Sunday, January 12, 2014

COMEX February Gold Futures: Countdown to First Notice Day for Settlement

February OI Down 15% from 2013
Last Friday, the second Friday of January the total open interest (OI) in gold futures on the COMEX was 406,327 contracts of which 183,466 were for February expiry.  Total OI is down about 8% from this time last year and OI in February contracts is down about 15%.  Although the amount of February contracts is a bit lower the trend in January with only 7 trading days behind us is following that of last year.





15% Less Than Last Year is Still Huge
Last year a massive 13,910 contracts filed notice on first notice day, which was the last Thursday in January.  First notice day for Feb-2014 contracts is Thursday, January 30th.  My forecast is for 7,500 contracts to file notice.  

I should clarify, as KD commented on one of my earlier posts, that the term 'filing notices' is a bit misleading.  Longs do not decide to file.  Effectively, all contracts that expire during the contract month that have not been covered as of the first notice date are filed.  The seller or short is in control as they decide when to cover.  Of course, longs and owners of gold decide the price.

More Registered Gold Needed for February Deliveries
Typically, some contracts that file are ultimately settled without delivery or 'lost' to the delivery process.  Last February 7% were lost.  So even if 7,500 contracts file, deliveries will probably be less.  The COMEX currently has 416,563 ounces of registered gold in inventory.  There are almost 7.8 million ounces of eligible gold in COMEX inventory which is readily transferrable to registered by attaching a warrant.  Therefore do not expect a delivery default at the COMEX.  Eligible gold owners may demand a higher price, but the gold is available and ready for settlement.

Another clarification: the terms delivery and settlement are used to denote transfer of ownership, which at the COMEX is effected by transferring warrants.  Ownership of gold is evidenced by warrants.  Registered gold has a warrant attached.  Eligible gold does not. Warrant transfers are used to deliver or settle contracts so that physical movement of bullion is not necessary.

4 comments:

  1. "Effectively, all contracts that expire during the contract month that have not been covered as of the first notice date are filed."

    I think a more intuitive way of understanding this... A contract can be delivered on at any time during the expiring month, whether on first notice day or the last day of trading. A short has to either give notice to deliver by the close of business on the last trading day or buy back/roll their position. As you well know, CME keeps a running total of the contracts that are settled by delivery.

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  2. Andrew Gause was citing Harvey Organ's report on the ongoing depletion of Gold from the COMEX, and he sounded a little more bullish than your report. Gause also said that the current price of silver was less than the mining cost.

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    1. COMEX has had declining inventories for months. Harvey has been warning that COMEX does not have enough gold to settle every month for many, many months.
      The current situation at COMEX is most extreme. However, I am very careful to avoid implying that COMEX will default. COMEX will not default. Higher prices will always fix the situation and find more gold - in the eligible inventory for example.

      My analysis of silver mining companies does indicate that the cost of mining silver is over $20 per ounce. And, I have read other analysts who agree. Silver is also a by-product of gold mining. Depending on how you look at it the cost of a by-product could be zero.

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  3. As per the Epic Research's update for today says that Copper trading range for the day is 428-442.6.

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