by Peter Schiff, Schiff Gold:
Delivery volume for silver on the COMEX has dropped to the lowest level in months. Are banks ignoring silver to focus on gold?
This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
Silver: Recent Delivery Month
Silver is wrapping up April which is a minor-month contract on the Comex. Delivery volume has dropped to the lowest levels in at least a year. The chart below shows that 1,343 contracts have stood for delivery with only 6 remaining in open interest.
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Figure: 1 Recent like-month delivery volume
Part of the low delivery volume can be attributed to a smaller than average number of net new contracts. These are the contracts that open mid-month and stand for immediate delivery. Ignoring the anomaly in December where there was cash settlement for contracts, April had the smallest mid-month delivery since September of 2021.
Figure: 2 24-month delivery and first notice
The chart below shows the cumulative direction of net new contracts. While April still has some time left, it seems unlikely it will catch up with more recent months.
Figure: 3 Cumulative Net New Contracts
One of the main drivers for this lack of volume is the absence of Bank of America. For the past three months, BofA has been a major driver of mid-month contracts standing for delivery. BofA is noticeably absent this month for the first time since November.
Figure: 4 House Account Activity
Despite the low volume, this April will still be strong from a historic perspective. It will not top the old April record set last year in the aftermath of the silver squeeze, but it will be the second-largest dollar volume delivery on record for April.
As shown below, April is historically a quiet month; however, delivery so far this year has reached $166M which is almost double the old record of $105M set before 2021. In fact, this year is almost triple the volume of 2020.
Figure: 5 Notional Deliveries
Silver: Next Delivery Month
Jumping ahead to May, which is a major delivery month, shows much lower than average open interest.
Figure: 6 Open Interest Countdown
This is surprising given the recent surge in delivery volume for major months. After bottoming in September, delivery volume had started to rebound. Based on current open interest, it seems unlikely this resurgence will continue.
Figure: 7 Historical Deliveries
Even the Trade at Settlement contract volume has been lower than normal. This is a tactic that could be used to control prices into contract close.
Figure: 8 Trades at Settlement
Spreads have also come back in line. The difference between July and May went into backwardation briefly before bouncing back with contango increasing. This is usually a sign of expected price increases in the future. In recent days, the spread has come back down to normal levels.