COMEX deliveries and registered gold (silver too)

pmbug

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It's been a long while since I paid attention to the Comex warehouse inventory.

... Warehouse Inventory amounts to 7,569,585 oz ...
Warehouse inventory was 25,385,022 oz back on Jan 15, 2014 (see post above). It's now less than 1/3 of what it was a year and a half ago. :popcorn:

Was trying to find a chart of inventory stocks and I'm not finding any that corroborate Harvey's Jan 2014 figures. I found this one:



and these:

http://www.24hgold.com/english/inte...e=COMEX+WAREHOUSES+REGISTERED&etfcodecom=GOLD

http://www.24hgold.com/english/inte...ode=COMEX+WAREHOUSES+ELIGIBLE&etfcodecom=GOLD
 

pmbug

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Yeah, that's what I'm saying. I'm not sure where the charts or Harvey are pulling their data from.
 

ancona

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I saw on ZH where JPM backstopped the Crimex with a ginormous pile of shiny at the end of the week to cover a bunch of orders, and it brought the ratio from somewhere north of 120 - 1 down to less than 80 - 1.
 

Unobtanium

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OK folks, COMEX registered gold has dropped to an all time low of 73,795 oz.


 

pmbug

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There is so much FUD surrounding the significance of COMEX inventory numbers. I wish I had a firm grasp on what it really means.
 

rblong2us

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so a 25% drop in three days

When will demand for delivery actually trigger a run ?

I guess they could go negative with the amount held and just ask those seeking delivery to wait their turn.
It doesn't need to be a big drama ........
 

pmbug

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I've slowed my purchasing activities, so I'm not watching the premiums on physical as closely as I once did, but I suspect you will see stress start there.
 

pmbug

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I usually just gloss over reports related to COMEX these days, but this seems worth noting...
... January is an off-month for deliveries at COMEX. However, the number of gold futures contracts that stood for delivery this month resembles an active delivery month. That is interesting because COMEX has always been primarily a paper based exchange. Physical delivery is the exception rather than the rule. Delivery has always been theoretically possible, but it has been rarely done. In January 2016, for example, the holders of only 172 COMEX futures contracts demanded physical gold. In comparison, by January 27, 2017, the holders of 1,254 COMEX futures contracts held them to maturity and demanded their gold! That is a whopping 729% increase yoy!

We’ll see what happens in February. There are already an unusually large number of February contracts remaining open on Friday, a day before the first notice day. Monday is the first notice day for the February delivery month, which has always been a major one. This month is shaping up to be mildly historic in size. The overall delivery size looks like it will be at least as big as December, 2016, even though December is normally the largest delivery month by far. One thing is clear. As of Monday morning, holders of matured futures contracts are going to have to put up or shut up. They must either deposit sufficient cash to pay for the gold in full, or face involuntary liquidation.

No matter how massive the delivery demand, there is always the possibility that dealers will try to attack prices early in the month. They often do this. I believe that the reason revolves around the desire to buy physical gold bullion, from mining companies and others, at a rock-bottom price. They will do everything they can to create a fake price so long as it doesn’t cost them too much. The trouble for them is that, this month, it may cost them more to do it than they save from the results.
...
http://averybgoodman.com/myblog/2017/01/29/comex-physical-gold-deliveries-rise-729-year-over-year/
 

pmbug

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Avery has posted an update:
... As I reported last month, we saw a 729% increase in the demand for delivery of physical gold at COMEX during off-month of January 2017, year over year. This month (February) was a major delivery month, and there was another 230% increase in the delivery of physical gold bars. The huge increase in gross demand for actual physical gold bars is impressive. However, it is not the amount that was purchased but, rather, who was doing the buying that is the most important factor.

The biggest banks in the western world continued to be the biggest physical gold bar buyers during February. In many cases, their own customers are being called upon to deliver the bars to them. In total, about 18.66 metric tons worth of physical gold bars were delivered on COMEX in February. That compares to 7.99 tons delivered in February 2016. The net increase totals out to be 233% year over year, which is enormous.
...
Oddly, CME, Inc. was also a significant buyer. It has consistently been a significant gold bar purchaser throughout 2016. Like Goldman Sachs, HSBC, J.P. Morgan, Scotia and others, it has been stocking up. The exchange operator didn’t buy many gold bars as a “too-big-to-fail” megabank, but its purchases were enormous, and way out of line from a historical perspective. Remember, the futures exchange operator is not a bank, a hedge fund or an independent investor. It has no obvious reason to buy physical gold bars — except one which we will discuss in a moment.

CME, Inc. bought about 1/3rd of a metric ton in 2016. This past month, it purchased another 62 kilograms. In comparison, it bought only 5 gold bars in all of 2015. The exchange is contractually liable on any default in delivery by clearing members. There hasn’t been any default yet. However, the fact that the company is now buying so many gold bars implies that it is preparing for that to happen. It seems to be planning on weathering a major supply disruption.
...
http://averybgoodman.com/myblog/201...n-physical-gold-bar-deliveries-all-connected/
 

Unobtanium

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Thanks bug for the article. Reading this sent me down a rabbit hole to stumble on the article below. In essence (see graphs in article link):

http://www.valuewalk.com/2016/08/the-last-known-gold-deposit/


1) World mine production is trending down.

2) New mines are making only very small contributions to global gold production.

3) The number of years between new deposit discovery and production is growing (from about 5 years in 1985 to around 20 years now and 30 years predicted for discoveries in the next few years).

4) Major new gold discoveries are way down in the last 5 years despite heavy exploration spending.

5) Gold demand remains strong.


Folks, there is a supply crunch coming, and I think we are already seeing the beginning stages of it right now. It may take a few more years (or less?) for the biggest part of the crunch to hit, and I don't see how it can be avoided. The mining numbers just don't lie.
 
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pmbug

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Nice find. Yeah, that's a subject that SRSRocco has broached a few times. As I understand it, mining companies have "inventories" of minable earth in different grades. They shift their operations from low grade earth to high grade earth depending upon the profitability of the operation. So, back around 2008-2009 or so, when PMs were flying on rocket boosters, they had switched to mining their low grade inventory. When prices crashed back down, they had to start switching back to using their high grade inventory and that's a very limited commodity. Exploration isn't finding much (if any) high grade deposits any more. So, (eventually) while they may still have some inventory of low grade earth available, it might not even be profitable to process it.
 

rblong2us

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Energy costs are a big factor in this calculation.

It might be that with oil at around $50 they can work lower grades at a profit and ensure the mine has a better chance of survival if energy costs spiral up or POG drops too far.

They seem to have learnt that a reasonable operating profit makes more sense than short term maximum profit.
A rather different approach than what we see in the oil extraction business .......

Im not setting myself up as any kind of expert here, just reading articles that turn up in Gold & Silver news and attempting to make sense of it all
 

pmbug

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...
Last week, I showed you how the CFTC’s “Commitments of Traders Report” corroborated the fact that the big bullion banks used the big sudden decline on July 3rd to massively reduce their long-standing legacy short positions. I predicted that the big decline on Friday, July 7th was going to be used to do more of the same. Now, we have the proof that this is exactly what happened.
...
The latest Commitment of Traders Report’s statistics were tabulated as of the close of trading July 11, 2017. As of that moment, the bullion banks had closed 2,823 platinum short contracts (141,150 troy ounces of platinum); 9,560 silver short contracts (47,800,000 troy ounces of silver) and 19,392 gold short contracts (1,939,200 troy ounces of gold.
...
... The numbers, with respect to all the precious metals, each represent a massive percentage of the total short position held by the banks. What makes it even more noteworthy is the fact that it comes on top of the massive percentage they closed last week!

The bottom line? The most knowledgeable people in the world must believe that precious metals prices are going to be rising fast and hard in the next few months. Otherwise, they wouldn’t be fleeing from short positions they’ve rolled over for years! ...
http://averybgoodman.com/myblog/2017/07/17/gold-bullion-banks-close-huge-numbers-of-short-positions/

This email came from one of the global KWN readers (Kevin W.):
COT Gold Swappers are (now) a record long at 43,721 contracts. They increased their net long(s) into 7/11, from 7/3, by 22,000, whereas open interest increased by only 18,000!

Going back to Jan. 2006, Swappers have been net long only 25 weeks out of 600 weeks. Even with the set up in December 2015 for the big 2016 run last year, Swappers only made it to 31,693 contracts net long. Higher prices will make the squid faced Swappers a lot of money.
...
http://kingworldnews.com/fascinating-email-from-a-kwn-reader-about-the-gold-market/

:shrug:
 

Christian

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Interesting, I did not know about this. Is it better than investing and safeguarding on your own?
 

pmbug

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I still don't have a full grasp of how the COMEX works or how to interpret COT reports. I usually just gloss over news related to it these days because there is too much FUD for me. But there seems to be something perhaps significant happening currently:
...
Additionally, Comex clearing members can use what is called "London gold" as performance bond collateral. The CME rulebook does not define "London gold." Presumably these are the standard 400-ounce London Bullion Market Association bars stored in a London vault.

But the term "London gold" remains unexplained and nebulous, and recently the CME tripled the amount of "London gold" that can be used by a clearing member as performance bond collateral, increasing it to $750 million from $250 million.

Why has the exchange tripled the amount of "London gold" that can be submitted as performance bond collateral and included Comex gold bar warrants as assets considered acceptable collateral?

As has been well documented, the open interest in Comex gold contracts has just reached a record high. The current open interest, more than 716,000 contracts, is 85 times greater than the "registered" gold stock on the exchange and almost nine times more than the total amount of gold in Comex vaults, including "pledged gold."

As a technical matter "pledged gold" should not be considered part of warehouse stock because it cannot be delivered. The financial risk assumed by the Comex CME clearing members escalates with each new contract of open interest, especially to the extent that the open interest is "uncovered," meaning the Comex lacks enough gold to bear the risk of a delivery default.

For this reason the size of the performance bond posted by each clearing member increases pro-ratably with the rising value of the gold contract open interest. (That is, clearing members that process an increased amount of contracts require higher margin deposits.)

This raises the question of the quality of "London gold" as collateral. The issue with "London gold" is whether the gold is verifiably sitting in a London vault or if the posting bank -- for example, HSBC -- even has legal title to the bar.
...
http://gata.org/node/19589

If I'm understanding that right, the current number of gold contracts is more than 14 times greater than it was roughly two years ago. The number of contracts is so great right now that clearing members (who supply the gold for the contracts) are having to put up more collateral. Only, instead of depositing physical, "registered" gold into COMEX warehouses, they are tripling "London gold" which isn't actually defined anywhere and there doesn't appear to be any checks in place to ensure the clearing members have clear/unencumbered title/ownership. What could go wrong?
 

pmbug

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The plot thickens I guess...
For those who have at times struggled to understand the difference between COMEX inventory categories ‘registered gold’ and ‘eligible gold’, now your head can spin even more, since the CME’s COMEX has just introduced a new category – ‘pledged gold’.

This pledged category was first noticed on the infamous COMEX warehouse
late last week by Nick Laird ..., with the pledged gold column intriguingly populated with an entry next to the New York vault of bullion bank, HSBC. What did this pledged column entry mean, we wondered, and where did it come from?

After some digging on the CME website, the answer was revealed. Pledged is a new gold inventory category representing COMEX gold warrants which have been deposited with CME Clearing as performance bond collateral, in other words margin collateral. ...
...
Now this is where it gets interesting as regards the new “Pledged gold” category. Starting on Monday 4 November, the CME began allowing its clearing members to deposit and use COMEX gold warrants as collateral in meeting performance bond requirements for its Base Guaranty Fund Products and Interest Rate Swaps (IRS).

To reflect this change, the CME therefore needed to amend Chapter 7 of its NYMEX/COMEX Rulebook which covers “Delivery Facilities and Procedures” to reflect the acceptance of COMEX gold warrants as collateral. It did so by adding a reference to “pledged” precious metal, while defining “pledged” metal as “registered metal for which the warrant that has been issued is on deposit with CME Clearing for performance bond.”

Furthermore, the amendment also added “the requirement for approved facilities to report pledged metal to the Exchange”, hence the appearance of the new pledged gold category on the COMEX daily warehouse report.

Critically, the amendment also clarified that “clearing members that have deposited gold warrants as performance bond with CME Clearing may not use these warrants to satisfy their delivery obligations.” Simply put, this will therefore mean that any registered gold whose warrants are used as collateral cannot be used to settle gold futures.
...
More: https://www.bullionstar.com/blogs/r...d-shrinking-the-pool-of-registered-inventory/

Quite frankly, I do not understand the implications of this. It seems to me to a measure meant to facilitate interest rate swaps, so maybe something to help out central banks and their primary dealers monkey around with monetary policy. :shrug:

One thing is clear, COMEX/CME is currently making or undergoing some big changes while contract volume is at an all time high. The "London gold" issue looks to be a pressure relief for the contract volume. This "pledged gold" looks to me like something else.
 

rblong2us

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that would be a 'fail' on their part if we could understand what they are really up to ......
 
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