by Peter Schiff, Schiff Gold:
As expected, gold has turned in a fairly strong start to the month. It’s below April but is still early in the contract.
As shown below, the amount on First Position was actually the highest since last August which should lead to high delivery volumes.
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Figure: 2 24-month delivery and first notice
One factor that can drive total delivery volume is mid-month activity. Historically, this has been a tailwind for greater delivery volume. This month, it has started as a headwind. So far, the number of contracts that have cash settled has reached a new record.
See red line below. On the first day alone, over 2600 contracts cash settled. The next highest day was last December when 1373 cash settled. Why have so many contracts cash settled? Most likely because it’s getting harder to deliver physical metal. Ironically, this is also the opposite of what happened last month. But that was a minor month and most likely driven by BofA… potentially in an effort to prepare for the June delivery month (more on this below).
Keep in mind also, these contracts could have rolled the day before but decided not to. These contracts held on for delivery and then immediately cash settled.
Figure: 3 Cumulative Net New Contracts
Even with the cash settlement, there are still 3700 contracts remaining of open interest. This is roughly $740M which will bring this year close to the last two years from a notional delivery perspective. Without the cash settlement, this would have been the biggest June since the blowout delivery volume in 2020.
Figure: 4 Notional Deliveries
The House account activity shows more stress in the market. BofA has had to step up and deliver a huge chunk of gold (5k contracts). Starting in 2021, BofA has become much more active and seems to be serving as a backstop to the physical market. Accumulating metal in quieter periods and then delivering out when the market comes under stress.
