This analysis focuses on gold and silver data provided by the Comex/CME Group. See the article What is the Comex for more detail.
Silver: Recent Delivery Month
First Position Day is when contracts must post 100% margin to stand for delivery. Once delivery begins, contracts can settle in cash or more contracts can be opened and stand for immediate delivery (usually a sign of strong physical demand). Figure 1 below shows the last 24 months of silver delivery data when compared to First Position and the day before First Position. As shown, Open Interest falls significantly between the two days. This can be seen more clearly in Figure 4 below, the Open Interest countdown chart.
Silver is wrapping up a minor delivery month which usually means smaller delivery volume; however, can be a good indicator of physical demand. Contracts in the minor months are much more likely to stand for delivery versus the major months which speculators prefer due to much higher liquidity.
In this latest month, the number of contracts actually increased into the close rising by 69 contracts from 1,932 to 2,001. In the first day, 1,629 contracts have stood for delivery with 372 remaining as open interest. The minor months have seen a steady trend of new contracts opening and standing for delivery during the month. This trend will most likely continue for the August contract.
Figure: 1 24 month delivery and first notice
We can see in Figure 2 below how this most recent month stacks up more directly with other minor months. While August is only just above half the last two minor months, it is important to remember there are 30 days remaining for delivery. Not only can it be assumed that 372 from Open Interest will be added, but looking at April and June saw 74 and 679 contracts open mid month to stand for immediate delivery.
Figure: 2 Recent like-month delivery volume
Even with the Open Interest outstanding and a number of contracts opening mid-month for delivery, it is unlikely August will exceed the delivery volume seen in April and June. While this is slightly a negative trend, it is important to put this August into historical perspective. The chart below shows how this August on a notional (dollar) level is even set to exceed last August. Last July was right when silver saw its explosive move higher into the August contract.
Thus, there is more physical demand this August when price action has been sideways compared to last August when prices had doubled since the March lows.
Figure: 3 Notional Deliveries
Silver: Next Delivery Month
Jumping ahead to July shows that Silver is slightly below the trend line compared to recent major months. It is still way too early to gauge what delivery will be like for September based on the chart below.
Figure: 4 Open Interest Countdown
Instead, this next chart can give a good idea of the current trend for major month deliveries. Last year was seeing record deliveries and the volume has certainly fallen off since then. The mid-month countdown highlighted very strange behavior in July.
July 2021 was set to possibly exceed the record set last July; however, open interest collapsed into the final day at a rate greater than any prior contract over the last two years (Figure 1 above). Furthermore, more contracts were cash settled last month than any other month since May 2020.
Figure: 5 Historical Deliveries
Major Month: Cost to Roll
The cost to roll is the difference between the current month and the next major month. It has started increasing compared to recent months. If this continues to rise, it may prompt contracts looking to take delivery to act sooner since the cost to roll becomes more expensive. When the cost turns negative known as backwardation, it’s also a major signal of strong physical demand.
Only when it’s steady and low similar to May and July 2021 does it indicate an environment of complacency that makes it inexpensive to roll contracts forward. September is still relatively low, but higher than the last two months (potentially due to a longer time horizon stretching to the December contract).
Figure: 6 Roll Cost
Gold: Recent Delivery Month
The charts below follow the same order as the silver charts above.
August gold is a major delivery month. While 19,031 contracts at first position is still high relative to all history, it is far below the more recent major months. Gold has not seen contracts cash settling mid month which means total deliveries for August should slightly exceed 19k.
Figure: 7 24 month delivery and first notice
Even with mid-month activity increasing delivery above 19k, it will be very hard for gold to break out of its current downtrend. As the chart below shows, physical demand has been steadily falling month after month since last June.
Figure: 8 Recent like-month delivery volume
Looking historically at August, the most recent August is still well above average, but far below the nearly $10B in delivery volume that took place last August when gold was approaching all time highs.
Figure: 9 Notional Deliveries
Gold: Next Delivery Month
September Gold is a minor delivery month. The initial trend is promising as open interest has increased. The question going forward will be whether it maintains positive momentum and closes the month strong (similar to silver above), or turns back down as first position approaches. The Comex countdown update will be released around August 23rd to analyze the trend, about a week prior to September First Position.
Figure: 10 Open Interest Countdown
The last several minor months show a very choppy pattern. There have been a few massive months but also low delivery months. It was good to see July trending above May and January, but it’s still a far cry from the bigger months.
Figure: 11 Historical Deliveries
Silver is still showing some strength despite a disappointing delivery amount for July. Gold needs to reverse course soon in order to recapture some of the near record deliveries from 2020.
Figure: 13 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11PM Eastern
Last Updated: Jul 29, 2021
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