This could be early signs for what’s happening in gold and silver
This article first appeared on SchiffGold.
I typically start this analysis with gold, but the action in the platinum market is impossible to ignore. The next four charts should tell you everything you need to know.
First, similar to gold and siver, platinum has seen much higher delivery volume since the pandemic struck in 2020.
Figure 1: Platinum Delivery Volume
Unfortunately, I do not have a deep history of inventory data in platinum, but similar to gold and silver it has seen some major supply drawdowns so far in 2022. Supplies are now down over 50% since the April peak. In the most recent day, Eligible saw 34k ounces leave the vault. This represents 23% of Eligible supply and 15% of total platinum supply in the Comex. In a single day.
Figure 2: Platinum Inventory
The countdown in platinum was looking very compelling. Three days out, more than 500% of platinums available Registered inventory was still open. With one day to go, this value stood at 192%. This was well above the 50% and 78% seen in April and July at the same point in the contract. This means platinum was on pace to see delivery volume nearly 2x higher than available supply.
Then all of a sudden, in the final day of trading the contract dives all the way to 45% of total registered available. Figure 1 shows that every major month since Covid has seen at least 2,000 contracts stand for delivery. October is now looking like volume will be around 600 contracts delivered. This is 2.72 standard deviations below the mean since Covid started.
Figure 3: Platinum Countdown Percent
To highlight the anomoly seen in the final trading day, consider the chart below. For the past two+ years, platinum dives into the close and then moves laterally in the final day of trading. October 2022 is the lone standout where the contract where open interest dives in the final day.
If we again calculate the probability of such an event occurring since Covid, this type of drop is 8.86 standard deviations above the norm. Meaning the chances of such a large drop into close Hmmm… seems a bit strange. At a z-score of 3.4 you are talking the 99.98%, so this basically breaks any sense of probability. This is a massive outlier.
Figure 4: Platinum Countdown
It’s hard to know exactly what happened, but it’s easy to speculate. So let’s speculate.
My guess is that a savvy trader who is willing to take delivery knows the lack of supply in platinum. This trader can see all the data and knows the very limited supply of platinum at the Comex, which is shrinking more with each passing day.
Instead of rolling, the trader holds on, threatening to take delivery. The Comex does not have the metal. This cannot be allowed to happen, it could send shockwaves through the entire futures market, specifically gold and silver. So the Comex offers cash settlement at a very nice premium. The total platinum held yesterday was $121M. This is a rounding error, but a failure to delivery could create a cascading domino effect.
The Comex would be happy to pay a premium and not put the rest of their markets at risk. A single trader (or perhaps small group of traders), took on a little risk by playing their hand like they would take delivery. This forced the Comex into paying a huge premium to NOT have to deliver the metal it DOESN’T have!
Again, speculation… but if I had $100M to bluff with… this would be a great way to collect a nice little return. Corner a tiny market and apply maximum pressure to an overstretched entity.
Let’s move onto gold. Unfortunately for the Comex, October didn’t offer any relief from strong physical demand. Ocotber started the month very hot with 19k contracts delivered on the heels of the strongest minor month ever.
Figure 5: Recent like-month delivery volume
Perhaps most surprising was the lack of contracts that rolled in the final day. This is the exact opposite of the platinum market. October saw barely any drop in OI which has led to a very strong start to December.
Figure 6: Open Interest Countdown
This can be seen more clearly in the chart below comparing the difference of the green and blue bars. That difference represents the drop in OI in the final day.
Figure 7: 24-month delivery and first notice
Another standout datapoint in October is the percent of contracts delivered in the final month. 93.3% of open interest was delivered on the very first day of the contract. This shattered the existing major month record of 76.3%.
Figure 8: Delivery Volume After First Notice
Looking at past Octobers, this is already the second highest October recorded standing at about 50% of the October record set in 2020.
Figure 9: Notional Deliveries
Figure 10: House Account Activity
All this delivery volume is taking its tole on vault inventories of gold. The continued outflow of gold has been relentless for months. Since May, over 9M ounces have left Comex vaults.
Figure 11: Recent Monthly Stock Change
November gold is another minor month as the market prepares for the major December contract. As shown below, open interest has turned up quite quickly!
Figure 12: Open Interest Countdown
The chart below shows the last 9 minor months. There is a solid upward trend forming. The record minor month that just closed last month can also be seen (September).
Figure 13: Historical Deliveries
Finally, the October to December spread is showing the strongest contango since at least April 2021. Contango generally signals a market that anticipates higher prices in the future.
While platinum and gold continue to flash warning signs, the silver market has been (seemingly) left for dead. 55 deliveries in the first day of delivery action.
Figure 14: Recent like-month delivery volume
This is not totally surprising given the tiny number of contracts headed into First Notice. The action in silver has mainly been seen in net new contracts rather than at First Notice. Time will tell if it occurs again this month.
The final day drop can be seen as the difference between the blue and green bars below. This was the smallest drop seen going into First Notice since at least July 2020.
Figure 15: 24-month delivery and first notice
Unlike gold, nearly all the open interest was delivered in the first day with only 632 contracts remaining open. Almost 90% of contracts were delivered in the first day, which towers above the second highest month in March 2020 with 73% in the first day.
Even though the delivery volume in silver has been non-existent, the actual physical removal of silver from Comex vaults continues unabated. Every day there is more and more silver leaving Registered. Just like platinum, there is a day looming where delivereis may exceed available Registered supply.
Figure 16: Recent Monthly Stock Change
November silver is starting off sluggish with current open interest well below average.
Figure 17: Open Interest Countdown
All of this is happening while the silver spot market stays in strong backwardation, indicating that the current spot metal is being valued more highly than futures contracts.
One more thing silver has going for it is that the spot market remains in backwardation. This has been ongoing since July 4th and demonstrates strong demand for physical metal now rather than in the future.
Figure 18: Spot vs Futures
Gold continues to show incredible strength in delivery volume. Platinum looked like it was on the verge of “breaking” the Comex before a masive drop into close. Silver on the other hand has shown weak delivery but extremely strong pysical inventory movement.
Bottom line, the data from Comex continues to point to a physical market that is under pressure. The paper market may continue to see massive selling from speculative shorts, but eventually the physical market will start to drive the price of precious metals higher. =
Figure 19: Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11PM Eastern
Last Updated: Sep 29, 2022
Gold and Silver interactive charts and graphs can be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/