Comex Countdown: Gold Shows Strength while Silver Sees Cash Settlement

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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.

Silver: Recent Delivery Month

Silver is wrapping up May which is a major month contract on the Comex. Delivery volume has been falling and resumes the downward trend that has been ongoing for a year. As the chart below shows, December and March now appear to be anomalies rather than a change in trend (for now).

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Figure: 1 Recent like-month delivery volume

Part of the low delivery volume can be attributed to the highest cash settlement of contracts since July of last year. So far, 436 contracts have cash settled instead of standing for delivery. However, even if you add the cash settlement to the remaining open interest (445) you would only have 881 additional contracts standing for delivery. When added to the current delivery volume of 5,153, you would get a total just above last September but below last July.

Figure: 2 24-month delivery and first notice

The better question this month is not “Why does delivery volume continue to fall?”, but instead “Why are contracts cash settling?”. The Comex Stock Report shows plenty of available inventory. If that was the case, then why would a contract holder keep their contract through First Notice only to cash settle in the end?

December and July were the other big cash settlement months, but there was a lot of activity going on around those months that may have prompted some shorts to want to cash settle. With the price of silver getting smashed lately, what would prompt cash settlement of almost 10% of the contracts?

Figure: 3 Cumulative Net New Contracts

Further adding to the suspicion this month is the activity at the bank house accounts. Bank of America has a second month of zero activity after seeing extremely elevated activity from Dec-Mar. Furthermore, on net, this is the bank’s biggest delivery out volume in house accounts since December. If you exclude the massive outflow from BofA, this is the largest since July last year.

Why are the bank house accounts continuing to part with silver? What happened to BofA? It’s unlikely these questions will be answered, but the data is clearly showing strange activity. Especially considering the depressed delivery volume this month.

Figure: 4 House Account Activity

As shown below, this May is very average compared to the last 5 years. It should finish slightly above $600M in total delivery, but this would be below both 2020 and 2021.

Figure: 5 Notional Deliveries

Silver: Next Delivery Month

Jumping ahead to June also shows fairly average open interest. Current OI is middle of the pack compared to other minor months around the same time in the cycle.

Figure: 6 Open Interest Countdown

At the current level of open interest (1542), delivery volume would exceed April but still be the second-lowest over the last 18 months.

Figure: 7 Historical Deliveries

Gold: Recent Delivery Month

While silver momentum slows, albeit, against suspicious activity, gold is a different story entirely. Gold started out in May looking very weak, but has seen 4,542 contracts open and stand for immediate delivery mid-month. Ignoring the massive surge in March (probably attributable to the Ukraine conflict), this continues the upward trend that has been in place since May 2021.

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