by Craig Hemke, Sprott Money:
Last week, we updated the incredible surging amount of total COMEX “Exchanges For Physical”. Much has changed in the past few days, so with some additional data in hand we thought we should re-visit the topic this week.
If you missed last week’s post, you can find it here. Please look it over before we begin:https://www.sprottmoney.com/Blog/comex-efp-use-con…
As stated last week, though EFP use between Bullion Banks in New York and London has grown over the past several years, the ongoing spike in use has caught our attention. At the current run rate, total volume of COMEX contracts “exchanged for physical” in London looks to exceed 8,500 metric tonnes for calendar year 2018. Again, that’s 8,500 metric tonnes. For perspective, the entire world will only mine about 2,800 metric tonnes this year, and the entire LBMA vault system—once you exclude Bank of England gold and gold pledged to ETFs—only holds 858 metric tonnes.
What’s clear is that there is no “physical” involved in these transactions at all. The sheer volume alone makes that obvious. No doubt these transactions are only settled by exchanging futures positions for unallocated, leveraged and hyper-hypothecated “gold”. Thus, going forward, we shall refer to these shenanigans as “exchanges for paper” instead, as there is clearly no real, unencumbered physical metal involved in the process.
Worth noting, however, is the surge in EFP volume that began over the past few months. Does this indicate anything? Does it signify physical stress in the fractional reserve bullion banking system, or is it simply a sign of an increased amount of price suppression through imaginary volume?
Nick Laird runs the terrific website http://www.goldchartsrus.com. He has total EFP volume numbers that date back to October 2015. (Sadly, in the deliberately opaque COMEX/LBMA system, we’re unable to find any data that goes back further.) Nick generously shared his data with us and it confirmed our suspicions regarding the increased use of EFPs. Not only is total EFP volume up nearly 50% on a YoY basis, we are currently seeing the highest single daily volumes on record.
Recall the beating that the price of COMEX gold took Friday, June 15. After a decent rally following the FOMC of last Wednesday, price was savaged on COMEX last Friday to the tune of nearly $30. Total COMEX trading volume spiked to 551,061 contracts, and this in itself is an atrocity, as it represents daily trading volume of 55,100,000 ounces of digital gold, or about 60% of annual mine supply, in one day.
But thanks to Nick, we now know that total EFP volume spiked to a new three-year (and possibly all-time) high that day, too. The CME reports that total EFP volume last Friday was 27,009 contracts. This equates to 2.7MM ounces of “gold”, or about 84 metric tonnes! In one day. Futures contracts “exchanged for physical”.
And guess what? We now have a new record for COMEX silver EFPs, too!
For Tuesday, June 19, the CME reported that the COMEX executed 8,893 silver EFPs. That, too, is a new high dating back to October of 2015, and quite possibly a new all-time high. And for those keeping score at home, there are 5,000 ounces of “silver” per each COMEX contract. Thus, the total amount of “silver” allegedly involved here is about 44.5MM ounces or 1384 metric tonnes—or about 130% of total U.S. annual mine supply.