by Peter Schiff, Schiff Gold:
This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
An article earlier this month reviewed the massive volume of physical metal leaving the bank House accounts over the last two years. December 2021 finished the year off with a massive drawdown in House account inventories. While the drawdown continues across most accounts, Bank of America has tried to recoup some of the physical that left their holdings in December. As the data below shows, this has led to an extremely strong January to kick-off 2022.
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Silver: Recent Delivery Month
Silver is wrapping up January which is historically a low volume minor month after December. Furthermore, February is another minor month in silver which really leaves January on its own. That being said, the chart below shows extremely high delivery volume. With 49 contracts remaining of Open Interest, it could still make a push to challenge last June and even last April.
Figure: 1 Recent like-month delivery volume
The initial Comex results analysis showed January to be strong, but well short of the big months of April and June.
Figure: 2 24-month delivery and first notice
The green bars above represent the open interest on First Position which is typically a good predictor of the delivery volume for the month. This is when contracts need to post 100% cash. After First Position, contracts can still cash settle, or contracts can open and stand for immediate delivery (red bars above). This January saw a slight dip into First Position of 112 contracts and leaving 2,101 open. This is more than double the 949 last January.
Since then, 786 contracts have opened for immediate delivery (red bar above and red line below). As can be seen in Figure 3, this is a record for minor months going back to early 2020.
Figure: 3 Net New Contracts
Who or what is driving such strong activity? Bank of America. On First Position, Bank of America House Account took delivery on 821 contracts. Since then, they have taken delivery of another 1,030 contracts! This can be seen in the House account activity below that highlights the BofA delivery.
As shown, BofA spent most of 2021 stocking up on physical silver while the rest of the House accounts bled out. Then in December, BofA had 4,949 contracts (24.7M ounces) leave in one fell swoop. They have responded in late December and January by buying back more than half the amount lost (2,686).
There has been discussion online about Bank of America being short a ton of silver and trying to get out of the position. This article will not explore the topic beyond highlighting the strange behavior coming from BofA in recent months. As shown in the gold section below, the odd behavior exists in that market as well.
Figure: 4 House Account Activity
Coming back to January at large, from a historical perspective, this January crushed any previous January in nominal terms. This includes the period around 2011 when silver last approached $50. The chart below is in dollars delivered.
Figure: 5 Notional Deliveries
Silver: Next Delivery Month
As mentioned, February is another minor month in silver. So far, open interest is looking very weak. Compared to the last several months, silver is way below average. Remember, it was last February when the open interest first spiked into the close.
Figure: 6 Open Interest Countdown
It does not look like February will exceed the delivery volume in January. However, BofA is still down over 2,000 ounces after the December event so it cannot be ruled out entirely.
Gold: Recent Delivery Month
The charts below follow the same order as the silver charts above.
January gold has seen extremely strong delivery volume for a minor month. It has more than doubled November and is well above the high from September. Furthermore, the total delivered so far is more than 200% of the max open interest seen for the January contract. After the massive delivery in March last year, volume plummeted. Since then, it has been climbing back up month over month. Similar to silver though, the January activity can be attributable to BofA as shown below.