Page 28 - Bullion World Volume 02 Issue 08 September 2022

Historical Perspective could be the early stages of a bank run, or in this case,
a “vault-run”.
Available supply for potential demand
As can be seen in the chart below, the ratio of If someone were to describe the early stages of a
open interest to total stock has fallen from over 8 to collapse in Comex confidence, it would look exactly
1.45. In terms of Registered (available for delivery like this. A few years of elevated deliveries back and
against open interest), the ratio collapsed from nose forth sloshing around. Metal starts leaving the vault
bleed levels (think Nov 2019 where 100% stood for slowly but steadily. Inventories get thin, and the banks
delivery) down to 2.7 in the latest month. The recent restock but not enough. Then a little more fear sets in
fall in the ratio is from open interest falling faster than and the exodus accelerates.
the physical supply. This is not unexpected though;
it is much easier for the paper supply to fluctuate Everyone knows there is more paper gold than
compared to the physical supply. physical gold, but most traders are fine with this as
long as they can get the USD exposure to the gold
they want through margins and futures. However, there
is clearly a second set of actors in the market who are
not after highly leveraged bets on short-term future
gold prices. These actors understand the value of gold
and silver as the true wealth and currency of the world.
The data shows that these investors may be losing
confidence in the system and are extracting their metal
while they still can.
Coverage in silver is weaker than in gold with 13.45 As paper trading continues, the price of gold and silver
open interest contracts to each available physical remains suppressed in a fractional reserve system.
supply of Registered (up from 8.2 at the end of April). With an infinite supply of paper shorts available, true
The ratio has been driven up by a recent increase in price discovery is much harder. The real investors are
open interest, along with the continued movement out taking advantage of the artificial suppression in prices,
of Registered.
and cashing in their paper for metal.

Wrapping Up
Comex deliveries should not be confused with load-
outs where metal actually leaves the vaults. For
perspective, the August gold contract has seen 3.25M
ounces of gold delivered. Ironically, this is close to the
3M ounces that have left the vault over the last month.
Over time, the divergence is greater with 17.2M
ounces being delivered since December and only
4.2M ounces leaving the vault during the same period.

That being said, the increased delivery volume over
the last 2+ years has translated to a lot more metal
leaving the Comex. While Delivery volume is still close
to near-term averages, the amount of gold leaving
vaults has accelerated rapidly in recent weeks. With
total gold inventories down almost 20% since May, this