20 April 2011

Silver: Eligible Versus Registered and About That Big Inventory Change at Scotia Mocatta

Let's refresh our understanding of the difference between registered and eligible status at the Comex. 

"Comex has two categories of silver in its warehouse.

The eligible category means that the silver is in a condition that conforms to the standards of delivery. Size and quality of the bar in other words. It is being stored at the Comex warehouse, but is not offered for delivery into contracts.

Registered means that the silver is available for delivery to those who demand bullion by being registered as such with a bullion dealer, in addition to being in a fit condition to satisfy the contract.

Eligible silver can become registered and deliverable if the owner of the silver declares it saleable at some price. And of course if it is there, and otherwise unemcumbered by senior obligations or conspicuous absence."

Registered Ounces Available for Delivery at the Comex

The eligible silver stocks and that of the daily metal warehouse statistics are limited to silver bars that meet the Exchange's criteria for delivery. This criteria specifies that a silver bar must weigh 1,000 troy ounces, plus or minus 10% and be on the Exchange's Official List of Approved Refiners and Brands for silver.

In order for eligible metal to become registered metal, the owner of the metal must have an Exchange Licensed Depository (like Scotia Mocatta) issue a Depository Receipt (Warrant) on those silver bars meeting Exchange standards comprising 5,000 troy ounces (plus or minus 6%) stored at its facility.

It is not a particularly difficult operation to change bars from eligible to registered status, and vice versa. It is a matter of the actual owner's intent. It is a little more difficult to have a new bar introduced to the warehouse and certified as eligible, meeting the criteria of the exchange as stated above.

Some traders use the term dealer to mean deliverable, and customer to signify eligible. 

There may be other types of bullion in non-standard forms, such as coins or odd or smaller bars, stored for a fee at Comex, but these are not of interest to us here.

Here is Harvey Organ's take on the silver inventory at the Comex this evening.

"We have just received tonight's inventory changes and it is a dandy. First of all, there were no deposits of silver into the dealer and no deposits into the customer.

There was a rather large withdrawal of silver from one customer of 119,400 oz ( from Scotia). We had another 999 oz from the Delaware vault. Thus total withdrawal: 120,399 oz.

Now the fun begins: We had a massive 5,287,142 oz adjustment whereby the dealer repaid a customer for a prior commitment or a seller had cold feet and decided not to sell his silver and it returned to eligible silver (not for sale) or this is a settlement whereby silver is finally delivered to a patiently waiting long.  Ladies and gentlemen..something is up!! The adjustment was in the Scotia vault. Let us see if this silver leaves the Scotia vault."

Turmoil in Silver and Gold at the Comex - Harvey Organ

I suspect the silver has been taken off the market for delivery into some obligation, for example, delivery to an outstanding purchase from a fund like the Central Fund of Canada, Sprott, or some other large customer, perhaps even a sovereign entity (hint here be rumours). But perhaps it is just a customer who has changed their mind about the prospects for silver.

This is what happened. It could be quite bullish depending on what happens to it, as Harvey indicated.

Here is Adrian Douglas' Marketforce Analysis summary of changes to the Comex Inventories.

ZERO ozs withdrawn from the dealer’s (registered) inventory
120,399 ozs withdrawn from the customer (eligible) inventory
Total dealer inventory 35.76 Mozs
Total customer inventory 67.24 Mozs
Combined Total 103.00 Mozs


139,996 ozs withdrawn from the dealers (registered) category
70,796 ozs deposited in the customer (eligible) category
Total dealer inventory 2.11 Mozs
Total customer inventory 8.90 Mozs
Combined Total 11.01 Mozs

Adrian's analysis appears each day after the market close in Bill Murphy's metals discussion at LeMetropole Cafe. This is where I first learned about the lesser known aspects of the metals markets in 2001 before gold and silver started to rally, and it remains a must read for me every day.

Remember we are entering a period of May option expiration at Comex, on Tuesday April 26th.

As I mentioned earlier today, something is obviously up. I am trying to get to some level of understanding of it, and am wading through rumours, innuendo, and speculation. But there is something happening behind the scenes, I am now sure of it. And it might be big, because the usual trading desk chatterers don't seem to know what it is. Or aren't talking.

But I am wondering, are the BRICs going to make their move?  Or is it something else.