COMEX Warehouses in Trouble?

Since I started tracking COMEX gold and silver warehouse levels last November I’ve grown to be very suspicious of the numbers COMEX reports each day. In spite of increased physical deliveries in both metals, “registered” inventory levels remain more or less stable. This is why I gave up daily updates in favor of weekly ones; I just don’t have all that much faith in COMEX reporting.

Jim SinclairHero and venerable gold guru Jim Sinclair has experience in all things gold going back to the 1970s. Things happening NOW at COMEX gold warehouses are reminding him of severe delivery problems that bankrupted brokers BACK THEN.

Will Increased Delivery Demand Break The Gold Warehouses?

Dear Friends,

I have been speaking with many people this evening who have taken gold delivery.

What I am hearing is not impressive.

For decades warehouses have held, but rarely delivered as compared to store.

When examined closely it is a paper system that may have fallen badly behind as gold moved ahead since 2001.

There is a possibility the system is antiquated and more FUBAR than anyone, even the warehouses themselves, realize.

I have been told that bars delivered do not correspond with the receipts from exchanges.

I have been told that bars of slightly different weight (higher) have been received.

COMEX floor tradingThis may well be a system that has never been asked to handle volumes as are now taking place. This may well be like the old hand clearing equity systems that broke down as volume of trading increased in the early 70s.

F.I. Dupont went out of business because their back office could not meet the growing clearing and trading at that firm.

Pershing, and Vilas & Hickey were the two largest equity clearing firms.

Vilas & Hickey, a NYSE firm of which I was a general partner (at 27 years old) recognized the growing problem and transferred our clearing business to Pershing and merged our activities into another firm, Muller & Company, in order to avoid the impending problem.

I was the sole general partner of the merged NYSE firm so I know what I talk about. We preserved our capital and side stepped a problem that busted many firms.

I smell exactly the same thing in the precious metals warehouse business. How pervasive it is we all will soon find out.

Regards,
Jim

And Jim’s friend J.B. Slear, who helps people out with getting physical delivery from COMEX, is reporting:

1) “We’re finding out that some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.”

2) “Calls today are reflecting concerns about accounting practices in Canada and other G7 countries.”

3) “…We have witnessed cost increases in just about everything “Comex”, from Prudential’s verification process (which is matching buyers monies and sellers bars) all the way down the line to the delivery itself.”

Read more at Assistance Getting Delivery from COMEX Warehouses.

Gold/Silver Manipulation Over in 30 Days?

If you’ve been a precious metals investor for more than six months you’ve heard about the rampant price manipulation on COMEX. (COMEX sets the cash price for gold and silver through its daily futures and options trading activity.)

Many of us have been waiting for the illegal manipulation (run primarily by Bear Stearns until March 2008, then JPMorgan Chase since then) to end for over two years.

Adrian Douglas thinks it may be over in as little as 30 days.

At lemetropolecafe.com he writes (edited for length, link):

BIG MONEY MOVING INTO COMEX GOLD & SILVER CALL OPTIONS

In November 2005 when gold was trading about $450 I predicted the mega-move in gold up to $720/oz by noticing a very large build-up of call options in the HUI component shares. [link]

In August 2007 I identified a massive Gold call option build-up in the COMEX DEC 2007 contract and predicted a big gold move. [link] Gold was trading at $660/oz at the time and ran up to over $1000/oz by March 2008.

It just recently came to my attention from two different confidential sources that JPMorgan and Goldman Sachs have been buying large amounts of Calls in gold and silver. This made me put on my gumshoes and take a serious poke around the COMEX option open interest once again.

Figure 1 shows the cumulative Open Interest across all strike prices for the COMEX Gold Call positions and the Put positions for the JUN 09 options.

comex-au-oi-june-2009
Figure 1

The ratio of Calls to Puts is 1.81 so Bulls outnumber Bears dramatically. What is also remarkable is the amount of open interest. For example, 100,000 contracts would be in-the-money if the gold price runs to $1,250/oz in the next 30 days. This is an astounding amount of option OI considering the open interest in all the futures contracts stands at only 345,000 contracts!

Let’s take a look at Figure 2 which is for DEC 2009.

comex-au-oi-dec-2009
Figure 2

The bets by bulls outnumber those by the bears by a 2.3 to 1 ratio which is even more bullish than for JUN 2009. The Total Call option interest is 113,663 contracts which is very similar to JUN 09. Furthermore if gold is trading at around $1600 by DEC then 100,000 contracts will be in the money!

I consider option players highly sophisticated speculators.
Such large bets are likely being made by some large money interests who are buying out of the money options BEFORE going into the futures market. Buying long futures in large volumes will rapidly drive up the gold price but the massive open interest in the Call Options then allow access to much more futures contracts at the same price by exercising the options and then perhaps taking delivery of the gold. This is bolstered by sources revealing that JPM and GS are buying in quantity. So on the part of JPM this is likely a ploy to try to cover a chunk of their massive short position.

Let’s now look at silver.
Figure 3 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the JUL 09 options. The ratio of Calls to Puts is 1.80 so Bulls outnumber Bears by 80%. What is also remarkable is the amount of open interest. For example, 18,800 contracts would be in-the-money if the silver price runs to $25/oz in the next 60 days. This is an extraordinary amount of option OI considering the open interest in all the futures contracts stands at only 94,000 contracts!

comex-ag-oi-june-2009
Figure 3

Figure 4 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the DEC 09 options. The ratio of Calls to Puts is 1.68 so Bulls outnumber Bears by 68%. Again the total Open Interest in Calls is high at almost 25,000 contracts when the Open Interest in all futures currently stands at 94,000 contracts.

 comex-ag-oi-dec-2009
Figure 4

I conclude that smart money is being placed for a massive rise in the gold price in the next 30 days and silver in the next 60 days (which probably means within 30 days for both metals) and again by December.

Only sophisticated traders tend to be in the precious metals option market so when there is a huge build up betting on a particular direction that is typically a directional indicator as I have shown was the case for the last two big moves in the precious metal bull.

The flat contango in gold and silver suggests there is a shortage developing of precious metals for delivery. We know that two large banks hold almost 100% of the commercial net short position. They need desperately to cover their exposure if the market is about to make a big move.

It looks as if that is precisely what is happening.

Adrian Douglas
April 29, 2009

Is COMEX Cracking? Finally?

Many of us, myself included, thought COMEX silver might go bust last December. It inspired me to start tracking COMEX silver deliveries, thinking shortages may show up there first. [Vaporize COMEX countDOWN]

COMEX fooled me. [Gunther Asks If I’m an Idiot]

Most “deliveries” were not physical deliveries depleting COMEX’s metal reserves. They were really just moving a pile of metal from one bank’s hoard to another. So, I changed to just charting weekly changes in COMEX gold and silver inventory. [Charts: COMEX Gold & Silver] Gold inventory dipped through December, then recovered nicely. Silver, on the other hand, dipped and stayed, mostly, down.

Hmmm.

Now, no less an expert than Ted Butler [hero] is saying today:

tedbutler_sm“What’s somewhat ironic is that there was a tremendous amount of discussion over the past few months about backwardation and potential delivery troubles in the past December contract. None of those threats came to fruition.

“Now, with very little public discussion or warning, delivery tightness and backwardation seem to have arrived.

What’s this “backwardation” Ted’s talking about? 

“The main micro sign that we may be entering into a wholesale silver shortage is the appearance of an inversion or backwardation on the COMEX. For the past week, the nearby current delivery month of March has closed at a premium to the next major delivery month, May.

“What this means is that buyers are willing to pay more to get immediate delivery of wholesale quantities of silver. It means wholesale silver is “tight.”

It sounds like things may be heating up in silver…

See also:
COMEX Crimes: Your Tax $ at Work

Chart: COMEX Silver Inventory

button-vaporize-comex-white-backNOTE: Latest COMEX Silver Inventory chart is to the right, in the sidebar.

For what it’s worth, here’s a chart showing COMEX Silver Inventories since the end on November, 2008. (If you can’t see it click the title of the post above.)

comex-silver-inventory-2009-01-07

Notice the severity of depletion is nothing close to what I thought had been occurring in my earlier “Vaporize COMEX” charts, even though it is significantly better than the chart I published for gold yesterday.

On Nov 28, first notce day for Dec silver deliveries, COMEX reported 80,749,083 “registered” ounces. On Dec 31, the day after final notice day, COMEX reported 66,998,734 “registered” ounces. This is an inventory depletion of 17.0%, not the 46.5% I had shown in my “final” December chart.

All the other frustrating comments I made about the gold chart apply to the silver one as well. (Please read them on Chart: COMEX Gold Inventory before calling me an idiot.)

Please note the reversal of the “Eligible” and “Registered” areas vs the gold chart. Seem silver has a smaller (though growing) pool of “eligible” inventory.

Could this be a sign some of the metal is being set aside for possible delivery outside of COMEX? I honestly don’t know.

Chart: COMEX Gold Inventory

button-vaporize-comex-white-backNOTE: Latest COMEX Gold Inventory chart is to the right, in the sidebar.

Here’s the latest COMEX Gold Inventory chart. (If you can’t see it click the title of the post above.)

comex-gold-inventory-2009-01-06

Please, let me be the first to call myself an idiot.

No, I insist! Really.

In the previous “Vaporize COMEX” charts I plotted the MTD deliveries against the inventory numbers provided by COMEX. I subtracted the delivery ounces from the reported inventory assuming the inventory levels would be adjusted downward after the end of the delivery month. It looked as if 48.1% of COMEX gold had been depleted.

Wrong-o, moose breath!

All my previous charts were wrong. It appears the reported inventory levels have already been reduced by the “net” delivery amounts.

In other words, the major gold and silver speculators are playing a shell game: when they “take delivery” they just move the metal from one “registered” pile in one of the COMEX-approved warehouses to another. There is, so far, rarely any actual physical delivery. The chart above shows almost no metal has left the warehouse.

On Nov 28, first notce day for Dec gold deliveries, COMEX reported 2,855,567 “registered” ounces. On Dec 31, the day after final notice day, COMEX reported 2,826,953 “registered” ounces. This is an inventory depletion of only 1.0%.

Cornholio, I think you may have mentioned something along these lines when you said there was no way COMEX would be busted. Sure looks to me like you’re right.

Assuming COMEX is honestly reporting their inventory levels, and that the gold physically exists, it’s gonna take some seriously deep pockets to bust COMEX.

About COMEX Failing to Deliver on “MiNY” Contracts
I know some of you have been getting excited about this story:
Is Comex Doing Fractional Reserve Delivery of Gold?
But is this really significant? IMO COMEX is just discouraging miNY contract holders from taking delivery by setting the bar a little higher. If you have to have three miNYs to take physical delivery you might as well just pony up for the full contract. It doesn’t seem COMEX has any problems delivering 100 oz bars.

What do YOU think? Comments are opened below…

Vaporize COMEX 2008-12-30

Final numbers for December Gold/Silver:

Gold: 48.1% depleted. Delivery notices today: 11,400 oz. (but 20,000 oz added to inventory)
Silver: 46.5% depleted. Delivery notices today: 155,000 oz.

No Bust, No Joy: but we got almost half-way there! We’ll try again starting Feb 2009.

Link to all Vaporize COMEX posts:
button-vaporize-comex-white-back

comex-countdown-gold-2008-12-30

 

 

gold-data-2008-12-30

comex-countdown-silver-2008-12-30

silver-data-2008-12-30

COMEX trades hundreds of times more gold & silver than they actually possess. If enough investors demand delivery of PHYSICAL gold & silver COMEX stockpiles will be depleted. If COMEX runs out, the ensuing rush to grab physical metal to settle contract obligations *could* be the spark that ignites the long-awaited precious metals wildfire.

Explanation:
COMEX warehouses contain both “registered” and “eligible” metals. The “registered” metals are available for physical delivery. The “eligible” metals are not ready for delivery until they become “registered.” Although this pool of “eligible” metals is stored at COMEX warehouses there is no obligation to “register” these metals for subsequent physical deliveries.

The graph shows:
1) the cumulative ounces of metal delivery notices this month,
2) the ounces of “registered” metal available for delivery,
The percentage shown is based on the cumulative physical metal delivery notices for the month against the “registered” amount of metal in COMEX.
“Eligible” metal inventories are not shown as they do not have a direct bearing on the inventory depletion ratio.

Sources:
[1] COMEX precious metals warehouse stocks:
gold: http://cmegroup.com/trading/energy-metals/files/Gold_Stocks.xls
silver: http://cmegroup.com/trading/energy-metals/files/Silver_Stocks.xls
[2] COMEX precious metals daily delivery notices: http://cmegroup.com/trading/energy-metals/files/delivery.pdf
Link to master list of reports: http://www.cmegroup.com/trading/energy-metals/nymex-daily-reports.html 
Link to most recent clearing info (first & last notice dates): http://www.cmegroup.com/tools-information/most-recent-clearing.html or try this direct link
Link to delivery dates through 2015: http://www.nymex.com/gol_fut_termin.aspx

More info:
Gold: Is This It, NOW?
Attack of COMEX Gold & Silver
How 2 Track COMEX Deliveries
Sinclair Sez “Help Me Bust Comex”
This Guy Plans 2 Kill “Paper” Silver
COMEX: Taking Delizery Is EZ

Vaporize COMEX 2008-12-29

Gold: 48.1% depleted. Delivery notices today: 5,200 oz.
Silver: 46.3% depleted. Delivery notices today: 5,000 oz.

 

Link to all Vaporize COMEX posts:
button-vaporize-comex-white-back

comex-countdown-gold-2008-12-29

gold-data-2008-12-29

comex-countdown-silver-2008-12-29

silver-data-2008-12-29

COMEX trades hundreds of times more gold & silver than they actually possess. If enough investors demand delivery of PHYSICAL gold & silver COMEX stockpiles will be depleted. If COMEX runs out, the ensuing rush to grab physical metal to settle contract obligations *could* be the spark that ignites the long-awaited precious metals wildfire.

Explanation:
COMEX warehouses contain both “registered” and “eligible” metals. The “registered” metals are available for physical delivery. The “eligible” metals are not ready for delivery until they become “registered.” Although this pool of “eligible” metals is stored at COMEX warehouses there is no obligation to “register” these metals for subsequent physical deliveries.

The graph shows:
1) the cumulative ounces of metal delivery notices this month,
2) the ounces of “registered” metal available for delivery,
The percentage shown is based on the cumulative physical metal delivery notices for the month against the “registered” amount of metal in COMEX.
“Eligible” metal inventories are not shown as they do not have a direct bearing on the inventory depletion ratio.

Sources:
[1] COMEX precious metals warehouse stocks:
gold: http://cmegroup.com/trading/energy-metals/files/Gold_Stocks.xls
silver: http://cmegroup.com/trading/energy-metals/files/Silver_Stocks.xls
[2] COMEX precious metals daily delivery notices: http://cmegroup.com/trading/energy-metals/files/delivery.pdf
Link to master list of reports: http://www.cmegroup.com/trading/energy-metals/nymex-daily-reports.html 
Link to most recent clearing info (first & last notice dates): http://www.cmegroup.com/tools-information/most-recent-clearing.html or try this direct link
Link to delivery dates through 2015: http://www.nymex.com/gol_fut_termin.aspx

More info:
Gold: Is This It, NOW?
Attack of COMEX Gold & Silver
How 2 Track COMEX Deliveries
Sinclair Sez “Help Me Bust Comex”
This Guy Plans 2 Kill “Paper” Silver
COMEX: Taking Delizery Is EZ