Even though gold "deliveries" on the Comex are nothing but a charade and shuffle of paper warehouse receipts and warrants, the latest trend is a real eye-opener and appears to be a rather interesting datapoint of extreme demand for gold in all its forms.
First of all, some background so that we're all on the same page...
Through the year, the Comex trades futures contracts for every month on the calendar. However, not all months are treated equally. Six of the months are treated as "delivery months" and these are the contracts which carry the majority of the short-term trading interest and volume. These months are February, April, June, August, October and December, The other six months are considered "non-delivery" and are very rarely traded or utilized as physical settlement contracts. These months are January, March, May, July, September and November.
A quick look at the current "gold board" reveals that, with the Aug16 contract now in its "delivery" phase, the active front month has become the Dec16. See below:
And, as you can see on the next chart, fully 3/4 of the entire Comex gold open interest can now be found in this front month, Dec16 contract:
OK? So, when a front month comes "off the board" as the Aug16 did last Thursday, it moves into its "delivery phase". This is when the entire charade and fraud of "Comex delivery" kicks in, usually characterized by a simple shuffling of paper warehouse receipts back and forth between the various Banks which operate the vaults. We've written about this on countless occasions over the past six years so we're not going to cover all of this again. Suffice it to say that there is very little, actual metal that is ever physically delivered on Comex. The entire process is simply in place to create the illusion of physical delivery in order to give The Bullion Bank Paper Derivative Pricing Scheme some element of legitimacy. That said, what is currently happening on Comex is a shocking trend that requires your attention and consideration.
Let's start by considering how a typical year of Comex deliveries has historically played out. Below is a chart of the delivery totals by month for Comex gold in 2015. Note that the blue bubbles draw attention to "delivery months" beginning with the Dec14 and the red bubbles denote the totals of the non-delivery months.
Do you see how this works? For all of 2015, the six delivery months produced a total gold delivery of 15,070 Comex gold contracts or, on average, about 2,500 per delivery month. Each contract represents 100 ounces of "gold" so the Comex can be said to have "delivered" 1,507,000 ounces of gold in these six months or a paltry 47 metric tonnes. For all of 2015, the six non-delivery months produced a total gold delivery of 1,148 contracts or about 200 per non-delivery month. This comes out to just 114,800 ounces of gold or almost 4 metric tonnes.
Adding this all together...For all of 2015, the Comex "delivered" 16,218 contracts of gold. This was 1,621,800 troy ounces of "gold" or about 51 metric tonnes.
(I don't know. Maybe I should stop here for a moment and let you consider whether, in the grand scheme of things, 51 metric tonnes is really much gold at all. The world produces about 3,000 metric tonnes per year so Comex "delivers" about 1.5% of total mine supply. And yet Comex/Globex electronic derivative trading is allowed to produce the price at which physical transactions take place around the globe. Neat trick, huh?)
Anyway, not to get sidetracked. Let's get back to the alleged Comex "deliveries" and have a look at the startling trend that we mentioned earlier...
Below is a chart of the total Comex gold deliveries thus far in 2016. Note that, as the year began, the amount of "gold" being shuffled around each month is not that dissimilar to 2015 or, frankly, any other year in the past. The non-delivery month of January kicked off the year with just 172 deliveries. Delivery February followed with 2,569. This was more than Feb15 but, all things considered, nothing significant or noteworthy. Non-delivery March saw just 743 and Delivery April had 3,984.
And now here's where things get funky...
Non-delivery May15: 26 Non-delivery May16: 2,215
Delivery Jun15: 2,959 Delivery Jun16: 15,785
Non-delivery Jul15: 728 Non-delivery Jul16: 6,987
Hmmmm. Does this seem a little unusual to you? Me, too. In fact, go back and check the total amount of Comex gold deliveries for ALL OF 2015. Do you recall the number? 16,218 contracts for 51 metric tonnes. This year, the month of June alone nearly exceeded that total at 15,785 and 49 metric tonnes! And the just-completed, non-delivery month of July had a total of 6,987 contracts for 21.73 metric tonnes of "gold". This is FIVE TIMES the delivered total for ALL of the 2015 non-delivery months COMBINED.
And the trend doesn't appear to be reversing in the just-begun delivery month of August. At contract "expiration" last Thursday, the CME reported that there were 14,402 Aug16 gold contracts still open and indicating a willingness to "stand for delivery" this month. As you can see above, delivery notices for 5,028 contracts have already been sent out so August appears set to challenge June's record for total Comex gold "deliveries" in one calendar month.
Quite an interesting trend, eh? This is all definitely something that we will monitor all month and through the remainder of the year.
At the end of the day, you should be asking yourself "why does this even matter?". As stated above, almost ALL Comex deliveries are nothing more than an exchange of warehouse receipts and warrants and very little physical metal ever changes hands. Therefore, to claim that some kind of "delivery failure" or "default" emanating from the Comex is forthcoming would be naive. The true importance of this information is in its significance as a DATAPOINT OF GLOBAL DEMAND FOR ALL FORMS OF GOLD. Consider:
- The tonnage of gold flow around the globe...from West to East and from South to North.
- The extreme and surging growth of "inventories" in the gold ETFs
- Total open interest on Comex, which by July 11 had grown 73% from January 29
- Global Mint and Central Bank demand, including China and Russia
- Interest in owning mining shares has sent the HUI index up over 170% year-to-date
And now we have Comex allegedly "delivering" gold at a never-before-seen record pace.
We are truly in a brave new world my friend...off the map and into the region marked "beyond which be dragons". These historical anomalies in Comex "delivery" are just another datapoint that signals extreme, global demand for gold in all its current forms. Our hope here at TFMR is that, one day soon, the entire Bullion Bank Paper Derivative Pricing Scheme will finally collapse as delivery demands simply overwhelm the Bullion Banks' ability to supply physical gold on a just-in-time basis to an insatiably hungry investment world.
When will this day come? It's impossible to say with certainty given the deliberately opaque nature of the current system. However, the day WILL come and you had best prepare for that eventuality. Buy gold and TAKE PHYSICAL DELIVERY NOW before it's too late because, when the music stops and the paper games end, I can promise that you DO NOT want to one of the sad, uninformed few left holding nothing but a stack of meaningless paper certificates.