Thread by @profitsplusid

1/Why are #gold and #silver inventory levels at the #Comex continually declining?
Is it due to overwhelming physical demand? If so, why are premiums on physical products collapsing?
Likewise, if demand is falling, why are prices rising?

Let’s dig in…..

2/Gold and silver demand has been strong throughout 2022. Futures action on global exchanges has seen large buyers in early 2023. This has forced prices higher. With prices higher, we have seen a noticeable slowdown for physical products.

3/With the addition of new 2023 dated coins, this over supply has collapsed premiums. There is no shortage at the moment of physical inventory.

4/With higher prices we would expect metal to come onto the Comex if physical inventory is not going to end users. Basically, refiners holding metal becomes a cash flow issue. Delivery to the Comex is one way to relieve inventory.

5/However, this is not happening. Possibly due to industrial supply in the OTC market.

6/There is one issue why metal is not coming back to the Comex, investors who may borrow that metal to put it on the exchange and sell futures contracts for a profit arbitrage is having a hard time making money even with the Comex Futures forward curve’s elevated Contango rates.

7/The reason is interest rates and financing costs. Borrowing the money or leasing the metal is costing the same or more than the profit from rolling futures contracts.

8/What does this mean? Metal is not coming onto the exchange. There is simply little financing incentive. Will mining supply pick up, thus force supply onto the market? Possibly, but that may have a lag before showing up.

9/As long as there is larger demand for the metal in the OTC market or with Central banks (gold), refiners have buyers without going to the exchange.

10/What does this mean? Impacting liquidity and metal on inventory at the Comex. No incentive to deliver. Basically, creating a higher leveraged environment between actual requests for delivery against existing open contracts and available metal on hand in the registered category

11/Any resurgence for larger physical products could stress the industry for larger deliverable bars. This would increase the production costs for making smaller products. The caveat is retail demand.

12/If retail demand continues to stay soft, this will cap or reduce premiums further, forcing dealers to reduce the carrying costs of holding inventory. Rising spot prices is helping profit margins for unhedged dealers.

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