Comex Update: Silver Shorts Could Be in Trouble
Silver delivery from the COMEX was low in April, but there is more to the story.
This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.
Gold: Recent Delivery Month
Gold is wrapping up April, which is a major delivery month. Deliveries of 23.7k exceeded the last two major months of December and February.
Figure: 1 Recent like-month delivery volume
Higher delivery volume was probable based on how the delivery period got started. As shown below by the green bars, the contract entered the delivery period with quite high OI.
Figure: 2 24-month delivery and first notice
As shown below, net new contracts have played a role as well. During the month, there were more net new contracts than any month since December 2021 (pink line). October 2022 will likely exceed the latest month once the month closes (yellow line). October 2022 saw an uncharacteristic late-month surge in net new contracts.
Figure: 3 Cumulative Net New Contracts
Despite the strength relative to recent months, this is actually the smallest April delivery notional volume since 2019.
Figure: 4 Notional Deliveries
The house accounts have been very busy this month. BofA took delivery of 5,480 contracts while the non-BofA house accounts delivered a net 8,333. This is the largest ever net delivery for non-BofA house accounts. The BofA delivery volume did not set records but was near record territory. The all-time record is Feb 2022 when 5,945 contracts were delivered during the height of the Ukraine war uncertainty.
Figure: 5 House Account Activity
When looking at the physical vaults, there has been some minor effort to restock the Eligible gold. This was done by JP Morgan after they depleted almost their entire stack early in the delivery period of the current April contract.
Registered is actually up YTD by 963k ounces with Eligible down 1.96M ounces. Activity had to pick up to handle the current major month… something that was not required during the February delivery period.
Figure: 6 Recent Monthly Stock Change
Gold: Next Delivery Month
May is the upcoming delivery month in gold and is looking very average at the moment.
Figure: 7 Open Interest Countdown
Even when looked at on a percentage basis to Registered, it sits in the middle of the pack. Keep in mind that Registered now exceeds the amount in Eligible which is not very common.
Figure: 8 Countdown Percent
Minor months have been trending down lately. It will be interesting to see if the recent delivery increase seen this April will flow into the May contract.
Figure: 9 Historical Deliveries
The market remains in strong contango with the highest spreads seen since at least summer 2021.
Figure: 10 Futures Spreads
The spread in the cash market looks like it has become very controlled and tightly managed. This started around October 2020 right after gold reached new all-time highs. The nature of the spread in the cash market looks quite deliberate.
Figure: 11 Spot vs Futures
Silver: Recent Delivery Month
Silver delivery volume was very low in April falling to 386 total contracts with only 2 contracts remaining in open interest. There is more to this story, but let’s first go through the data.
Figure: 12 Recent like-month delivery volume
Everything was small for this month. It started the delivery period with one of the weakest OI amounts in recent history (green bar). It then saw very limited net new contracts (which was not the case during the last minor month of February).
Figure: 13 24-month delivery and first notice
As shown below, net new contracts were simply not a factor this month as they have been.
Figure: 14 Cumulative Net New Contracts
From a notional perspective, April will be the weakest activity since 2018. This April is only 27% of the notional delivery volume last year and 12% the volume from 2021.
Figure: 15 Notional Deliveries
The bank house account activity was also negligible this month with only net 222 contracts accumulated in total.
Figure: 16 House Account Activity
The real action is being seen in the physical vaults. Both Eligible and Registered continue to fall. Registered is down 3.8M ounces for the year. Total Registered is now at 30.5M ounces, the lowest level since 2017. It is believed that much of what is in Registered is not actually available for delivery. This is why Eligible has been falling faster of late. Eligible contains the only metal that is actually available for delivery. YTD Eligible is down over 23.5M ounces.
Figure: 17 Recent Monthly Stock Change
Silver: Next Delivery Month
The meager physical supplies remaining could be tested as soon as this next delivery month. The May contract is currently trending above average with 3 days remaining.
Figure: 18 Open Interest Countdown
On a relative basis, this upcoming contract is the largest ever. With 3 days to go, current open interest represents 575% of Registered silver. It will no doubt fall over the next 3 days, but the shorts must be scrambling to cover. Where are they going to come up with the metal to deliver out this month? Supplies have been crushed lately, so it will not take much to push the shorts into a position where they have to get very creative to deliver out the metal.
Figure: 19 Countdown Percent
The market remains in healthy contango. This makes it slightly more expensive for contracts to roll in the next few days.
Figure: 20 Roll Cost
The cash market is also in contango, but dropping down.
Figure: 21 Spot vs Futures
Gold saw some pressure this month, but JP Morgan was able to plug the gap. They restocked some but it won’t be enough to cover the next major delivery month. That said, gold is still several months behind silver, so it’s likely that there will be coverage in gold.
Silver may not be so lucky. Physical supplies are down big and the current month is looking quite promising from a delivery perspective. Greater detail can be found on Reddit describing just how much this month is deviating from trend. The system is not likely to break in the next few days as the Comex does have lots of options to handle these situations, but no doubt pressure continues to build. The shorts will be put to the test this month for sure!
As the dollar continues to face challenges to its reserve status, the trends on the Comex are likely to continue or accelerate in the months and years ahead. Supplies are already low so any increased pressure is likely to eventually lead to a major price squeeze. Best to get your physical before that happens!
Figure: 22 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Apr 24, 2023