Last week we saw COMEX registered gold inventories drop to their lowest level ever and the claims on each registered ounce rise to a stunning 92 owners-per-registered-ounce, this week's action was much quieter and registered gold inventories by a little over 60,000 ounces on the week. Most of this action was seen in the Scotia Mocatta and Brink's warehouse accounts, as it was quiet elsewhere - especially the JP Morgan (JPM) warehouse which we've been keeping an eye on because of their stopping (requesting delivery) of a lot of COMEX gold contracts over the last month.
Keeping track of COMEX inventories is something that is recommended for all serious investors who own physical gold and the gold ETF's (SPDR Gold Shares (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on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse.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: Registered Gold Recovers Slightly From Last Week's Drop
Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.
As investors can see, registered gold inventories recovered about 40% of last week's drop as they increased by 61,834 ounces on the week, while eligible gold dropped by 19,004 ounces - the first drop in at least two months. It will be interesting to see how this all plays out in the last few days of December deliveries and how the COMEX closes the year (which we hope to report on).
COMEX Gold Open Interest and Registered Gold Owners per Ounce
We've discussed this in-depth in a previous article so please refer to that article for details, but in a nutshell it is the amount of investors owning a claim to each registered gold ounce (i.e. owners per registered gold ounce).
We saw a huge spike last week as owners-per-registered ounce rose to 92 on a large drop in registered inventories. This week's rise in registered gold inventories and slight drop in COMEX open interest brought the owners-per-registered ounce back down to 77 - which is still an extremely high numbers and off the charts compared to the historical levels of this measure.
Conclusion for Gold Investors
Slow week at the COMEX warehouses and the rise in registered gold stocks brings us off the all-time lows (or all-time highs in registered gold claims), but we can't say we're too surprised as slow end of year trading isn't very unusual - especially in the US markets. We'll have to see how the action in the final few days of the year goes, but one thing we do know is that registered gold inventories will close 2013 at extremely low levels.
We know that 2013 has been a rough year for gold investors (ourselves included), but in terms of the situation at the COMEX warehouses, the historically low registered gold inventories, historically high claims on each registered ounce, and the large accumulation in the JP Morgan warehouses over the last few weeks are all things that seem bullish for gold.
Therefore we maintain our position, boring as it may seem, that investors continue to accumulate physical gold and the gold ETF's (SPDR Gold Shares (GLD), PHYS, CEF) in this environment. For investors looking for higher leverage to the gold price, they may want to consider miners such as Goldcorp (GG), Agnico-Eagle (AEM), Newmont (NEM), or even some of the explorers and silver miners such as First Majestic (AG).
Earlier in the week we published an article with a few of our predictions for the gold market in 2014, and we believe that gold should finally resume its upward trend and have a strong year in 2014. The interesting thing is that if investors suddenly look to move back into gold, there really isn't much in terms of physical supply to refill the ETF's and the warehouses with - at least at these gold prices. Physical buyers in Asia aren't purchasing gold for a 10 or 20% return, they are going to hold for much higher levels, and so Western investors looking for a slow rise in the gold price may not see it work out that way.