Comex Vaults See Seventh Straight Month of Outflows

Gold and silver continue to flow out of the COMEX vaults.

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.

Registered = Warrant assigned and can be used for Comex delivery, Eligible = No warrant attached – owner has not made it available for delivery.

CURRENT TRENDS

Gold

Gold continues to get drained from Comex vaults, seeing its seventh straight month of outflows. Just over halfway through November, the month has seen 1.1M ounces out of the vault indicating the pace of outflows has not yet slowed.

Figure: 1 Recent Monthly Stock Change

The daily vault moves can be seen below. Registered has not seen a material net inflow in over a month. Additionally, the metal entering Eligible is mainly coming from Registered rather than new sources. The move from Registered to Eligible is metal no longer available to meet delivery requests.

Figure: 2 Recent Monthly Stock Change

The current fall in Registered is also impacting the Pledged category. Pledged is a subset of Registered but is actually not available for delivery because it has been pledged as collateral. The amount in Pledged is now the lowest amount since April.

Figure: 3 Gold Pledged Holdings

Silver

Silver has seen 5 straight months of net outflows. More importantly, though, the fallout of Registered has been relentless. There has been a slight uptick this month, but that is likely to reverse as the December contract starts delivery. Not including the current month, Registered has only seen a net increase in 3 months since January 2021.

In 2022, the fall in Registered has been simply astonishing. It has slowed some in November, but the same thing happened last year, right before nearly 17M ounces were removed in December. A similar event this year would cut the remaining Registered inventory by more than 50% in a single month!

Figure: 4 Recent Monthly Stock Change

The lack of available Registered silver seems to be influencing the bank’s delivery activity. Their house accounts have been very busy ever since December 2020 as shown below. That activity has slowed to a crawl over the last two months. Could this be due to the plummeting supplies or just seasonal activity? A similar event happened last year in October and November which proved to be the calm before the storm. As mentioned above, a similar storm to last year will decimate the remaining inventory.

Figure: 5 House Account Activity

Looking at the daily activity shows that there has been much more activity in the Eligible metal leaving the vault recently. This is a very interesting change. Over the last 6 months, metal has been moving from Registered to Eligible but staying within the Comex system. Now that metal is leaving the Comex system entirely.

While there is a much bigger supply of Eligible, much of that is owned and even backing the silver ETFs. This means the Eligible stack is much smaller than it appears. And that stack is definitely starting to shrink. Are people losing faith in the Comex system or just deciding “if you don’t hold it, you don’t own it”?

Figure: 6 Recent Monthly Stock Change

The table below summarizes the movement activity over several periods to better demonstrate the magnitude of the current move.

Gold

• • Over the last month, gold has seen Registered fall of almost 9% with a total fall of 7.1%
    • • The fall over the last year has been 37.1%, up from 31.2% last month. This is a major acceleration.

Silver

• • Silver Registered is down by 7.3% in the last month even with a weekly increase of 1.8%!
    • • Registered silver is down an incredible 63.4% in the last year and 74.7% over three years
  • Eligible saw 11M ounces removed over the last month
  • Combined, inventory has dropped 4.5% in the last month

If Registered silver continues to fall at the current pace, inventory could be wiped out within 5 months!

Palladium/Platinum

Palladium and platinum are much smaller markets but that may be where the market breaks first.

• • Palladium is down 5% over the last month as it gears up for its major delivery month of December
  • Platinum inventory is down 17.5% over the last month and 61.7% over the last year
    • • Platinum’s major delivery month is in January which could get interesting given recent events.

Figure: 7 Stock Change Summary

The next table shows the activity by bank/Holder. It details the numbers above to see the movement specific to vaults.

Gold

• • Every vault has seen inventories fall over the last month with 6 vaults seeing supply fall by more than 5%
    • • Loomis has lost 13.1% of their metal stack in the last week alone
  • Over the last year, 6 vaults have lost more than 25% of their total inventory!

Silver

• • Silver has seen some big moves over the last month with Brinks losing 15% and Int. Delaware losing 32%
  • Over the last year, 3 vaults have lost more than 10M ounces.
    • • Delaware Depository has been a lone standout, increasing its stack by 17M ounces or almost 90%

Figure: 8 Stock Change Detail

Historical Perspective

Zooming out and looking at the inventory for gold and silver shows just how massive the current move has been. The decline has been swift and steep, with losses seen in both Eligible and Registered. Registered as a % of the total has dipped over the last month as the acceleration in Registered outflows quickened.

Figure: 9 Historical Eligible and Registered

Silver is seeing far more concentration in outflows from Registered as shown in the chart below by the black line. It has crashed all the way down to 12%, reaching 11.5% on October 31.

Figure: 10 Historical Eligible and Registered

The chart below focuses just on Registered to show the steepness of the current fall. In Feb 2021, there were 152M ounces of Registered. That number now sits at 35M, which is a net fall of 117M ounces (77%). Considering the recent acceleration, total holdings could fall below 2016 levels (23M ounces) within a few months or even as soon as December if history repeats.

Figure: 11 Historical Registered

Comex is not the only vault seeing big moves out of silver. Below shows the LBMA holdings of silver. It should be noted that much of the holdings shown below are allocated to ETFs. Regardless, total inventories have fallen every single month since last November. Holdings fell below 1B ounces in June and now sit at 852M ounces as of October.

Figure: 12 LBMA Holdings of Silver

Available supply for potential demand

These falls in inventory have had a major impact on the coverage of Comex against the paper contracts held. There are now 4.3 paper contracts for each ounce of Registered gold within the Comex vaults. This is up from 3.56 last month. This is the worst coverage since early 2020 right after the big Registered stacks came online in the fallout from the Covid supply shock.

Figure: 13 Open Interest/Stock Ratio

Coverage in silver is far worse than gold with nearly 20 paper contracts for each ounce of Registered silver, up from 17.4 last month and the highest since April 2018. This means only 5% of silver open interest would need to stand for delivery to wipe out Comex vaults entirely of Registered.

Figure: 14 Open Interest/Stock Ratio

Wrapping Up

The physical demand for gold and silver has continued unabated for months with little signs of slowing. December is typically one of the most active months of the year in both metals which could prove very meaningful this year

The overall market and economy continue to get weaker. This is what eventually caused the collapse of FTX. It would have eventually collapsed anyway due to fraud and a clear Ponzi scheme, but the higher rates pressured digital assets creating a cascading effect that brought about the collapse. The same chain of events will flush out other weak and under-collateralized companies in the months ahead.

The entire Bitcoin market looks like it’s being propped up by whales. FTX is only the latest domino to fall but the dominos keep getting bigger. If the whales cannot hold the line, Bitcoin could quickly collapse in value. It’s very possible this could then spread outside of Crypto. Even if it’s not a direct contagion effect, it’s only a matter of time before the Fed’s rate hikes take their toll and break something else. When that happens, the Fed will have no choice but to pivot.

The investors pulling metal out of the Comex vaults are clearly thinking a few steps ahead to this moment. FTX faced a bank run and did not have a supply to meet demand. It collapsed. Given the current vault activity at the Comex, a similar vault run is clearly underway, but on physical assets. How long until the Comex is just like FTX with no physical metal to meet all the paper demand? We will find out soon enough!

Data Source: https://www.cmegroup.com/

Data Updated: Daily around 3 PM Eastern

Last Updated: Nov 18, 2022

Gold and Silver interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/