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The Correlation Between Open Interest And COMEX Stock Levels

|Includes:SPDR Gold Trust ETF (GLD), SLV

Just a few days ago, I reported that J.P. Morgan vault had a significant amount of eligible gold (NYSEARCA:GLD) taken away. I didn't know what it meant.

Today, another 175000 eligible gold was taken away, this time by HSBC and J.P. Morgan, who are seen to be the main manipulators in the precious metals market.

This is all nice to report, but I still don't know what it physically means.

But let's try to understand the CFTC market and COT data.

First off, when open interest increases in gold (Chart 2), it means that inventory needs to be replenished. Analogy: if you get increasing orders (higher open interest), you should have a higher stock level to meet demand.

So if open interest increases on Chart 2, registered bullion stock levels should go up too on Chart 1. We can see that Chart 1 and Chart 2 correlate very well. Also, Chart 3 and Chart 4 correlate very well too.


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Chart 1: Gold COMEX Stock

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Chart 2: Open Interest Gold
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Chart 3: Silver COMEX Stock
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Chart 4: Open Interest Silver
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If for one or another reason, the open interest goes up, while the inventory doesn't go up, then we have a problem. The most likely reason is a shortage of bullion gold/silver. That's when you need to worry about physical shortages. So that's important to monitor.

So actually it's very handy to monitor the COMEX stock levels and compare it to the open interest chart of the CFTC.

Disclosure: I am long PSLV, AGQ.

Stocks: GLD, SLV