Comex Inventory: Why is Registered Collapsing During Backwardation?


    by Peter Schiff, Schiff Gold:

    This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.

    Registered = Warrant assigned and can be used for Comex delivery, Eligible = No warrant attached – owner has not made it available for delivery.

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    Current Trends

    Both gold and silver have recently entered backwardation in the spot market. While the futures market is still in contango, the spot market has been steadily above the futures market. Usually, this is a brief occurrence that quickly reverses, but it has been ongoing for several weeks now. The charts below show the average monthly difference between futures and spot.

    Figure: 1 Recent Monthly Stock Change

    Gold is in the largest average backwardation since September 2013, for silver, it is July 2013. In the past, backwardation is usually caused by a large difference in price that quickly reverses. The big move pulls the average down. It’s rare to see prolonged periods like the one experienced this month. It’s also important to note that the chart above shows backwardation does not necessarily mean a price surge is coming. That being said, understanding the move can give clues to what’s going on under the surface.

    Figure: 2 Recent Monthly Stock Change

    Backwardation is rare in precious metals because it’s an immediate arbitrage opportunity for traders. Anyone with physical metal can sell their metal at the spot price and then buy a futures contract at a cheaper price and hold it until delivery.

    If spot gold is $1710 and August futures are $1705 then a trader can execute this trade for an immediate $5 an ounce profit (minus fees). It becomes even less likely for the curve to be in backwardation further out because the saved storage cost should cover most other fees.

    Thus, a market in backwardation should see traders making their metal available for delivery and hedging their position by buying futures to bring the price back into contango. The Comex data shows the exact opposite is happening.


    After restocking inventories for two months in March and April, Comex vaults have seen almost all of the inventory increase reversed since May. The reduction has been in both Registered and Eligible and is the largest reduction in metal since the Reddit silver squeeze last year. Why is metal leaving the vault when there is an easily profitable trade if investors delay delivery?

    Figure: 3 Recent Monthly Stock Change

    As shown below, this has been a very consistent removal of metal from the vault. Registered has seen no additions in the last 30 days and Eligible has seen additions that have only come from Registered rather than new metal. This is metal that is no longer available for delivery. Backwardation started at the beginning of July, and removal from Registered has accelerated since this time.

    Figure: 4 Recent Monthly Stock Change


    The action in silver is a bit more nuanced and potentially more significant. Although the chart below shows that metal has been added to the vault on a net basis, Registered has seen a significant decline. This decline has been over four straight months and seven of the last eight.

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