In our commentary last week we noted how one extra-large gold deposit at the JPMorgan (JPM) warehouse increased eligible gold inventories for the week. This week we continued to see a couple more deposits by seemingly the same entity (more on that later) into the JPMorgan COMEX gold warehouse. It was these deposits that led to a considerable rise in eligible gold stored at the COMEX warehouses for the week. But none of this gold was available for delivery, as registered gold stocks dropped for the week.
We continue to think it is very important for gold investors to keep track of any physical data on gold. Keeping track of COMEX inventories is something that is recommended for all serious 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.
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on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse.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: Large Increase in Eligible Gold in JPMorgan Warehouse while Registered Gold Stocks Shrink
Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.
As investors can see, last week we saw a large increase in eligible gold stocks - though it was all due to two deposits of 128,600 gold ounces at the JPM warehouse. If not for these two deposits, eligible gold would have declined for the week. Additionally, we saw registered gold drop for the week by 23,018 gold ounces - so nobody who added gold wanted any of it available for delivery.
Another Two Large Deposits at the JP Morgan Warehouse Gold
As we noted last week, one entity at the JPM warehouses have been significantly increasing their eligible gold position. This week we believe the same entity, made another two large deposits of gold into JPM warehouses.
Why the same entity? Well, these three deposits piqued our interest and we looked at all eligible gold deposits at the JPM warehouse over the last year and we found the following similar deposits:
Our detailed COMEX records only go back to 2012 (if anybody has earlier detailed warehouse records please let us know so we can include the data in future articles), but in all the deposits at the JPM warehouses these were the only deposits of exact tonnage amounts (i.e. 32150, 64300, 321500, etc).
Additionally, these deposits also had the strange characteristic of being the exact same weight. The deposit wasn't 32,150.11 ounces but it was 32,150 exactly - which is very strange because almost all COMEX deposits have fractional amounts associated. Anybody who has dealt with larger gold bars knows that they almost never weigh an exact amount of ounces.
We even took a look at the eligible gold deposits at the other COMEX warehouses and we couldn't find a similar pattern (tonnage size deposits and exact amounts) at any of the other warehouses - in all the other data there was only one instance where we found an exact tonnage amount (Scotia Mocatta's warehouse for an eligible gold withdrawal of 32,150 on 9/24/13).
Finally, whoever this entity is doesn't seem to move their gold to registered inventory - it is never available for delivery. They seem to deposit and withdraw the gold, but it isn't available for delivery.
Another thing investors will notice is that this particular entity using the JPM warehouse made three major actions. They deposited 12 tonnes of gold in September and October of 2012 (remember the Fed started QE3 on 9/13/12), then they removed 13 tonnes in December 2012 and January 2013 (before the major gold decline), and finally they've added 10 more tonnes of gold over the last two weeks.
We still are not sure if this is significant or simply "a tempest in a teapot" to quote JPM's Jamie Dimon (surprisingly relevant in this case). But the exact amounts, tonnage, and sheer size of the deposits (over $500 million dollars worth of gold) suggests that this is a fairly large entity and should at least draw our interest.
Conclusion for Investors
Other than the large deposits in the JPM eligible gold warehouse by this unknown entity, COMEX eligible gold inventories actually would have declined on the week. Registered COMEX gold continues to decline though, and whatever entity is raising its eligible gold at the JPM warehouse doesn't seem to want it to be available for delivery.
Even though the gold price is rising, we are really not seeing gold flow back into the COMEX warehouses. There is again no reason to change our bullish stance on gold based on COMEX gold inventories, and we recommend investors continue to accumulate physical gold and the gold ETFs (GLD, PHYS, CEF) while the physical gold supply continues to drop. For investors looking for higher leverage to the gold price, they may want to research miners such as Goldcorp (GG), Newmont Mining (NEM), Randgold (GOLD), or even some of the explorers and silver miners such as First Majestic (AG). But we emphasize, buying gold miners includes many other risks that are not present with owning physical gold, so investors should make sure that they do their due diligence before investing in any particular miner or explorer.
As always, readers with any insight into these peculiar deposits please feel free to leave a comment or send us a private message. Regardless, these very large JPM warehouse transactions deserve a bit of monitoring and we are curious of what else we will see from this particular entity, and if they are making these transactions with any insight into the future of the gold price.