Another Comex Oddity

13
Wed, Jul 15, 2015 - 12:37pm

I'd like to draw to your attention today to something that relates to the recent stories of "silver supply tightness". As you know, there is all sorts of anecdotal evidence being reported of retail physical silver supply tightness. I'd like to show you something extremely unusual that may be the first sign of a wholesale supply tightness.

Recall that there are "delivery" months on the Comex and, in silver, these months are March, May, July, September and December. It is during these calendar months that the futures contract for the month gets delivered to anyone seeking to take physical delivery of 5,000 ounces of silver per contract. At present, the Comex is allegedly making deliveries for the July 2015 silver contract. This contract expired back on June 29 and began trading "first notice" the next day. This means that anyone still holding a July silver contract as of June 30 needed to have 100% margin in their account, expressing their intent and capability of either taking or making delivery of 5,000 ounces of silver per contract.

Usually, over the course of a delivery month, we see deliveries made against the outstanding contracts. Almost without exception, the total number of deliveries comes in below the total number of contracts outstanding at expiration as contracts are closed by:

  • Entities that were long and had no desire to take delivery
  • Entities that were long but didn't have the requisite margin on deposit to remain long. Their positions were then summarily sold and closed by their firm's margin department
  • OK. Are you with me so far? Good.

    Here's a typical month for you...December 2014.

    Upon contract expiration at the Comex close on Wednesday November 26, 2014, there were still 3,950 contracts still open, according to the daily CME open interest reports.

    The next business day, Friday November 28, 2014 was First Notice Day. By the close that day, after the first round of deliveries and the closing of contracts by those unwilling or unable to stand for delivery, the total Dec14 open interest was shown to be 1,735 contracts.

    By the end of the month of December, a total of 2,975 deliveries were made or 75.3% of the original total left open at expiration. See here: https://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf

    And, again, this is exactly how it always works. There are contracts still open at expiration. Some of these close on First Notice Day. The remaining deliveries are made over the course of the month but the total never matches or exceeds the amount originally standing at expiration. Here are more examples from earlier this year:

    MARCH 2015: 3,142 still open at expiration. 1,539 still open after FND. 2,583 total deliveries. 82.2% of the total from expiration.

    MAY 2015: 3,371 still open at expiration. 1,727 still open after FND. 2,840 total deliveries. 84.2% of the total from expiration.

    Again, do you see how this works? And let me assure you, this is how it has always worked for as long as I have followed the Comex delivery numbers.

    OK. Now let's look at what is taking place here in July.

    The total amount of July15 contracts still open at contract expiration on June 29 was 2,699.

    The total amount of July15 contracts still open at the close on First Notice Day June 30 was 2,077.

    Using history and experience as our guides, we should expect about 2,250 total deliveries over the course of this month. Ready for the surprise/anomaly?

    So far in July, through last evening, the CME shows that a total of 3,267 total deliveries have been made. What's more, the CME also shows that there are still 117 contracts left open. If all of these remaining contracts stand for delivery...and provided no one else shows up wanting some immediate silver...the total number of deliveries this month will be 3,384.

    Now wait a second. Hold on just a minute. There were only 2,699 contracts still open at expiration two weeks ago yet the Comex is on pace to deliver an additional 700+ over the course of the month? At 5,000 ounces/contract, that means someone or something has ponied up about $50,000,000 in order to "jump the queue" and take immediate delivery of 3,500,000 ounces of silver this month. Isn't that interesting and let me remind you that there are still two weeks to go in the delivery month and just about anyone can still plop down 100% margin, buy a July contract and get their silver. Total deliveries might actually exceed 3,500 or 4,000 contracts by the time the month is finished! But even if this doesn't happen and total deliveries come in near the 3,400 number instead, the total amount of deliveries versus the total number of contracts standing at expiration will be near 126%. Compare that to Dec14, Mar15, May 15 and every month as far back as you can find the data!

    So, does this mean anything? Maybe. Perhaps it's another anecdotal signal of physical tightness? Perhaps it's just ole Turd chasing ghosts again? I'll leave you to decide that for yourself.

    TF

    About the Author

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      13 Comments

    Chiron · Jul 15, 2015 - 12:45pm

    On a roll

    on the dole?

    lnardozi · Jul 15, 2015 - 12:45pm

    Second Rate

    Cooling it...

    Thorus · Jul 15, 2015 - 12:57pm

    Caddisfly larvae build houses out of gold

    This is a bit odd, but I figured this crowd would be amused by it.

    A guy wondered what would happen if the only material around for caddisfly larvae to surround their bodies with was gold, pearls, and gems. So he set it up.

    The bugs make some surprisingly beautiful "homes" for themselves. (though I wonder at the weight compared to their usual sticks and stones)

    There's even a video of a caddisfly larvae fondling his stash - just like a true stacker!

    https://www.thisiscolossal.com/2014/07/hubert-duprat-caddisflies/

    Best Regards,

    Thorus

    SS121 · Jul 15, 2015 - 1:41pm

    S i l v e r C h a r t - Downside Demand Increase Threshold

    Silver Chart Downside Demand Increase Threshold = A silver chart dynamic that occurs when decreasing silver chart prices reach the point where retail physical Silver demand increases and is usually accompanied by a tightening reaction from retailers.

    Premiums up 2-4% w/ today's smackdown.

    BarnacleBill · Jul 15, 2015 - 2:40pm

    Stackers and others

    will be frozen out of phys ag because of high premiums brought on by manufactured shortages. The big boys buy all they want at the chart price until they're ready to get on the long side or for fuel to further depress prices further. Just MHO. They are "prepping" too. 

    SS121 · Jul 15, 2015 - 4:19pm

    BarnacleBill re: freezing out stackers

    Retail Silver supply shortages might be alarming to the masses and further increase demand. They do not want that to happen, but it might happen anyway. It'd be good to see

    Gamble · Jul 15, 2015 - 4:54pm

    At this time in history

    Supply and demand no longer apply to economics! We live in a new world of fedonomics , and in this world what the fed wants the fed gets , period!! 

    Gamble gamble 

    I'm tapped

    Human Mushroom · Jul 15, 2015 - 5:39pm

    I've notice the silver price increase...

    the lower the spot chart goes. It would cost me more to buy Silver Eagles now than it did when I bought 10 days ago with the spot higher.

    Terry

    wouldyoubelieve... Human Mushroom · Jul 15, 2015 - 6:20pm

    ASE spread

    hasn't gone up as much as generic silver, premium is up on ASE about $.60/oz, generics seem to be $.40-$1.10/oz

    simondai777 · Jul 15, 2015 - 7:35pm

    where is the squeez?

    open interest and COT number all became useless?

    DAGEORGE42 simondai777 · Jul 15, 2015 - 8:24pm

    re squeeze

    no squeeze

    better move soon or we will have tax loss selling in the fourth quarter, once again for those idiots like me who own these fkn metals

    unwired · Jul 15, 2015 - 9:58pm

    Its probably

    meaningless as most Comex oddities are. But hey... here's hoping.

    pablovian · Jul 16, 2015 - 8:50am

    The silver market is tiny ...

    3.5 Million ounces is only $55 Million at current spot.

    700 Million ounces (annual production) is only just over $1 Billion

    The silver market is so tiny, the cost of manipulation is negligible.

    At some point in the future, someone with a few billion $ will manipulate the price upwards. They will need to absorb the costs of delivery failures and have ways to survive collapse of the financial system ... Its a quasi-nuclear option that is being in held in a lot of back pockets ... 

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