Banks Are Restocking Gold at Fastest Pace in Years
by Peter Schiff, Schiff Gold:
Banks are in the process of restocking gold at a pace not seen in years.
This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.
Registered = Warrant assigned and can be used for Comex delivery, Eligible = No warrant attached – owner has not made it available for delivery.
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CURRENT TRENDS
Gold
In a recent article, I speculated that the big players might be prepared to let the price of gold run. Part of this will mean increased delivery volume in April after a very strong March. The Comex vaults have been steadily depleted over the last several months, however, 1.6M ounces of gold just showed up since March 1 as shown below. This is the largest inflow since October 2020 and we are only halfway through March!
Figure: 1 Recent Monthly Stock Change
This may be simply a restock of the metal lost in Jan and Feb. It’s also possible this is being used to support the massive delivery volume being seen in the historically quiet month of March. But a third possibility is that the banks are preparing for massive delivery volume in April.
After all, as shown below, this metal has just shown up in the last three days and is primarily in Eligible. Most of it is not yet available for delivery, but it can be moved over instantaneously if the owner so wishes.
Figure: 2 Recent Monthly Stock Change
Silver
Silver continues to show a different trend than gold. It’s as if the big players are fully focused on gold for the moment. Nearly 3.9M ounces left Comex vaults in just the past few days.
Figure: 3 Recent Monthly Stock Change
Looking at the detailed report shows the mechanics. Metal that was listed as Eligible was being moved to Registered to satisfy the extremely strong delivery demand being seen in March. Unlike gold, this metal has not been restocked and continues to leave Comex vaults. In aggregate, the Eligible category has lost 17.7M ounces over the last month!
Figure: 4 Recent Monthly Stock Change
The table below summarizes the movement activity over several time periods.
Gold
- Gold has reversed a 50% of the 12-month movement of metal out of the vault in a matter of days
- Eligible has increased 7.2% in a single week
- In total, Registered could support 192k contracts standing for delivery. This is 3.5 times larger than the biggest month on record (June 2020 at 55k contracts)
- The data shows the banks well capitalized to handle higher delivery volume
- It should be noted that most of this is probably still from the London vaults that came to New York in the depths of the April 2020 liquidity crisis
Rhetorical questions: Why are the banks bolstering gold reserves if they appear so well-capitalized? How much metal is actually there ready for delivery? If it’s the full 19.2M then why a sudden flood of new metal? Whether it’s restocking March or preparation for April, there should be enough metal to satisfy demand. Right?
Silver
- Silver has seen stock deplete by 29M ounces over the last year or 7.8%.
- This has been concentrated entirely in Registered but the last month has seen a major trend change with Eligible seeing the largest outflows
- The last month outflows from eligible undid 85% of the inflows over the last year
Figure: 5 Stock Change Summary
The next table shows the activity by bank/Holder. It details the numbers above to see the movement specific to vaults.
Gold
- Almost every vault is now adding to inventory which is a complete reversal from last month
- JP Morgan and Manfra are leading the way with increases of 7.1% and 15.2% over the last month respectively
- JP Morgan now has positive flows over the last year. Again, the net gain of JP Morgan inventory over the last year has been added in the last week
Why is every vault adding metal all of a sudden? Why is JP Morgan aggressively restocking its inventory? What are the banks preparing for?
Silver
- Over the last month, only Delaware Depository has positive inflows while 6 vaults have seen significant outflows
- CNT has lost 8.2% of its inventory in a single month!
Figure: 6 Stock Change Detail
As postulated in the margin analysis, all eyes seem to be on gold. The banks are clearly preparing for a large delivery volume. The current open interest positioning, combined with the lack of increase in margin rates suggests this could be allowed to happen right now. Add the current inventory increase as more evidence.
