Back in July I pondered what happened to 110 tonnes of gold in one of
the Hong Kong gold warehouses registered by CME for its kilo futures
contract. The chart below updates the figures and shows that wherever the
gold went, its is gone for good.
Note that the straight line marked (1) is just an extrapolation between
the last figure reported in the CME’s submission and the first figure
reported on CME’s warehouse stocks report (see previous post for an
explanation) and is not reflective of the actual movements during this
“blackout” period.
The Malca-Amit warehouse dropped down to one tonne when the contract
started trading and has only increased to 1.148 tonnes since. The Loomis
warehouse I haven’t shown as there was no history reported by CME and it is
only held around half a tonne since it came online mid this year.
All the action in Hong Kong is in the Brink’s warehouse, which appears to
average 1 million ounces (or 31,103 kg). However, this has no relation to the
volume that is being put through the CME kilobar contract.
As the chart above shows, the average daily volume is about 300 contracts
and open interest at say 30 contracts (30 kg). In terms of an Owners per Ounce metric the contract is running at 0.001,
or to put it another way, there is 1 tonne of gold “backing” each
contract. Those that get worked up about Comex “leverage” ratios
should be interested in the fact that the Hong Kong warehouse report only shows eligible stocks and has never shown any
registered, which probably has something to do with the fact that the
delivery notice report shows no issues/stops for the kilo contract so far
this year. Forget your 300:1 Comex “leverage” – that would put the
OI/Registered Stocks ratio as divide by zero error, or in other words, the
CME’s Hong Kong contract has infinite leverage!
While the CME Hong Kong kilo contract is basically dead (even though
they have 12 firms on their Market Maker Program), the Brink’s warehouse is far from
morbid. This chart from Nick at Sharelynx shows that there has been over 840 tonnes of
gold withdrawn (and pretty much that much received in) since the futures
contract started trading.
Obviously this activity has nothing to do with the kilo contract and must
be related to other over-the-counter (OTC) trading. For example, company A
has gold with Brink’s and does a private sale to company B, the trade is
settled between the two banks by their settlement departments, and then
company B then instructs Brink’s to ship it out, at which point Brink’s
reports that to CME as a withdrawal. These movements are only now
visible to the market because the gold in the Brink’s warehouse is in
the form of kilobars, which are eligible for the contract, and therefore have
to be reported even if they have nothing to do with futures trading.
So even though the CME kilo contract doesn’t seem to be getting any
traction, we can at least thank them for doing it because it now gives us
visibility into the Hong Kong gold trade. One part of that trade that can be
shown from the warehouse stocks data is the inventory build up prior to the
Chinese New Year. The chart below shows the warehouse stocks in Brink’s
leading up to Chinese New Year, indexed to 100 so they are easily comparable
between each year.
The data is a bit chunky as CME only reported monthly average historical
stocks in its submission, but it is clear that there is generally an inventory
build two to three months before the new year. So far for this year, leading
to the 2016 new year, we see the stock build up and now it is being worked
down as metal gets delivered to jewellery firms for production into finished
pieces.
Just one final observation. As per CME storage fees note, Brink’s charges $6.50 per contract per
month, which works out at around 0.22% per annum storage rate. Malca-Amit
only charges 46% less at $3.50 a month, but that hasn’t got them any
business. By my estimation, Brink’s has earned over $13 million in storage
fees since January 2011, and $2.3 million so far for 2015 – a lot of money
Malca-Amit and Loomis are missing out on.
