Tuesday, March 1, 2011

Is the COMEX under stress for March Delivery?

In Part 5 of our series on Silver (The Short Squeeze), I talked about what happened last September for the delivery contracts of that month.

In the period from September 17th, 2010 to September 29th, 2010, Comex customers leased – in 5 out of 9 working days - a total of 3.1 million ounces of physical silver to Comex dealers.

In this same time period, Comex dealers delivered 4.1 million ounces of physical silver to owners of September, 2010 silver futures contracts.

This means that Comex dealers had only 1 million ounces of their own physical silver, even though at the same time, they reported to have around 53 million ounces in their warehouse.

Why would you borrow 3.1 million oz and pay a leasing fee if you own 53 million oz of silver yourself?

The rational man would suggest that somehow that 53 million oz was either spoken for or did not exist.

Fastforward to this week. Settlement of the futures contracts for March has begun. When the dust has finally settled, the open interest on silver turned out to be 4,250 contracts a fall from 14,259 (a drop of 10,009 contracts).

But don't think the COMEX is out of the woods yet. 4,250 contracts represents 21,250,000 oz which are standing for delivery.

Harvey Organ, a respected silver/gold analyst had this to say about the COMEX last night:
  • "The comex folk announced a very tiny 252 notices or 1,260,000 oz of silver (have been settled after day 1 of settlement week). I would like all of you to go back to Saturday's commentary where I saw this strange transaction in inventory movement at the HSBC warehouse where 1.26 million oz left a customer at HSBC and entered the HSBC dealer section of the warehouse. The math at the bottom of the screen did not match the figures which many of you figured out. Normally we see a transaction of this type as an adjustment where we see a negative 1.26 million oz to the customer and an equally positive entry to the dealer. Why did they do it in the receiving category of HSBC and not an adjusting entry? Is there an imperfection in the inventory? To have 252 notices sent down on the first day out of 4250 and all of this inventory coming from a customer must surely scare bankers globally that something is terribly wrong in the silver comex."

Organ went on to note that in the official transactions for silver, there were no deposits of any kind into the dealer nor the customer. This is very strange in a delivery month for silver. On the customer side of the ledger, there was a withdrawal of 378,386 oz of silver.

Organ speculates that the situation at the silver comex is quite dire as they must resort to withdrawals from customer inventory to settle futures contracts on the first day of settlement week. Quoting Organ:

  • "Ladies and Gentlemen: the silver comex has no silver in the dealer category to settle upon our patient longs."

Silver has hit fresh 30 year highs the past two days. Is silver shooting up in price as a desperate scramble ensues to procure physical?

We'll watch events closely.


Email: village_whisperer@live.ca

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