Gold is wrapping up June which came in fairly strong with 20,101 contracts being delivered. There are still 583 contracts open that have not been delivered, but the majority of the contracts have completed.
Figure: 1 Recent like-month delivery volume
One thing to notice is that Net New Contracts were negative this month for the first time since February 2022. Essentially, after the contract started to deliver, certain contract holders were incentivized to cash settle instead of take delivery.
Figure: 2 24-month delivery and first notice
This occurred at the beginning of the delivery window as can be seen below. On the first day, 2,645 contracts cash settled. Since then, only about 600 contracts have opened for immediate delivery, which is well below average. This is a major trend divergence as seen below.
Figure: 3 Cumulative Net New Contracts
From a notional perspective, $3.8B of gold was delivered during June. This would have been a record before Covid but is actually the smallest June in the last 4 years.
Figure: 4 Notional Deliveries
BofA has been building a stash for 6 months to potentially defend the physical market when supplies became constrained. It looks like they used some of that stash this month. BofA was responsible for delivering exactly 5k contracts. BofA continues to buy high and sell low!
Figure: 5 House Account Activity
The vaults have been a bit erratic lately. Back in April, a massive amount of metal flowed from Eligible to Registered. On two separate days, more than 500k ounces were reclassified. As the June contract approached, some of that metal actually went the other way. Throughout the June delivery period, Registered has stayed mostly flat while Eligible has continued to flow out.
Figure: 6 Recent Monthly Stock Change
Gold: Next Delivery Month
July is the upcoming delivery month and is around the middle of the pack compared to recent months.
Figure: 7 Open Interest Countdown
On a relative basis to Registered gold, July is slightly elevated, but not significantly so.
Figure: 8 Countdown Percent
The last three months have all come in extremely close to 6k contracts. To see another repeat, there would need to be close to 4k net new contracts opened for delivery during the month. That would be near the highest amount in the last two years, which makes it less likely to happen especially after the large cash settlement this month. It seems July will be below the 6k recent average.
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 in June was at the very low range of the curve, but with a major caveat. For months, I have been making the case that silver supplies are running dangerously low. This was why delivery volume had been falling… there simply was not much metal available for delivery.
We could finally be hitting the point at which supplies are not available at current prices.
Figure: 12 Recent like-month delivery volume
As the chart below shows, net new contracts are well below the trend, and open interest is quite elevated for this stage in the contract.
Figure: 13 24-month delivery and first notice
The next two charts show how divergent these trends are. First, you can see the net new activity below. This is the lowest net new activity in more than two years. All previous months have seen contracts come in and request immediate delivery. This month, there have only been 67 such contracts. The next lowest number is 177 net new contracts.
On the surface, this could be considered a drop in general interest in silver. There are two major data points to counter this simple explanation.
Figure: 14 Cumulative Net New Contracts
First, the chart below shows the drop in open interest as the delivery month progresses. The shorts are responsible for initiating a delivery request. Since day 6, there have been almost zero contracts delivered. What is causing this delay? 431 contracts are equal to 2.16M ounces or just shy of $50M. This isn’t a lot from a dollar perspective, so what is the hold up? Why are the shorts delaying delivery?
Figure: 15 Countdown After Delivery
This brings us to the next data point, vault activity. Registered metal supplies have been seriously depleted over the last 2-3 years. So much so, that there are 28 paper ounces for every 1 physical ounce at the Comex. The recent big move below to get metal into Registered is most likely a preemptive move in preparation for the July contract.
Most shocking is that this new Registered metal is not being used to satisfy the current open interest. While the current remaining open interest is not too significant, it would take out half the metal that has moved over. My guess is they are not using the supplies because there is more risk in the upcoming July contract. The Comex probably feels they can somehow close out the June contract with cash settlement or something else, but they are also running out of time. We should have our answer by the end of next week… stay tuned!
Figure: 16 Recent Monthly Stock Change
It’s surprising to see this stress in the silver market at such low volume. This June is one of the lowest delivery volumes on record for the month of June.
Figure: 17 Notional Deliveries
The bank house accounts have also been incredibly quiet, delivering out only 187 contracts.
Figure: 18 House Account Activity
Silver: Next Delivery Month
Now let’s look at next month for Silver. Open interest is actually the middle of the pack from an aggregate contract perspective. In recent months, it has been on the lower end, so it’s interesting to see it back in an average range.
Figure: 19 Open Interest Countdown
On a relative basis, this month is elevated. It now sits below only the July contract. It only dropped below July because of the big move into Registered a few days ago. Regardless, with 4 days to go, the open interest represents 600% of available metal for delivery.
Figure: 20 Countdown Percent
The trend in major months has been down, but again, this could be because there simply isn’t much metal available for delivery. We could be finally getting to the bottom of the barrel!
Figure: 21 Historical Deliveries
The futures market remains in strong contango.
Figure: 22 Roll Cost
The cash market is also in contango but is drifting back down.
Figure: 23 Spot vs Futures
To recap the history of Platinum…
- Back in October, Platinum deliveries were set to exceed supply until a massive change in OI on the final day occurred
- In January, delivery volume exceeded supply and the Comex quickly found some metal to meet demand.
- The April contract was then managed lower into the delivery period to avoid another repeat of January
For those three months, delivery volume was actually not that high relative to history as shown below. In fact, October and April were abnormally low. The drop in volume was most likely encouraged due to limited supplies.
Figure: 24 Platinum Delivery Volume
The reason why is that vault supplies had gotten dangerously low. So, similar to silver, deliveries started to slow. The Comex responded by increasing supplies in January and then a little bit in April.
Figure: 25 Platinum Inventory
Unfortunately for the Comex, they are now looking at one of the largest open interest trends into the close with more than 15k contracts still open with 4 days remaining.
Figure: 26 Open Interest Countdown
Due to the recent restocking, this is actually only the middle of the pack on a relative basis. However, it should be noted that open interest still represents 475% of Registered supplies. Due to the illiquidity of Platinum, it will not take much to get delivery requests that exceed supply. With 50 ounces per contract and 166k ounces in Registered, only 3,320 contracts would need to stand for delivery. At current prices, that is around $150M.
A savvy investor, with a decent capital backing, could easily apply pressure on the Comex in a vulnerable market. We will find out next week if anyone decides to play chicken with the Comex.
Figure: 27 Countdown Percent
Silver and Platinum are clearly showing signs of stress. It started in Platinum, has been developing in silver for some time, and will eventually spread to gold. Gold has already exhibited early signs of stress with some of the big and sudden moves into Registered along with the large cash settlement this month. Still, the gold market is several months behind silver in terms of stress and pressure.
More than likely, next week will come and go without any major events. The dollar amounts are not yet big enough to really draw attention. The shorts can pay large premiums in cash to get out of their delivery requirement. But each month the pressure grows. The data each month shows that the stresses in the market are getting just a little bit bigger. Eventually, the right event or trigger will break the dam.
When that happens, the slow drip of metal out will turn into a flood. It’s impossible to know in advance what the event will be. But when it happens, getting physical metal will be nearly impossible at current prices. Better to load up before that happens.
Figure: 28 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Jun 23, 2023
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