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COMEX stock drawdown: single most important metric to watch

IMG Auteur
Published : April 27th, 2013
593 words - Reading time : 1 - 2 minutes
( 15 votes, 4.5/5 ) , 5 commentaries
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To understand what is going on with COMEX stocks, don't look at the stock level - it will lead you astray. You need the metric I presented at the Gold Standard Institute's 2009 seminar; one which Professor Fekete thought was the single most important metric to determine stress in the market. The second thing you need to do is put recent market action in historical context.

Firstly, lets review some historical stock levels for gold and silver for some key years - the 1980 peak, the 2001 bottom, 2012 and now. There is only one place I know that has that data going back that far, and it is www.sharelyxn.com. It is a lot easier to follow by looking at the charts of the stock levels, which are available for gold and silver if you have a subscription. If not, then just sign up for a free trial, it will be worth it just to see the charts I'm talking about.

The table below shows the average total (registered + eligible) COMEX stock in millions of ounces for each of those years.

Year Gold Silver
1980 3.5 80
2001 1.0 100
2012 11.0 140
Now 8.0 166

First thing to notice is that even after the big gold drop being talked about, the total gold stock is still massively up on the 2001 bottom and the 1980 bull market. Not surprisingly, given the behaviour of SLV's holdings, COMEX silver hasn't dropped.

However, the stock figure by itself doesn't tell us much, as how can we compare the 1980s with today when we have a much larger economy. The important metric is to compare stocks in relation to open interest. If stocks decline but open interest declines as well, then the stock drop is to be expected.

Thankfully Nick at Sharelynx calculates this for us - what he calls Owners per Ounce, or Stocks Cover and you can find the charts here. It is just open interest in ounces divided by stock in ounces. I like to invert it, which gives you a percentage indicating how much of the open interest is backed by stock, a sort of fractional reserves figure. The table below has those approximate figures I've eyeballed from Nick's charts.

Year Gold Silver
1980 13% 10%
2001 9% 28%
2012 26% 22%
Now 19% 21%

So even after that COMEX stock drop in gold, we still have a coverage ratio that is way above that which applied in the 1980 bull and which is not down much on 2012. The current coverage of around 20% also needs to be kept in context of the percentage of open interest which stands for delivery, which for gold and silver over the past five years averages between 2% to 4%. So it looks like COMEX has plenty of stock on a historical basis. It is when that percentage coverage gets a lot closer to the average standing for delivery rate that we can consider COMEX under stress and at risk of cash settlement. We aren't close, no matter how the much the pumper sites like to hype the recent stock declines.

And for those who will say what about if everyone stands for delivery, well consider that while most of the shorts don't have the metal, most of the longs don't have the cash. We know this because of all the talk about margin calls causing people to have to sell. Think about that - if they couldn't meet the margin calls, then it means they didn't have the money to stand for delivery.
Companies Mentionned : Gold |
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We do disclose how much unallocated we hold, it is in our annual report and has been there for many years. Below are the figures in AUD billions as well as client numbers. 2005 $0.5b 3000 2006 $0.9b 3400 2007 $1b 4970 2008 $1.5b 6500 2009 $1.9b 14500 20  Read more
Bron Suchecki - 4/29/2013 at 1:24 AM GMT
Rating :  1  1
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The brokage companys did not give the longs to make the margin calls and were sold,
think about that!
Rate :   0  1Rating :   -1
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In French please. I'll try to translate.
Rate :   1  0Rating :   1
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Typical anti-gold analysis from Bron Paperpusher Suchecki. Anyone who believes COMEX data is a fool and deserves to loose there money. The proof of gold manipulation is a matter if public record (see GATA.org), who honestly believes that a cheat or thieving organization is going to publish honest data?
Stop spinning Bron, we all know that the Perth Mint is in on the gig with there unallocated paper sales. If they had metal to back every purchase they would be transparent about there holdings, rather that hide behind excuses to not disclose there position. Why do you need to hide information? Sprott is transparent and does not seem to have any issues with his business model snd company growth. What are you hiding? Don't worry, Perth Mint will soon be exposed as a Ponzi scheme, just like COMEX, LBMA, and all other paper shufflers. The gig is up Bron, go find yourself a real job, no one believes you or your paymaster.
Rate :   2  3Rating :   -1
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We do disclose how much unallocated we hold, it is in our annual report and has been there for many years. Below are the figures in AUD billions as well as client numbers.

2005 $0.5b 3000
2006 $0.9b 3400
2007 $1b 4970
2008 $1.5b 6500
2009 $1.9b 14500
2010 $2.5b 16700
2011 $3.3b 20000
2012 $3.5b 23000

Those numbers are a mix of gold and silver, which yes we do not breakdown, but the numbers as disclosed give investors a sense of the size of the operation.
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Great article, and the telling line is the last. " they don't have the money to stand for delivery"
Exactly!!! and that is why they are playing in the futures market in the hope that if they are long that the price will go up and they can take a cash profit.
They are not the slightest bit interested in standing for delivery and could not anyway thru lack of cash.

So what does all this mean?
I THINK IT IS PRETTY BULLISH.
Comex is holding way more than they need eg gold which on those figures is 5 times more!
WHY...its just a relic which sits around gathering dust is it not?

NOT. They use it to make risk free profits on spreads. They are not stupid and are holding way more gold than they need for a reason. ( I wonder what that might be)
Furthermore I think it fair to say that people with wealth who want to invest in gold will not do so thru a futures market. They are not playing there with the great unwashed. They are not gamblers. They buy metal from places like the PERTH MINT and more of it when the futures price goes down.
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