Weekly COMEX Gold Inventories: JPMorgan Registered Gold Inventories Hit New Lows

by: Hebba Investments

Last week we saw action picking up (especially at the Scotia Mocatta gold warehouse). This week the Scotia Mocatta warehouse was busy, but the really interested action was in the JPMorgan (NYSE:JPM) warehouse. The JPMorgan warehouse added large amounts of eligible gold which was punctuated by a huge 140,000 ounce end-of-week transfer that brought JPMorgan registered gold to a new low - which we will examine in a little more detail.

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.

Source: ShareLynx

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on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse.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: Large Additions to Eligible Gold as Registered Gold Drops Significantly

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

As investors can see, last week's large increase in registered gold stocks was almost entirely reversed as 96,941 ounces were transferred from registered to eligible status. But generally we continue to see gold coming into the COMEX warehouses, so a net increase of 203,592 gold ounces - one of the largest weekly increases of total gold inventories in recent memory.

But the really interesting action happened in the JPMorgan warehouses where significant amounts of gold were deposited all week - but none of it was available for delivery as registered gold. As investors can see in the table below, this ended up bringing JPMorgan's total registered gold inventories to less than 100,000 ounces, which is the lowest that we've seen since the JPMorgan COMEX warehouse's earliest days in 2011.

Additionally, astute readers will notice that the total gold increases are precisely 64,300 ounces or 2 tonnes of gold. This even figure isn't due to rounding, but instead, what it signifies is that these bars are kilo bars (32.15 troy ounce bars) and are the preferred variety for Asian and Middle-Eastern buyers. It looks like whoever is putting gold into their COMEX warehouse accounts is doing so with "Asian-friendly" type bars - which is something we are seeing only in the JPMorgan warehouse and not the other COMEX warehouses.

Since the COMEX reports don't tell us who or why this is happening, we really don't know anything more than it is happening in large quantities (though COMEX veterans are free to comment below or private message me). Could this be an Asian gold supplier buying up kilo bars for future delivery to the east? It is very possible.

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).

Source: Sharelynx

Open interest was relatively flat on the week, but investors will notice that the owners-per-registered ounce ratio jumped from last week's plunge to 63.7 claims per registered ounce. This was almost entirely due to the large transfer in the JPMorgan account and we're almost approaching new highs as the volatility in this statistic increases.

Conclusion for Gold Investors

The action is getting interesting in the COMEX gold warehouses, as registered ounces drop significantly from the gains seen over the last two weeks and approaches new all-time lows. But even as registered ounces drop, total ounces grows as more gold is deposited into the COMEX warehouses. Could this be signaling that COMEX clients want to own gold but don't want it available for delivery? Is interest in physical gold growing amongst the COMEX client crowd after three months of eligible gold gains? We're not sure but the data seems to be suggesting this.

The gold price doesn't suggest anything different as we hover near cyclical lows, but the COMEX behavior does suggest changing behavior as we mentioned above. Registered gold stocks don't seem to be increasing in any consistent fashion, but total gold stocks are growing.

We reiterate our bullish belief in gold and we don't see any reason to change that based on the COMEX gold inventories, and in fact we find it very interesting that despite the disgust with gold in Western media and financial circles, nobody seems to want to make their gold available for delivery - this isn't a market liquid with gold.

Thus we continue to suggest investors increase positions in physical gold and the gold ETFs. For investors looking for higher leverage to the gold price, they may want to consider 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 remind precious metals investors that they should not speculate in miners, and even the ETFs until they own at least a little physical gold - invest in gold, don't speculate in it at this point in time.

Disclosure: I am long SGOL, GG, AG, GOLD. 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.