18 February 2011

Registered Silver Ounces Available For Delivery at the Comex: The Emperor's Errant Knavery

Here is a chart of registered silver ounces available for delivery in the Comex warehouse. Nine out of ten Americans may notice a trend.

If it seems somewhat counter-intuitive that the available supply continuously declines even as the price soars, you may begin to obtain some sense of the true nature of the management, regulation, and character of this market.

Comex has two categories of silver in its warehouse.

The eligible category merely means that the silver is in a condition to conform 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.

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. There are a little over 60 million ounces of eligible silver being stored by customers at the Comex, in addition to the registered dealer inventory.

The registered inventory of silver at the Comex, 42 million ounces, is worth about 1.34 billion dollars at today's prices.

The entire silver inventory at the Comex warehouse, roughly one hundred million ounces of silver, is worth about 3.2 billion dollars at today's prices.

There are some rules passed a few years ago, delivery limits sanctioned by the CFTC, that prevent a large entity from taking too much physical bullion in a single month, and enforcing a paper settlement. I think that is why the inventory is undergoing a slow but very steady drain.

In other words, THEY can SELL as much as they wish, but YOU can only TAKE as much as they allow you to take at the current prices. That might sound like a con by any other name, but it is certainly no definition of market pricing of a physical commodity when you can sell what you wish at whatever prices you set, but then refuse delivery at those prices.

When and if this market leverage breaks, the silver on the periphery, the non-eligible supply of smaller bars and coins, is going to evaporate given the large amount of leverage in the unallocated silver bullion that people believe that they own, and the realization that the confidence which investors have had in the integrity of US markets has been abused. The silver on the periphery is a relative drop in the bucket compared to the growing demand from millions of buyers, however relatively smaller than the bullion banks which each individual buyer may be.