November Comex Delivery Analysis

I reported last week that Comex delivery activity was looking very quiet in both gold and silver. The results for November are very weak. That being said, October and November are historically slow months, so the real test will come in December.

This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.

Silver: Recent Delivery Month

Silver has started delivery in a minor month. As shown, 506 contracts have been delivered so far with 367 contracts remaining open. Assuming all stand for delivery and a few contracts are opened mid-month (346 were opened last November), then silver will most likely see over 1,000 contracts delivered in total. This is definitely well below the recent months but would exceed the total from last year.

This past October saw 535 contracts open for delivery mid-month which was the second strongest since March of this year. This helped October still register a healthy 2k+ contracts. It seems a long shot that November gets to 2k, but it’s not impossible.

Figure: 1 Recent like-month delivery volume

One positive trend is that the minor months are not seeing much drop-off in Open Interest coming into the close. It’s hard to see in the chart below, but silver only saw 24 contracts close in the day before delivery notices began. This is actually less than the 32 contract decline seen in October, but both would be considered very small numbers. For comparison, September saw more than 7,000 contracts drop in the final day.

Figure: 2 24 month delivery and first notice

Isolating the month of November over the past several years shows how this November stacks up to previous ones (dollar amounts shown). With the contracts still open, it’s possible this could be the biggest dollar amount on record. If all contracts were delivered, $105M would stand for delivery. Adding a few mid-month contracts could create a November record.

Figure: 3 Notional Deliveries

Silver: Next Delivery Month

As mentioned, November is small in scale no matter how you slice it. Even though the delivery volume looks to be average or a bit above for November, the numbers are small relative to big months. December open interest is pretty low but does actually sit just above the last recent Major month in September. Trying to determine the delivery volume at this stage is impossible, contracts are just starting to roll, so it won’t be until the end of November where the December delivery volume can be determined.

Figure: 4 Open Interest Countdown

With deliveries continuing to decline each month, December has its work cut out to reverse the trend. The market does look positioned for a big move up even with the action seen on Friday after the PCE release. With the Fed set to taper, it could also be a buy the rumor, sell the fact. In this case, it would mean selling silver leading up to the announcement and buying it after.

Figure: 5 Historical Deliveries

Cost to Roll

The spread between December and March 2022 is still pretty low, so it’s unlikely that high roll costs could prompt a push for contracts to deliver. Demand will have to come from investors who simply want delivery rather than seeing it as cost-effective.

Figure: 6 Roll Cost

Gold: Recent Delivery Month

The charts below follow the same order as the silver charts above.

November gold was very weak and doesn’t even have the same positive factors as silver. With 319 contracts still outstanding, it’s hard to imagine gold delivery will even exceed 1,000 contracts. This would make it the lowest delivery volume by far over the last 8 minor months. 270 contracts have already been opened mid-month to stand for delivery. Still, that number would have to increase dramatically to even come close to the paltry number seen in May.

Figure: 7 Recent like-month delivery volume

September and October both saw over 2,000 contracts opened mid-month for delivery. This pushed September to be much stronger than originally forecast. Last November saw almost 10k contracts opened for immediate delivery, which made it the strongest minor month in recent history. It’s hard to think this November will repeat, but anything is possible as year-end approaches. The Exploring Finance series will keep tabs and report back near the end of November, so stay tuned!

Figure: 8 24 month delivery and first notice

Looking at past Novembers shows how weak the current month is relative to history. It also shows how much of an outlier November 2020 was.

Figure: 9 Notional Deliveries

Gold: Next Delivery Month

December gold is looking strong so far, sitting only behind Feb 2021 and last December.

Figure: 10 Open Interest Countdown

Delivery volume in the major months has been declining from the record volumes seen in 2020. Hopefully, December can regain some momentum and reverse the declining trend shown below. In August, things were looking promising. For now, October can be considered an odd month and delivery was actually historically strong for October.

Figure: 11 Historical Deliveries

Cost to Roll

Similar to silver, the cost to roll is very low which will not provide support for delivery volume on its own.

Figure: 12 Roll Cost

Wrapping up

With December as the final major month in both gold and silver, the 2020 records look to hold. Silver is closer than gold with about 12,500 contracts shy of the record. It’s not impossible, but silver would have to show the strongest delivery month since July 2020.

Regardless of 2021 falling short, it’s still very probable the 2020 record will be broken at some point. As Federal Deficits continue to spiral out of control, and nearly $1.75T in new spending is being planned by the Biden administration, eventually the world will seek out protection from rapidly declining fiat currencies.

While some may pile into Bitcoin, investors should ask themselves what makes Bitcoin more special than the other 10k crypto-currencies available. Unfortunately, asking this question will only lead to one answer for most Bitcoin holders: the true value of Bitcoin is actually negative.

Gold and silver have proven to be stable forms of money for 1,000s of years. As people lose faith in fiat, they will reach for tangible assets. When this happens, the raid at the Comex could unfold very quickly. Current delivery is still high historically, and investors continue pulling metal out of Comex vaults. Physical precious metals offer the best insurance policy against a currency crisis, which looks more and more likely with each passing month.

Figure: 13 Annual Deliveries

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

Data Updated: Nightly around 11 PM Eastern

Last Updated: Oct 29, 2021

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