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 has nearly completed the major delivery month of September. As can be seen below, the amount delivered is below recent months at 5,377 contracts. Currently, there are 294 contracts open, but this will not be enough to even get above the July amount of 6,692.
Figure: 1 Recent like-month delivery volume
Looking at the mid-month activity also shows middling results. The Red bar below indicates how many contracts were open and delivered in the same month. September had 143 open and close mid-month, which is below even the minor month of August which saw 184 such contracts. Perhaps the “silver” lining is that the activity of July did not repeat where Open Interest collapsed into the close followed by over 1,000 contracts cash settling intra-month (rather than standing for physical delivery). Still, though, the total July number was higher than September by over 1,000 contracts.
Figure: 2 24 month delivery and first notice
While this is a concerning trend showing less demand for physical delivery among contract holders, it’s still important to track the physical movement of metal. In recent weeks, silver has been leaving the Comex vaults at a pretty fast pace.
Looking historically at the month of September shows that this month is underwhelming especially given the higher price of silver relative to recent years. The chart below shows the notional amount of delivery in previous Septembers.
Figure: 3 Notional Deliveries
Silver: Next Delivery Month
The October contract is about a week away from First Notice. The trend is again, unfortunately negative. After starting strong, the open interest has been slowly declining into the close coming up next week. Where the most recent contracts have accelerated into the contract close, October is showing a weak finish.
With the recent price decline in silver, the waning interest in physical is not completely surprising. However, once the Fed fails to deliver on its taper and interest rate hikes, it’s hard to believe this trend will not reverse quickly and rather sharply.
Figure: 4 Open Interest Countdown
The minor months have been dropping since the high reached in April. With only 1617 contracts outstanding, it’s hard to imagine this trend will break in October.
Figure: 5 Historical Deliveries
Gold: Recent Delivery Month
The charts below follow the same order as the silver charts above.
September gold is a minor delivery month and has diverged from silver, showing resilience. The last three months have shown an accelerating trend with September hitting 2,859 contracts.
Figure: 6 Recent like-month delivery volume
The more compelling story is what happened during the month. Similar to August, September saw a strong intra-month number of contracts open and stand for immediate delivery. In fact, at first position, there were only 1,153 contracts but 1,862 contracts have been opened within the month. This is the strongest mid-month activity for a minor month since March of this year.
Figure: 7 24 month delivery and first notice
Putting September into historical context shows that this last September dollar delivery is comfortably above most other Septembers. While 500M dollars of gold being delivered is far less than the major months that can see +4B delivered, it is still quite strong and stands above all years from 2012-2019.
Figure: 8 Notional Deliveries
Gold: Next Delivery Month
October gold is a weird delivery month. It sits between August and December as a quasi-major month. As shown below, the Open Interest never gets nearly as high as the major months that can see 400k. Open Interest for October topped out around 45k, but still sits at 31k with a week to go. This is below October 2020 but is still pretty strong. In the next, week investors will show how much physical appetite they have for gold.
Figure: 9 Open Interest Countdown
The last few months saw a declining trend that reversed in August. Looking at the chart below, last October shows a very strong month of 34k contracts standing for delivery. With current Open Interest sitting below this number, it will be hard to beat the number from last October. That being said, it’s still possible to eclipse the amount from August. Especially if there is a large number of contracts opened mid-month again.
Figure: 10 Historical Deliveries
Cost to roll
The cost to roll from October to December is still fairly cheap. This may cause some traders seeking delivery to push to December. Especially given a somewhat more “hawkish” Fed taper timeline announced today, many contract holders will feel less urgency to stand for delivery. (
Hawkish is in quotes because anything that is not perceived as 100% dovish is considered hawkish by the market. The meeting today was not hawkish by any historical standard.
If October does make a strong showing, it may indicate that people wanting physical gold are starting to ignore the Fed and are simply trying to accumulate as much physical as they can. Stay tuned for the results next week to see what happens!
Figure: 11 Roll Cost
A few months ago, physical demand for gold was looking very weak while silver was showing strength. It seems that the tide has turned rather quickly. Considering the big money is in gold, it could be argued that it is leading the way and silver will follow. Especially considering the increase in the silver/gold ratio. Essentially, the weakness that was showing up in gold a few months ago is now materializing in silver. This would imply that silver could rebound soon and close the ratio.
Even though physical demand was much stronger in 2020 than 2021 for both metals, this year has still been strong by historical standards. The year is ending sluggish, but with the chance for CPI to move much higher once the economy moves past Delta, it’s hard to think the metals prices will stay low for long. Once the market realizes the Fed can never raise rates, the physical demand for PMs will come rushing back.
Figure: 12 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Sep 21, 2021
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