The last week of 2013 saw COMEX registered gold inventories drop slightly as eligible gold rose, but it ended up being a pretty quiet week in the COMEX warehouses. In this week's report we will take a look at these changes, as well as take a look at a month-by-month review of gold withdrawals from the COMEX - it's very interesting looking at the COMEX gold withdrawals on a monthly basis.
Keeping track of COMEX inventories is something that is recommended for all serious investors who own physical gold and the gold ETFs (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on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse.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: Slight Drop in Registered Gold as Total Inventories Continue Their Slow Climb Up
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 dropped slightly on the week by a little over 14,000 ounces, with most of that being transferred to eligible gold. Eligible gold inventories (gold not available for delivery) continued their rise for the eighth week in a row, which suggests that there is interest in gold - but no interest in making it eligible for delivery.
Additionally, the JPMorgan (JPM) warehouse was completely quiet this week with no deposits or withdrawals. We're actually interested in what goes on in the JPMorgan warehouse because they've been standing for delivery of gold and also have been the largest accumulators of COMEX gold over the last month, accumulating a staggering 708,000 ounces of gold in one month - and absolutely none of it is of the registered gold category (i.e. available for delivery).
Full 2013 COMEX Gold Inventory Summary
Let us now take a look back at the full 2013 summary of COMEX warehouse gold inventory changes.
As investors can see in the table above, it's been quite a busy year at the COMEX gold warehouses, which is completely expected since the gold price plummeted in 2013. Total gold stocks are down around 29%, which matches the drop in the gold price, but what has fascinated us over the last few months has been the extreme drop in registered gold inventories.
Registered gold inventories (i.e. gold available for delivery) has dropped close to 80%, bringing these stocks to the lowest amounts on record at under 500,000 ounces. To put that into perspective, a monthly drop equivalent to what we've seen in April and May would now totally wipe out all the registered gold at the COMEX warehouses - there's less inventory left available for delivery than the total single monthly removals seen earlier in the year.
There's much more analysis that can be done with this table, but that will have to wait until a future time - though I'd love to see if readers have any astute thoughts on if there is a relationship between the two and if we're seeing in that relationship.
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 close 2013 with a slight rise in owners per registered ounce from 77 last week, to essentially 80 owners per registered ounce this week. Open interest increased slightly to 38.4 million ounces, but nothing really to write home about this week, though we do note that 80 owners per registered ounce is really an unheard about number if you throw out the last month or so. Let us not get numb to this number - this is an extreme level of claims on very few ounces.
Conclusion for Gold Investors
2013 closes as the worst year for gold on record, but in terms of physical gold supplies (at least represented by the COMEX warehouses and the gold ETFs) an investor wouldn't be able to tell. Usually when we have a big drop in price, that is because there is a lot of that particular asset available for purchase and that nobody wants it, and they are trying to find buyers anywhere to purchase it - thus we would expect to see rising inventories. But we've seen the opposite at the COMEX warehouses, inventories dropping to levels that may be dangerously low even as claims per registered ounce skyrocket.
Let us not forget that as gold inventories have dropped, silver inventories (gold's monetary cousin) have actually risen to some of their highest on record even as the silver price has dropped more than the gold price. This suggests that there doesn't seem to be a supply shortage of silver and that there really is some stress in the physical gold market - or else we'd see it react in a similar manner to silver.
There are many theories on why there is a divergence occurring, but regardless what we do know is that the gold price has dropped significantly in 2013 even as the gold available for delivery has dropped, which we think is very strange.
Looking forward to 2014 we think there is very little chance of a big drop in price for gold for a number of reasons, but in terms of COMEX registered gold inventories, there is simply only fumes left available for delivery. Some of the past months where we've seen gold drop significantly have seen COMEX registered gold stocks drop by more than we have left available for delivery at this point. Could we see some of that eligible stock convert to registered inventories? Of course, but we think those holders of gold aren't holding it to sell at lower prices and thus we highly doubt it.
Therefore we maintain our position and we think it's a golden opportunity for investors to accumulate physical gold and the gold ETFs 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 Pan American Silver (PAAS).
2013 was no doubt a horrible year for gold investors, but we think the bull market for gold is not over and many signs point to strong demand for physical gold even as inventories hit lower levels and claims on gold surge. 1975 and 1976 were two horrible years in a spectacular gold bull market, investors who were able to hold their gold position even as the price declined ended up seeing an over 800% gain in four short years.
We believe gold is one of the few assets these days that have strong fundamentals that have not appreciated in price - we would say "hold tight gold investors", but at these price levels we're continuing to buy gold significantly and we think investors should do the same.