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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.
SILVER
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
GOLD
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.
“Rise and rise again, until lambs become lions.”
The move in silver is remarkable, not only in its magnitude, but in the relatively small notice of it being taken outside of trading circles.
We understood the big move in silver back in the day, as a result of the Hunt brothers attempt to corner the market. But what exactly is driving it now? Where is this buying coming from, and what does it mean?
I think there is a an untold story here, and I will be spending a little more time trying to get my mind around it, sifting through the rumours and other stories, to try and get to the bottom of it.
Yeah yeah silver is overextended. There will likely be a correction at some point. And every nitwit in the peanut gallery is going to say "I told you so" even though they told us so when silver was $20.
I have to admit I am absolutely in awe of this move. I would have never expected it to go this far, this fast. I would really like it to take a break, or for some news to come out to explain what is driving this. Silver is even leaving AAPL behind in the dust. It seems to be inversely correlated to Obama's popularity, and the Congress' integrity. Hm, maybe something to that.
I am holding all long term positions and am flat on the short term for the holiday weekend. I could be persuaded to take a position or two for the weekend but only if I see something worthwhile.
Risk? We don't see no stinkin' risk. The dollar was taken to the woodshed.
Corporate profits are just peachy. Let me take most of my profits tax free, keep two sets of books, and I'll show you a good time too.
AAPL crushed its numbers after the bell.
In short, the answer is yes. That seems to be the case to some degree.
The reasons for this are roughly as follow.
From past analysis, the mining sector seems to be roughly correlated 50 percent to the underlying metal, and 50 percent to the SP 500. Obviously this varies over time because of related factors, lags and correlations, but it is not a bad rule of thumb.
Right now the SP 500 is underperforming the metals. I am showing the SP 500 compared to gold, because silver is in such a powerful short squeeze that almost everything is underperforming it.
In addition, the correlation of the miners to the SP 500 has been a little more variable of late because of the 'risk on, risk off' sector rotations. The miners seem to be affected greatly by this.
I have noticed in the past that the miners, particularly the juniors, tend to get their biggest moves near the end of tops in legs of the metals moves, playing a sort of 'catch up.' I have not done any rigorous analysis on that lately.
But it is important to note that the reason why the metals are moving is a significant factor on the miners. If it is a risk off flight to safety, chances seem to be good that the miners will underperform. If it is more of an inflation trade, the miners may catch up in relative valuations and their leverage seems to work in one's favor.
To make things even a little more complicated, various pair trades and arbitrages come in and out of fashion amongst the speculating crowd in the hedge funds, who swing a big stick on short term pricing these days. Long metals and short miners is a trade that temporarily distorts for example.
Someone just sent me this piece by my friend Dan Norcini and I think he makes some great points on the arb trades to which I allude above.
Again I have to caution that I have not done the kind of recent rigorous analysis on this that I have done in the past, because for my own purposes it is 'working' for me. Perhaps I shall have another look at it.
As a special note, I want to thank all the kind people who bring things to my attention by email. I cannot look at everything, and even if I may have seen it, I am always grateful, just a little less so perhaps if I have an active link to it on my site. lol.
I am busy making preparations for some special meals on the holiday and it has me on the run. Prime Rib, ham, turkey, fresh and smoked sausages, and all the sides, and even the children have been helping, learning along with the adults, with some special treats and cakes.
Try to remember the poor in these times, because many families are enduring their private hells and hardships, despite all the griping by those who imagine that the poor are lazy people living in luxury. I don't see many of them volunteering for that. If it were true, Goldman Sachs would be living in homeless shelters. People say, why doesn't God do something about this, why doesn't he help the poor and straighten these things out. Well, He did do something. He sent you.
Spring is in the air, and life is resilient. We are not in thrall to any morose doctrine, nor bound by hopeless despair. Let's remember that one of the early names for the Christians were 'the Easter people,' and hallelujah and our Father was their song. And this is our legacy, our life. Not the dried bones of those who are already dead, scuttling around in darkness, grasping for things and the lives of others, desperately trying to fill their emptiness. These are no great souls but the husks of men, destined to the trash, nameless, the leavings of Gehenna.
The tomb is empty and death is overthrown, and there is nothing for us there.
