COMEX Needs 50+% More Registered Gold for February

JP Morgan Stopped 96% of Notices in December 
10,157 December 2013 COMEX Gold future contracts stood for deliver on first notice day November 27th.  By December 30th, the end of the contract month 64% or 6,493 delivery notices were issued and stopped.  The remaining open interest was lost; possibly to cash settlements or rolled over to new, future dated contracts.  JP Morgan house account stopped 6,254 or 96% of the delivery notices.  Thus ownership of 625,400 ounces of gold in COMEX registered inventory was transferred to JP Morgan during December.  CME Group reporting shows that HSBC, Bank of Nova Scotia, and Jefferies Bache were the largest issuers.

For comparison, in December 2012 there were 3,253 delivery notices or 46% of the 6,999 contracts that stood for delivery on first notice day.  The bar charts below show how deliveries and lost contracts progressed each day of the December contract month.

JP Morgan Now Owns Most Registered COMEX Gold
COMEX registered gold inventory on November 27th was 590,817 ounces.  During the month 133,017 ounces were added from deposits and transfers from eligible category.  So the beginning balance plus additions totaled 723,834 ounces from which 649,300 were issued and stopped during December.  Since JP Morgan house account stopped 96%, it stands to reason that they now own most COMEX registered gold.

COMEX Registered Gold Inventory Roll Forward:
Beginning Balance 11/27/13         590,817
Deposits                                    93,917
Adjustments/transfers                 39,100
Withdraws                              (240,693)
Ending Balance 12/31/13            483,141

Is JP Morgan's recent acquisition of COMEX registered gold bullish for the precious metal?  It depends what JPM does with it.  JPM also stopped the majority of contracts in Dec 2012 and then apparently used the metal along with a lot of other gold to help smash prices in April, May, and June 2013.  JPM house account issued a net 14,575 contracts worth of gold in the first half of 2013.

COMEX registered gold inventory has been declining and is perhaps a less ambiguous bullish signal.  Inventory is down to 483k ounces from 591k at the beginning of December and down over 2.5M ounces from about a year ago.    http://jessescrossroadscafe.blogspot.com/2014/01/comex-warehouses-registered-inventory.html

Forecast Gold to Settle in February = 750,000 ounces
February is the next big delivery month for gold COMEX futures.  As of last Friday open interest for February contracts was 214,460 contracts which is 56% of total open interest.  A year ago total open interest was 11% higher and the open interest for February was 254,987 or 60% of total.  Ultimately 13,910 February 2013 contracts filed on first notice day, January 31, 2013.  If the same proportion files this February, 11,699 contracts will file notice.  And, if 64% of those hold out for delivery as in December 2013 about 7,500 contracts will stand for delivery of 750,000 ounces.  

Registered Gold Inventory is about 270,000 ounces Short for February
Since registered inventory is currently about 480k ounces, about 270,000 ounces must be added to registered inventory to satisfy estimated settlements during February.  This assumes that JPM house account which currently owns most of the registered gold issues or sells all its gold during February.  If there are other sellers that must issue gold for delivery they will need to add it to the registered category first, which would increase registered inventory that much more.

Eligible Gold Inventory is 7.4 million ounces 
Do not expect a delivery default.  Eligible gold can easily be converted to registered by attaching a warrant.  COMEX eligible gold inventory is currently about 7.4 million ounces or 15 times the amount of registered.  At what price would eligible gold owners sell?  Presumably these owners hold their gold as eligible instead of registered precisely because they do not want to sell it - at least in the short term.

http://www.cmegroup.com/trading/metals/precious/gold_quotes_volume_voi.html

The foregoing estimates assume that all issuances/stops during December were made with registered gold.  COMEX rules allow for "Exchange for Related Position (EFRP)".  So it is possible that settlements were made with cash, new futures contracts, and shares of GLD, for example.  Data regarding non-gold settlements is unavailable.

GLD Inventory of Gold Drops Below 800 Tonnes, a five year low, when Gold was less than $1,000/ounce

I finally found some time to look at GLD and SLV exchange traded plans (ETP) inventory and price history.

Gold inventory at GLD fell to just below 800 tonnes in the last days of December 2013.  The last time GLD has 800 or fewer tonnes of gold was in December 2008 when the price of gold was $780 per ounce.  In 2008, the gold bull market was strengthening which eventually pushed prices over $1,800.  2013 is the reverse.  Gold buyers are so bearish that they wish to own only 800 tonnes even with the price at $1,200.

Remember only Authorized Participants (AP) in GLD, such as HSBC, Goldman, JP Morgan, Scotia, Deutsche, Citi, and UBS are allowed to create or redeem baskets of 100,000 GLD shares in exchange for bullion.  The Trust is responsible to manage inventory so that the price of GLD shares tracks that of gold.

Interestingly, silver inventory at the SLV Trust has remained flat while price dropped during the last year.  It seems that silver bears are not as pessimistics as gold bears.  There are many other possible causes of the disparate behavior of GLD and SLV inventory.  What's your theory?