Comex Countdown: Quiet Before the Storm?
This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
Both gold and silver are seeing quieter activity in Comex contracts. This is not atypical for October and November which are slow months in the lead up to December.
Silver: Recent Delivery Month
Silver is wrapping up a minor month and also heading into a minor month. October has seen the least delivery volume since before the Reddit squeeze in February with this month just above 2,000 but below the October delivery of 2,185.
Figure: 1 Recent like-month delivery volume
This lower activity persists despite the strong drainage seen in the Comex vaults over the last month. Perhaps this explains the mid-month activity showing a lot of strength.
When the delivery month starts after first notice, typically the number of contracts open is a great indicator of the number of contracts to be delivered. Some investors choose to purchase and stand for immediate delivery in the current month. This is usually a sign of strong immediate physical demand.
This month saw 454 contracts open mid-month for October to stand for immediate delivery (red bars). While this pales in comparison to the major months, it’s a big number for mid-month activity. The second chart below zooms on the red bars and shows how October compares to recent months. As shown, this is the strongest since June.
It’s hard to know what is driving the strong mid-month activity, but as mentioned above, it could be tied to the Comex vaults losing almost 1% of their inventory in a single month.
Another promising sign is the historical view. Looking at the month of October over 10 years shows that this month is the second largest on record from a dollar (notional) perspective. Last year set records in almost every month, but $232M in total deliveries this month is pretty strong, especially considering the price of silver is lower than where it was last year.
Figure: 4 Notional Deliveries
Silver: Next Delivery Month
The November contract is about a week away from First Notice. While the initial look at the chart below may seem negative (red line below recent months), the contracts outstanding is almost double the amount seen at the same time last November (green line).
November is historically a very small month because December is a major contract in both gold and silver. The mid-month strength seen in October combined with the relatively high contracts outstanding in November is a promising sign heading into the end of the year.
On the surface, things may seem calm, but the hints of strong physical demand could lead to an exciting December! Is gold showing similar activity?
Figure: 5 Open Interest Countdown
Gold: Recent Delivery Month
The charts below follow the same order as the silver charts above.
October gold is a tricky month to analyze because it is neither minor nor major. It is unique because contracts outstanding typically get higher than 50k. This is well above the 1k-4k for minor months but well below the 400k seen in major months.
Last October gold saw nearly 35k contracts stand for deliver, which was 48% of the peak open interest seen for the month (orange dot below). For the other major months, the number is around 10%. This past October has seen 17,662 contracts stand for delivery which is 37% of peak open interest. Even though the number looks weak compared to the other major months, it could be argued this is a strong showing due to the uniqueness of October.
Figure: 6 Recent like-month delivery volume
The mid-month activity has shown strength, albeit less than the last two months. August (7.1k) was exceptionally strong followed by a decent September (2.6k). This compares to May-June which didn’t see more than 1350 contracts in any month. October has seen a healthy 1,822 contracts open mid-month. This is actually on par with Aug and Sept last year, but below October 2020 which saw 4,370.
It’s hard to make a definitive conclusion, but the mid-month physical demand has been there the last three months for sure.
Figure: 7 24 month delivery and first notice
Putting October into historical context shows a similar trend to silver. Below last year, but well above past years. Before last year, the last time more than $3.1B was delivered in October was back in 2009.
Figure: 8 Notional Deliveries
Gold: Next Delivery Month
November gold is a bit more conclusive, showing weaker demand. As mentioned in the silver analysis, November is an odd month, but this November is even sitting well below last November (orange line). Reading into this too much would be a mistake. The difference is about 1,000 contracts from this year to last year at the same time. As shown in Figure 7 above, 1,000 contracts is not materially significant for most major months.
Figure: 9 Open Interest Countdown
October and November are tricky months on the Comex, both being minor months with December looming. Another quirk is that silver won’t see a major month until March. Gold will have a major month in February, but that shouldn’t take away the importance of December. The physical demand for both metals has picked up since the lull over the summer. December could show whether the strong demand for physical is sustaining or waning.
The inflation in 2021 has been high but will likely get much higher in 2022. Major companies have been announcing price hikes for months. The CPI is still sitting above 5% and doesn’t even accurately measure the true cost of living.
Physical demand in 2021 was high from a historical perspective but below the records seen in 2020 (without yet counting December). Even though price and physical demand lost momentum through Q3 2021, it’s hard to believe the demand won’t come back in a hurry if inflation doesn’t cool and the Fed is slow to act.
Figure: 10 Annual Deliveries
Data Source: https://www.cmegroup.com/
Data Updated: Nightly around 11 PM Eastern
Last Updated: Oct 21, 2021
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