dinsdag 18 december 2012

The Correlation Between Open Interest And COMEX Stock Levels

Just a few days ago, I reported that J.P. Morgan vault had a significant amount of eligible gold 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.

Chart 1: Gold COMEX Stock
Chart 2: Open Interest Gold

Chart 3: Silver COMEX Stock
Chart 4: Open Interest Silver
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.

4 opmerkingen:

  1. Do selloffs in silver correlate to when COT is rising and inventory is falling? That is the banks need to force down price because inventory is declining but open interest is rising?

    1. Surprisingly, open interest correlates to net short positions of LCNS. So if open interest goes up, it's almost always shorting of the commercials. You would think, maybe it's long positions going up, but it's not.

      So if there is a high open interest, inventory should go up too. If it doesn't, that means open interest should go down together with net short positions. So they manipulate silver lower to get out of those net short positions to match the inventory.

      So basically you're right.

    2. That reminds me, I need to update the list of correlations. LCNS net short positions Correlate to Open Interest.