Is Someone About to Stress the Comex

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 details 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

March is a minor delivery month in gold. The delivery amount this month was middle of the pack, but there is more going on underneath the surface.

Figure: 1 Recent like-month delivery volume

First, net new contracts came to a standstill after day 11 of the delivery cycle (red line below). Net new contracts (contracts that open mid-month for immediate delivery) have been driving higher delivery volumes for a lot of the recent months. Halfway through the month, contracts froze, but this also coincided with a surge in contracts for April (more on this below.)

Figure: 2 Cumulative Net New Contracts

Inventory levels have continued to decrease throughout all of March. Eligible fell by 140k ounces with Registered falling by about 350k since the beginning of March.

Figure: 3 Inventory Data

As the April contract approached it had been trending lower than in recent months. This is likely due to the increase in gold prices. As prices rise, the number of contracts fall so that traders keep their dollar amounts consistent. Then, at the beginning of March, contracts started to increase. With 5 days to go until delivery, open interest is at a record high relative to recent history.

Figure: 4 Open Interest Countdown

This change in trend is even easier to notice in the chart below. It takes the chart above and plots the data on a relative basis to Registered (gold available for delivery). The current amount is well above trend. It will be interesting to see how many contracts roll into the close. There are 5 days left, and it looks like someone wants to put the Comex to the test. We will see how this unfolds in the coming days. The COT’s report coming tomorrow might provide some more detail on who this might be. Stay tuned!

Figure: 5 Open Interest Countdown Percent

Silver

Silver delivery has been climbing in recent months for major delivery periods. March had the highest delivery volume since September of 2022.

Figure: 6 Recent like-month delivery volume

Net new contracts also saw a large surge, trailing only March 2022 which was the outbreak of the war in Ukraine.

Figure: 7 Cumulative Net New Contracts

Registered and Eligible have been plotted separately to make the charts more readable. Both saw increases recently followed by immediate outflows.

Figure: 8 Inventory Data

Figure: 9 Inventory Data

As silver approaches the minor delivery month of April, you can see that open interest is picking up a little bit, but still middle of the pack.

Figure: 10 Open Interest Countdown Percent

Conclusion

The activity in gold should be the focus of attention. Someone could be getting ready to stand for delivery and put stress on the fragile Comex system. It won’t happen overnight, but there is only so much gold that can be delivered. As it continues to get removed at a consistent pace, there will come a time when sellers cannot meet their obligation to deliver physical metal. That is when the price of precious metals could be magnitudes higher.

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

Data Updated: Nightly around 11 PM Eastern

Last Updated: Mar 20, 2024

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