CME Group to Launch SGE Gold Futures Contracts Today

Today the CME Group launches Shanghai gold futures contracts linked to the Chinese physical gold market.

The spread between China and the West will probably narrow and be more constant as traders can now trade the price difference between London and China. It will also bring the gold futures market closer to the real physical gold market via “Exchange of Futures for Physical” transactions (EFPs).

What happens when the CME gets involved

CME Protests at COMEX Gold Stock lows

What a coincidence that we saw protests at the CME, which had a halt in its trading platform, at the same time that COMEX registered gold stock hit a new decade low. Registered gold is now so low, that we can actually just stop reporting on it. Are we finally seeing the final nail in the coffin? Did somebody not get delivery? I have no idea. Note that Bitcoin is at the same time starting to move up which means something is going on.

New lows in registered gold (blue) at 151384.629 troy ounces.

Record leverage at 45 eligible to registered gold.

On another note, repatriation of gold from the U.S. is gaining pace and gold imports to Asia are accelerating. Premiums have gone down a bit, but are still robust. U.S. mint silver sales are still on track to hit records. U.S. mint gold sales were weaker.

CME Silver Fix

Remember the end of the silver fix? Today we know who will do the administration of price setting from August 15 onwards.

It's the CME. And it's auction based, which is a good thing as manipulation will be eliminated. More participants will be able to trade it in an auditable way.

As the new silver-fix operators, CME Group will provide the price platform and methodology and Thomson Reuters will provide the administration and governance, the LBMA said.

J.P. Morgan Converts Almost Half of Eligible Gold to Registered Gold

I couldn't believe my eyes when I saw this. Suddenly we saw the J.P. Morgan vault get almost half of the eligible gold converted into registered gold.

I have seen this before... I think someone wants delivery. Let me do some research on this...

Edit: Yes indeed, we saw J.P. Morgan do the same with silver a year ago here in November 2011 (right before a huge rise in silver price). The consensus was that they are preparing for a large delivery to someone. They increased registered stock to prevent a COMEX default. This is also a sign of loss of confidence in paper gold and silver.

Let's see what happens next, probably a decline in total stock.

Chart 1: Gold Stock COMEX

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.


Gold:

Chart 1: Gold COMEX Stock

Chart 2: Open Interest Gold

Silver:

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.

Drop of 1 million physical ounces of silver COMEX

Another nice data point. I reported a while ago that 3.6 million troy ounces were taken out of COMEX.

Now, a month later we see another 1 million troy ounces taken out from Scotia Mocatta depository.

It is getting more and more interesting... why are they pulling out their physical silver I wonder (Chart 1).

Chart 1: Silver Stock COMEX

On the other hand, nothing special to report at the gold stock (Chart 2).

Chart 2: Gold Stock COMEX

Another 1 million ounces physical silver withdrawn from COMEX

Another 1 million ounces of physical silver has been withdrawn from the same bullion vault Brink's.

At this rate the vault will be emptied soon.

The silver market is extremely tight right now, you can read it in this article:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/10/17_London_Trader_-_The_LBMA_Is_A_Massive_Ponzi_Scheme.html

Chart 1: Silver COMEX Stock

Large drop in Silver Stock COMEX: Brink's Vault

Someone just took out 3.6 million troy ounces of silver from the Brink's vault at the COMEX. And it is registered silver, which means it's real physical silver. About $120 million at current prices. That's almost the same amount that Eric Sprott bought in his physical silver placement in July 2012.

This is a very significant 1 day drop, you can make your own conclusions.

See the balance sheet here: http://www.silverseek.com/article/comex-silver-inventory-update-2526941838-ounces-6956

Chart 1: Silver Stock COMEX CME

CME adds Silver Stock Depository: CNT DEPOSITORY, INC.

Today the CNT Depository has been added to the already existing warehouse stock depositories at the COMEX (CME): Brink's, J.P. Morgan Chase Bank, Scotia Mocatta, HSBC Bank, Delaware Depository. The CNT Depository is located at 722 Bedford St., Bridgewater, MA. CNT, Inc. began as a small numismatic business in 1973. Since that time they have grown into the largest privately owned company in the precious metals industry. CNT, Inc. has an annual net revenue of $8 Billion in 2011. Other than silver, the company also distributes platinum, palladium and gold.

The initial amount of silver currently deposited is from the eligible class and is in the amount of 631389 troy ounce or 0.4% of the total silver stock at the COMEX. This amount is so small that there shouldn't be any effect at all on the other competing depositories.

Investors have an extra alternative at hand now to store their physical silver (SLV) bullion.

(click to enlarge)

Chart 1: Silver Stocks CME

As for the silver warehouse stock level at the COMEX (Chart 1), it has been in a rising trend since August 2012, which possibly means there is a temporary declining demand in silver.

Silver lease rates (Chart 2) have been declining sharply and investors need to watch out for a spike in lease rates, which accompanies a drop in the price of silver.

I advise investors to at least put a stop limit in silver in case the silver price plunges.

(click to enlarge)

Chart 2: Silver Lease Rates

The reason why I anticipate a correction in the silver price is because technically, the silver price is overbought, with the MACD topping out for the 1 year silver chart (Chart 3).

(click to enlarge)

Chart 3: Silver Price

As for the long/short positions in silver, we noted that the LCNS level has increased quite a bit, indicating higher silver prices in the future as I pointed out in this article.

(click to enlarge)

Chart 4: Silver LCNS (Got Gold Report)

Last but not least, the premium on silver has been rising slowly and based on historic correlations, this is bullish for the price of silver (Chart 5).

(click to enlarge)

Chart 5: Sprott Physical Silver (PSLV) Premium

Conclusion:

Overall I'm bullish on the silver price considering the macroeconomic indicators of rising debt, extra QE stimulus, rising unemployment. But the short term technical indicators point to a possible short term correction. It's advisable that investors put a stop limit on their silver positions in case of a plunge in the silver price.

Silver Inventories at CME and Lease Rates

Just a few weeks after I turned bullish on silver, articles are sprouting out of nowhere about silver inventories being historically low.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/8/17_Expect_Major_Silver_Price_Spike_As_COMEX_Inventories_Decline.html

However, I see signs of a temporary weakness in silver.

1) The silver stocks at the CME aren't actually going down anymore. They are going upwards (Chart 1).

Chart 1: Silver Stocks CME

2) The silver lease rates are actually going down, instead of going up. Historically, when silver lease rates plunge, the price of silver will go down a few months later.

Chart 2: Silver Lease Rate

Conclusion: I would be wary about the price of silver. If this trend continues this way, look out below!

Silver off to the races

As I predicted before, silver is having a breakout these days. And the evidence is piling up. One of the evidences of a bullish scenario is the silver stock at the CME. 

As you can see on chart 1, the silver stock at the CME is declining, ever since Eric Sprott did his PSLV offering of $US 200 million on the market on 12 July 2012. I predict that registered silver will start to decline soon (blue dots).

Once the silver price breaks the $US 30/ounce level, it's off to the races.

Chart 1: Silver stock at CME

Although the CME numbers amount only to 140 million troy ounces (Chart 1) (30 million ounces held by dealers at COMEX), while the silver supply from miners is around 760 million ounces a year, the decline in silver stock at the CME can be a small secondary indicator of declining supply (or increasing demand) in the silver market.

The Status on Silver

This article is a summary on the most recent developments in the silver market. I will talk about the silver technicals, silver-gold ratio, silver investment, silver depletion, silver long/short positions and silver warehouse stock.

Let's start with the technicals. A pretty concerning picture for silver can be witnessed on the gold-silver ratio chart (Chart 1). You can see that in mid 2010, silver started to outperform gold until mid 2011. During that period, silver went from $US 18/ounce to $US 50/ounce (Chart 2). But recently, the silver price underperformed the gold price, with the gold-silver ratio going back to 60.

Chart 1: Gold - Silver Ratio

Chart 2: Silver Price

However, based on historical gold-silver ratios, we could go back to a 16:1 ratio as the trend in the gold-silver ratio is downwards (chart 3). We already had a second peak in 1992 at gold-silver ratio of 94 and we will go back to the low of 16.

Chart 3: Long Term Gold - Silver Ratio

Last year, silver had been doing well, going to $US 50/ounce and a gold-silver ratio of 30. Recently, we saw a correction in the gold-silver ratio back to 60. I believe that correction is over and many other investors including Eric Sprott acknowledge this. We're approaching a key technical point of a wedge pattern. Either we'll get a huge move to the upside or we get a huge move to the downside. I believe we'll see upside and we already see evidence of this. Just recently, the Sprott Physical Silver Trust priced in a follow-on offering of silver trust units in an amount of $US 200 million.

The fundamentals of silver are getting better and better every day. Concerning the depletion of silver, the New Scientist forecasted in 2005 that silver would be depleted in about 15-20 years. This means today we have only 10 years of silver left. Unlike gold, silver is being consumed as it is used in many applications. After consumption, the silver will be thrown together with its applications into land fills and will never be recovered. You could argue that silver can be recycled, but studies have shown that the recycling of silver is not feasible below a price of $US 50/ounce.

Silver scrap is a very important factor in supplying the silver to the markets because it comprises 22% of total silver supply. Since year 2000, the silver scrap to silver supply ratio has been steadily declining. Only just recently in 2011 we saw a spike in the silver scrap to silver supply ratio to 24.7% (Chart 4). This spike is due to the record high price of silver in 2011 ($US 50/ounce), which spurred investors to recycle jewelry and silverware. I expect this number to come down in 2012 as the silver price has been correcting.

Chart 4: Silver Scrap to Silver Supply ratio

Events like the offering of the Sprott Physical Silver Trust add to the velocity of depletion as investment demand will take silver supply out of the market. Manipulation of bullion banks to decrease the silver price only adds to the demand of investors to buy silver. We see this in the Silver Institute's 2011 report on silver demand/supply. The demand for silver coins went up an astonishing 18%.

On the net short positions of silver I want to make clear to investors that we are approaching a decade low in the Large Commercial Net Short positions (LCNS). Historically, when LCNS goes up, the price of silver goes with it. Basically this means that a huge spike to the upside is imminent.

Chart 5: LCNS silver

On the COMEX silver front we note that registered silver went up from 29.0 million troy ounce (25 April 2012) to 38.7 million troy ounce today, indicating that physical silver has been stocked in COMEX warehouses. Total silver inventories rose from 140.6 million troy ounces (25 April 2012) to 144.4 million troy ounces today (Chart 6). Rising stocks typically mean that there is less demand for silver, declining stocks typically mean there is more demand for silver. On chart 6 we see that stocks had been slowly rising in the previous months (less demand), but more recently, the stock has been declining again since the start of July 2012. Demand is picking up again due to seasonal strength in precious metals (month of July).

Chart 6: COMEX silver stock

On the more fundamental side of the economy we noted a very interesting event in the deposit facility of the ECB. Overnight deposits declined by more than half due to the ECB deposit rate cut. This 500 billion euro will basically find its way somewhere, possibly in the precious metals market.

Conclusion: It should be a very good time to invest in silver.

CME: Silver Stock Growing, Gold Stock Flat

Time for a gold and silver stock update at the COMEX.

In a previous article I noted that silver stocks were historically low. But recently silver stocks have been rising at the CME, which isn't bullish for the silver price. It means that silver isn't being used as much as a month ago, indicating a slowdown in the economy (Chart 1). Silver has been stocked up in the warehouses.

Chart 1: CME/COMEX silver stock (Troy ounces) (red eligible, blue registered, green total)

As for the gold stock, the total amount of stock at the COMEX has been flat for a month now (Chart 2). If we compare gold stocks against silver stocks, this means that gold is doing much better than silver in strength.

Chart 2: CME/COMEX gold stock (Troy ounces) (red eligible, blue registered, green total)

Notable is the little spike in registered silver on Chart 1 in the beginning of May, and the little spike in registered gold on Chart 2 in the beginning of June.

Silver Warehouse Stock CME At 10 year high, or is it?

According to the CME, silver stocks at warehouses hit a 10 year high this week. This seems to be bad news for silver investors, but I will present a different picture on this. Brother John pointed out already that stockpiles are at record lows in one of his silver updates and I'll present a more detailed analysis about this in the following article: CME Silver Stocks at an all time high, or are they?.

From Zerohedge:

For those who aren’t familiar with the terminology, the registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The COMEX publishes these stocks on a daily basis and they can be found here: Silver | Gold. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals (I’ll explain this another time). It is important to realize, however, that many parties holding COMEX gold and silver in registered form have no intention of making their holdings available for delivery. By this I mean that such parties are neither (1) holding a short futures position against the warehouse receipt nor (2) willing to sell their registered metal (warehouse receipts) to a party with a short futures position. Indeed, a substantial portion of those holding registered metal would have acquired the COMEX warehouse receipts by holding long futures positions for delivery. In other words, these registered stocks are held for investment and not for commercial purposes.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor. Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

Note that Zerohedge says: Eligible silver has NOTHING to do with COMEX!