- Very peculiar that we've seen no registered gold inventory movements in the COMEX warehouses - first time we've seen that in any previous months in our dataset.
- Eligible gold additions have been primarily kilobar deposits in the JPMorgan warehouse which suggest they will be shipped out in a few weeks.
- COMEX open interest has declined as the gold price has dropped which suggests the drop was monthly longs liquidating positions.
The slowdown in COMEX gold inventory action continues as for the first time in our data, we have seen no registered gold movements whatsoever in the COMEX warehouse. We did see a rise in eligible gold stocks over the last two weeks, but the vast majority of this seems to be related to kilobar deposits of one JPMorgan (NYSE:JPM) client, who has previously done the same thing only to ship out the kilobars a few weeks later.
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 (NYSEARCA: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on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse.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.
This Week's Changes: March Concludes With No Registered Gold Inventories Touched
Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.
As investors can see, the last month of action have seen no action in registered gold inventories, and other than the last two weeks (which was primarily a few kilobar deposits in the JPMorgan warehouse which we will get to in a little bit), not a lot of action in eligible gold inventories either. Compared to last March's COMEX gold movements, we really haven't seen much movement in inventories.
Investors will note that over the last two weeks we've seen a comparatively large increase in eligible gold stocks, but we think this is a temporary rise in stocks as the vast majority of them (514,400 ounces to be exact) have been in the JPMorgan warehouse as "Asian-friendly" kilobar deposits.
As we've seen in the past with these JPMorgan kilobar deposits, this client (or house account) has done exactly the same thing only to ship out the bars a few weeks later. Thus we believe these are the actions of a manufacturer or fabricator of some kind that is accumulating gold in the United States and then shipping it out to Asia or the Middle-East.
COMEX Gold Open Interest and Registered Gold Owners per Ounce
Finally, let us take a look at possibly the most important number when it comes to COMEX gold inventories - the registered gold cover ratio. 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. owner per registered gold ounce).
As we've mentioned earlier, March has seen no action in registered gold inventories and that has led to a very small change in the owners-per-registered ounce ratio, as it dropped from 66 to 60 over the last two weeks. This drop was primarily related to the drop in COMEX open interest from 42.2 million ounces to 38.2 million ounces of gold, while the gold price dropped from $1379 to $1294 per ounce.
What is worth noting for investors is that this drop in interest that is paired with a falling gold price seems to suggest that longs were liquidating their positions (as opposed to shorts building positions).
Conclusion for Gold Investors
In our opinion it has been quite peculiar that we have seen absolutely no movement in registered gold inventories during the month of March - something we've not seen in any month that we have data for. We're not sure what this means, but it is clear that neither a rising gold price nor a falling one led to COMEX registered gold stocks rising. Additionally, the eligible gold deposits that we've seen over the last two weeks don't seem to be anything more than a temporary rise, as they are all JPMorgan kilobar deposits which in the past have been removed a few weeks after being deposited.
This all leads us to no real conclusive bullish or bearish argument for gold based on the COMEX inventories. That means that gold investors will have to look elsewhere (for now) for the fundamentals of gold - which primarily due to geopolitical concerns remain positive despite the pullback in the price (for example Chinese gold imports were extremely strong in February). Thus we believe that investors would be wise to maintain a strong exposure to gold with positions in physical gold and the gold ETFs. As we've stated previously, we would also continue to take a more conservative view on the miners as risk-off trading may also cause them to experience much more volatility than the underlying gold price, and they may track stock market returns (which could and should be negative with rising geopolitical tensions) more than gold and silver. But they usually do provide leverage to the gold price so more risk-tolerant investors may want that extra leverage and consider the gold miners such as Goldcorp (NYSE:GG), Agnico-Eagle (NYSE:AEM), Newmont (NYSE:NEM), or even some of the explorers and silver miners such as First Majestic (NYSE:AG).
We believe that this pullback in the gold price makes a very nice opportunity for investors who have been on the sidelines with gold or who have sold gold and the miners earlier to book some 2014 profits - we do not believe we will see sub-$1200 gold and a repeat of last year's bear market.