Weekly COMEX Gold Update: Despite The Rise In Gold Price Inventories Continue To Decline

Includes: CEF, GLD, PHYS
by: Hebba Investments

In the previous week's report we continued to see registered COMEX gold inventories drop, but we did start to see a rise in eligible gold inventories held at the COMEX. This week's COMEX data shows that this turnaround has been reversed as more gold was withdrawn from the COMEX as both registered and eligible inventories decline.

This is something that should be very relevant to 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.

(Click to enlarge)

Source: http://www.sharelynx.com

As you can see on the chart above, both registered and eligible gold stocks have been declining significantly since the beginning of 2013, though they seem to have begun to stabilize. 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.

This Week's Changes: Both Registered and Eligible Gold Decline Modestly

Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.

(Click to enlarge)

As investors can see in the table above, we have been seeing consistent declines in gold inventories since December. The previous week's increase in total COMEX gold stocks was more than offset by last week's decrease in COMEX gold stocks - both registered and eligible gold declined modestly.

Now, let us take a look at registered gold stocks.

(Click to enlarge)

Registered gold continued to decline last week as it has for the past eight months - though the decline slowed from the previous week's large 117,000 ounce drop. But we did drop for the first time ever below 800,000 ounces of registered gold.

As we have mentioned before, we do not know why gold is leaving the COMEX - but we do know it is still leaving in ever increasing quantities. The steep and sustained nature of this decline suggests that it is not a haphazard event - multiple players are withdrawing their gold in large amounts and there must be a significant reason why they are doing it.

What does this Mean for Gold Investors

As everyone in the gold sector knows, last week was a terrific week for the gold bulls as the gold (and silver) price rose significantly even as the financial markets declined. It will be very interesting to see what will happen with COMEX inventories if the gold price continues to rise - will gold come back to the COMEX? Or has the gold that has left COMEX left for good?

This question is more than just a curiosity because one thing we tend to see is as the gold price rises, COMEX open interest tends to rise too - after all investors love trading assets that are moving. If the gold has left COMEX for good, then as this open interest rises there will be much less gold backing each existing contract. As we have discussed previously, the current backing of registered gold to existing contracts is at an all-time high at over 50 ounces of contract gold represented by only 1 ounce of registered gold. If we do not see registered gold rise with COMEX open interest there may be some very serious issues and the scenario would be ripe for players to take advantage of some very naive shorts.

Either way we believe that despite the gold rise, the COMEX inventory situation is still very bullish for investors in physical gold and the gold ETFs (GLD, CEF, and PHYS). They may also consider buying gold-focused miners such as Randgold (NASDAQ:GOLD), Goldcorp (NYSE:GG), and Barrick Gold (NYSE:ABX).

It will be very interesting to watch what happens with COMEX inventories if the gold price continues to rise to higher levels - will they be replenished? Or are we going to see gold continue to drop - in which case we really may have a run on the COMEX. Investors should stay tuned.

Disclosure: I am long SGOL, GG, GOLD, SIVR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: Seeking Alpha pays for exclusive articles. Payment calculations are based on a combination of coverage area, popularity and quality.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here