Weekly COMEX Gold Update: No Relief In Sight For Registered Gold Inventories
Aug 25 2013, 00:35
by: Hebba Investments
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In the last week's report, COMEX gold inventories continued to drop even with the rising gold price, but the declines have been smaller than in past weeks. This week's COMEX data shows that a slight increase in eligible gold inventories, but registered gold continues to drop.
This is something that should be very relevant to investors who own physical gold and the gold ETFs (GLD, PHYS, and CEF) because any abnormal inventory declines may signify extraordinary events behind the scenes that would ultimately affect the gold price.(click to enlarge)
Source: http://www.sharelynx.com
As investors can see in the chart above, both registered and eligible gold stocks have been declining significantly since the beginning of 2013, though they seem to have begun to stabilize. We will take a closer look at these numbers, but let us first explain the COMEX a little more for investors who are unfamiliar with it.
Introduction to COMEX Warehousing
COMEX is an exchange that offers metal warehousing and storage options for its clients. The list of their silver warehouses can be found here and their gold warehouses can be found here. In the case of silver and gold, the metal is stored at these official warehouses on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse. This offers large holders of precious metals a convenient way to store their metal with minimal storage fees - very convenient indeed if you hold large amounts of gold or silver and you don't want to store them in your basement.
Silver and gold stored in these warehouses can fall into two categories: Eligible and Registered.
Eligible metals are those that conform to the exchange's requirements of size (1000 ounce bars for silver and 100 ounce bars for gold), purity, and refined by an exchange approved refiner. Eligible metals are stored at COMEX warehouses on behalf of banks or private parties, but are not available for delivery for a futures contract.
Registered metals are similar to eligible metals except that these metals are also available for delivery to settle a futures contract. COMEX issues a daily report on gold, silver, copper, platinum, and palladium stocks, which lists all the metal that is currently stored in COMEX warehouses and how much eligible and registered metal is present.
This information allows investors insight into how much metal is currently backing COMEX futures contracts, what large gold and silver owners are doing with their metals, and how many clients are requesting delivery of their metals. There is a lot more to glean from this information but for the purpose of this article we will focus on the gold drawdown.
This Week's Changes: Modest Decline in Registered Gold as Eligible Gold Rises
Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.
(click to enlarge)
As investors can see in the table above, we have been seeing consistent declines in gold inventories since December. Last week we saw eligible stocks of COMEX gold increase by 43,267 ounces and total COMEX gold increase by a small 14,265 ounces. This negated a little bit of the decline from the previous week.
Now, let us take a look at registered gold stocks.
(click to enlarge)
Even though eligible gold increased on the week, registered gold continued to decline to a new low of 767,232 gold ounces - which was despite a sizable increase in the gold price.
As we have mentioned before, we do not know why gold is leaving the COMEX - but we do know it is still leaving in ever increasing quantities. The steep decline seems to have ended with the gold price rising off of its lows, but until we see gold entering the COMEX in large quantities, this situation is worth monitoring for all precious metals investors.
What does this mean for Gold Investors
It will be interesting to see how COMEX gold inventories respond to the increase in the gold price - will more registered gold come back to the COMEX or is it gone elsewhere for good? Investors should remember that even though the COMEX is not primarily used as a physical market for commodities, the physical gold inventories do provide the underlying foundation for all outstanding contracts.
This is where the very important "owners-per-ounce" statistic (which we have covered before) comes into play. If, as the gold price rises, open interest increases but gold inventories do not, then each contract will be backed by fewer and fewer physical ounces of gold. At a current ratio of around 50 paper ounces to every physical ounce, there really is not a lot of further cushion before we may have players question the situation - which could lead to a COMEX gold run.
Even with the rising gold price, we would not be selling our gold, or advising investors to sell their gold, until we feel that physical holders of gold are selling their physical gold. COMEX inventories suggest there is still quite a ways to go before this happens.
Therefore the situation is still very bullish for investors in physical gold and the gold ETFs (GLD, CEF, and PHYS). Investors interested in leveraging this situation into higher potential profits should also consider buying gold companies such as Randgold (GOLD), Goldcorp (GG), Eldorado Gold (EGO), and any of the other gold miners - though we would caution investors that gold miners have had quite a run so current valuations may be a bit frothy.
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