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Gold: Recent Delivery Month
Gold is set to have another strong month in April, which is not surprising given the lead-up. The chart below shows 12,491 contracts delivered on the first day. While this may look smaller than the previous bars, there are still 12,600+ contacts open. Furthermore, the number of contracts opened mid-month continues to surprise to the upside.
All signs are pointing to a total delivery north of 25k and possibly 30k. This won’t eclipse the volume in December, but it’s still very strong. There are a few other data points demonstrating underlying strength in the market as shown below.
Figure: 1 Recent like-month delivery volume
The first data point of interest is the number of contracts that closed on the final day. This is typically a very large number. For example, almost 17k rolled in the final day for December. For the latest contract, the drop was a mere 3,622. This is the smallest drop into close going back to the start of Covid. Before Covid, the drops were even larger. December 2019 saw 30k contracts roll or close on the final day.
This month likely had the smallest drop into close on record for a true major month (Feb, April, June, Aug, and Dec). October is a bit of an odd month, not being major or minor. In the chart below, the other months where the final dip seemed smaller than normal are Oct 2020 (dip of 4k) and Oct 2021 (dipped by under 2k).
Figure: 2 24-month delivery and first notice
To better visualize the data point, the chart below shows the countdown into close for the final 3 days. As can be seen, the red line looks almost flat on the final day compared to other months.
Figure: 3 Cumulative Net New Contracts
One potential driver of the smaller than average drop, was the spread between April and June stayed strong into the close. This made the cost to roll the April contract a bit more expensive which may have prompted a few more contract holders to take delivery now rather than waiting. This is probably not the main reason, but it could certainly be a driver.
Figure: 4 Roll Cost
BofA house account continues to be a primary party taking delivery. Ironically, this month saw the net movement across all other house accounts turn positive. This may not hold by the time April finishes considering the net positive is only 1,627 contracts, but if it does, this would be the first time the house accounts (excl BofA) had net inflows since June 2021.
Figure: 5 House Account Activity
From a dollar perspective, this April is below the last two April contracts. April has been an odd month for the last two years. In 2020 it was the first major contract following the Covid shutdowns. In 2021, April was the first major month following the attempted Reddit silver squeeze.
That being said, this April could still be the largest April dollar volume ever considering the higher price of gold, the remaining open interest, and the possibility of contracts opening mid-month. It also continues the streak of weird April months considering it’s the first major month following the Russian invasion.
Figure: 6 Notional Deliveries
One other thing to note. The stock report showed banks aggressively restocking gold after seeing several months of outflows. That has continued this week with nearly 500k ounces of gold added in the last three days. Why are banks restocking so aggressively if inventory levels were high enough to meet demand?
Figure: 7 Recent Monthly Stock Change
Gold: Next Delivery Month
May and June are both looking very strong for gold as well. Below shows the current open interest for May relative to other minor months. Demand is clearly very strong and open interest continues to climb.
Figure: 8 Open Interest Countdown
This follows March which had the largest delivery for a minor month on record.
Figure: 9 Historical Deliveries
Finally, jumping into June shows an extremely high demand for the contract. Open interest is more than 100k contracts larger than the last two June contracts. Current open interest rivals April 2020 which was at the beginning of the Covid lockdowns when uncertainty around the Comexes’ ability to deliver gold was at its highest. It also preceded the massive price increase in the summer of 2020.
Figure: 10 Open Interest Countdown
The spread between the June and August contract has already started to widen.
Figure: 11 Spreads
Silver: Recent Delivery Month
While the gold market is ringing alarm bells across multiple indicators, silver is very quiet. On the first day, only 647 contracts were delivered.
Figure: 12 Recent like-month delivery volume
Zooming into the activity for minor months shows that open interest into close was very weak. That being said, there are two things to note:
- Open interest actually climbed slightly into close from 832 to 861. This has not happened since August 2021.
- Open interest finished higher than the February contract; however, that contract benefited from massive mid-month openings (see red bar).
Figure: 13 24-month delivery and first notice
BofA has not yet entered the fray. Given their recent appetite for silver, it’s hard to believe they will sit on the sidelines all month.
Figure: 14 House Account Activity
April is historically a quiet month for silver as shown below. Last year was impacted by the silver squeeze, but otherwise, April typically sees very low volume. Given the current trends, it’s likely this will be the second-largest delivery April on record, but it’s still very modest in comparison to the major months.
Figure: 15 Notional Deliveries
Silver: Next Delivery Month
May is the next major delivery month for silver and it is also showing weakness. It is well below trend. With 20 trading days to go, this is the smallest open interest since at least July 2020.
Figure: 16 Open Interest Countdown
That being said, the action in delivery volume does show strength. Major month delivery volume has been climbing since the low last September. March 2022 concluded with the highest delivery volume since March 2021.
Figure: 17 Historical Deliveries
The weakness in silver open interest should not be too concerning. Not only has delivery been strong, but the nuanced data reveals a lot of suspicious activity that indicates the established parties are going to great lengths to maintain confidence in the silver market.
Gold is a bit different. There is a clear strength in the market, and that is set to continue through at least June. As of now, the data at the Comex is pointing to another repeat of 2020 delivery volume. How will that show up in price? Impossible to know for sure, but generally strong delivery demand leads to higher prices. Things could get interesting this summer!
Figure: 18 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Mar 30, 2022
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