Friday, January 10, 2014

COMEX Monthly Gold Delivery Dominated by JP Morgan in 2013

JP Morgan accounted for most of the delivery activity in most months of 2013.  During the first half of 2013 JPM was on the issue side of the activity.  Both sides of a delivery, issuing (delivering) and stopping (receiving) are reported by the COMEX.  The number of deliveries or contracts stopped/issued is represented by the yellow bars in the chart below.  

January is a slow month for futures contracts and therefore for delivery notices.  Only 224 contracts remained to be settled on first notice day at the beginning of this January.  

February is a big month!  I am forecasting that at least 7,500 contracts will need to be settled this February, which is significantly less than in February 2013.  I am guessing that the number of Feb settlements will be lower than last year because: 1) total open interest and open interest in February contracts is about 10% and 15% lower, respectively than at this time last year  2) more contracts settled in December than the year before which may have satisfied or pulled forward some demand for physical  3) COMEX registered gold inventory is low and the COMEX banks will entice more Feb contract holders to roll over to a future month.  Currently, COMEX gold inventory is about 417k ounces in registered and 7,361k ounces in eligible.  Also, my forecast is conservative because utilizing historical ratios is risky in volatile situations.  But, it's all I've got.

I learned from commentor Mick that the same gold/warrants may be used to settle multiple contracts in a given month because the same firm can stop and then issue the same warrant.  So to the extent that stops and issues by the same firm are netted together the same gold can be used to settle multiple contracts.  By reviewing the monthly CME delivery notice report for 2013, the average number of contracts that are stopped and issued by the same firm in a typical month is about 15% of the total volume.  

If 7,500 contracts need to be settled during February, COMEX will need more registered gold.  Let's say about 300k ounces more, at least.  The gold is readily available in eligible inventory.  But at what price?  

Data for JPM notices in the chart above includes both the JPM customer and JPM  house accounts.  The table below shows data for those accounts individually.


  1. Pretty good post Rik, think you caught the big points.

    I would like to hear you expand on the following comment, what do you mean by comex banks, and how will they encourage that behavior?

    3) COMEX registered gold inventory is low and the COMEX banks will entice more Feb contract holders to roll over to a future month.

    1. Thanks Mick - I think that's you.
      Good question, just a theory, wish I could prove it. I believe that the COMEX banks are doing something to prevent more deliveries, simply because otherwise there would be more 'shorts that have not covered' each delivery month. It always surprises me someone doesn't corner the market each month - or at least hold out for higher prices before rolling over.
      My theory is that the bullion banks offer something extra (e.g. cash, other business, market intelligence, the threat of crashing prices) to select hold outs as incentive to roll over to contracts further in the future.
      Just a little something to wet their beak.

    2. I think there is an inncentive, and it is monetary, but it is priced into the spreads. walk through the mechanics of rolling your position and it becomes clear how this can be profitable for the long.

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