Sunday, July 3, 2016

Less Silver At COMEX Supports A Bullish Case - Additional Remarks

There is a strange phenomenon visible at COMEX. Since the beginning of 2016 the amount of gold available for playing gold futures (called "Registered" category) went up significantly:


More gold allows for more aggressive bets on futures markets. 
However, nothing similar is visible as far as silver futures are concerned.

Below I present a chart showing the so-called "Cover ratios".

Cover ratio is defined as:

                                   open interest x contract size
                         ------------------------------------------------

                             registered ounces at the COMEX vault

At COMEX only silver / gold defined as "Registered" is available for playing futures. If a trader calls for a delivery of a certain amount of gold / silver, this amount decreases the silver gold base in the "Registered" category. That is why it is important to track the amount of silver / gold comprised by this category. 

For example, the current bull market in gold started at the time when there was nearly no gold at COMEX in the registered category (look at the upper chart - at the end of January 2016 there were only 96.8 thousand ounces of the registered gold!). Since that time the gold inventory went steeply up allowing the bull market to develop. 

However, silver did nothing similar:


Since February 2015 there have been less and less ounces of silver in the "Registered" category at COMEX. It means that there is relatively small amount of silver available for playing silver futures.

It is best seen using "Cover" ratios, defined above:



The higher the ratio the less gold / silver is available for playing futures contracts. 

The chart documents that the gold market is more or less stable now but the silver market is far away from any stability. Currently there is the highest shortage of silver in the "Registered" category (a ratio standing at 45.9 at the end of June).

Therefore I expect the extremely high volatility in silver futures in the coming weeks / months (until the cover ratio goes significantly down). 

Indirectly, this volatility should support the bullish case for silver (as in the case of gold, starting from January 2016).


2 comments:

  1. Simple, nice perspective on Silver. It won't be surprising silver takes leadership over gold in pm price movements going forward.

    ReplyDelete
  2. It looks like it has already done...

    ReplyDelete