4th and demonstrates strong demand for physical metal now rather than in the future.
Figure: 18 Spot vs Futures
Gold continues to show incredible strength in delivery volume. Platinum looked like it was on the verge of “breaking” the Comex before a massive drop into the close. Silver on the other hand has shown weak delivery but extremely strong physical inventory movement.
Bottom line, the data from Comex continues to point to a physical market that is under pressure. The paper market may continue to see massive selling from speculative shorts, but eventually, the physical market will start to drive the price of precious metals higher.
Figure: 19 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Sep 29, 2022