Did you know? Get all the Sprott Money Weekly Wrap Ups, Ask The Expert,
special promotions and insightful blog posts sent right to your inbox.
As is often the case, there is a lot of hype regarding the impact the #SilverSqueeze movement might have on the delivery process at COMEX in March. The purpose of this post is not to discourage you, but instead brace you for how the month is likely to play out.
If you're new to this heavily-manipulated market, there are a few key dates that you'll need to understand. First, there are five months of the year that are considered "delivery months", and the futures contracts for these months serve as the "front month" for trading purposes. These months are: March, May, July, September, and December.
The current front month is the March21. Trading has been focused on this contract since the Dec20 went off the board and into delivery at the end of November last year. Before that, the Sep20 was the front month until it went off the board and into delivery back in late August, and so on.
There is a process and a schedule for moving the front month contract off the board and into delivery. That schedule can always be found at the CME Group website. Here's a link: http://www.cmegroup.com/trading/metals/precious/gold_quotes_settlements_futures.html
The first event is the expiration and pricing of options on the front month contract. This typically occurs 2-3 days before the contract goes off the board. For the Mar21, the options expired at the COMEX close on Tuesday, the 23rd. This is almost always an event where The Banks manipulate and manage price to their advantage. At TF Metals Report, we had been expecting a Tuesday closing price near $27.50 and definitely below $28. And that's precisely what we got.
For #SilverSqueezers, the next key event comes on Thursday, the 25th, when the Mar21 contract goes off the board and into delivery. What does that mean?
After the COMEX close on Thursday, anyone still holding a Mar21 contract will be on notice that they may have a contract delivered to them. To show that you are financially capable of taking or making that delivery, the contract holder must show 100% margin in their account. If you are an active trader on margin, you'll likely want nothing to do with this, so you will liquidate your Mar21 position and roll it to the next front month of May before Thursday's close.
If you are seeking delivery, then you will fully fund that purchase (100% margin) by late Thursday, and then you will wait to get your warehouse receipt...which you hope you'll be able to convert into actual physical metal in as short a period of time as possible.
The Mar21 contract will continue to trade through the month of March but only to entities with full 100% margin funding in their account. As the month progresses, "deliveries" of warehouse receipts will be made against the remaining open interest, with shorts delivering (issuing) to longs (stopping). Then, as March comes to a close, all remaining contracts will be settled out and the focus and process begins again in late April for the May contract.
So when you read the hysteria from the usual hype merchants about the possibility of "imminent COMEX collapse", understand that this "delivery process" has been taking place since precious metals futures trading was first introduced in January of 1975. There hasn't been a failure yet...and there's unlikely to be a failure in March, because the rules are such that a delivery failure is nearly impossible.
Now what IS possible is a global run on physical metal, and we'll discuss that in a second. However, if you are in this for a quick buck because someone on Twitter or YouTube told you that the COMEX was going to collapse next month, you're going to be disappointed.
While it's possible that someday 40,000 contracts will remain open (200,000,000 ounces) and standing at First Notice Day when the delivery month contract goes off the board, the numbers for March don't make it appear that it will happen next month. Below is the actual data from the CME Group website as of Monday, the 22nd. On this day, there were still three trading days remaining before the Mar21 goes off the board this coming Thursday.
- Total Mar '21 contract open interest was 47,054 contracts. If all of these stood for delivery at the close Thursday, the COMEX might have a problem, as this would represent a demand for 235,270,000 ounces (5,000 ounces per contract). However, history shows that this won't happen. Instead...
- Total Dec '20 contract open interest with three days to go was 43,193 contracts. However, only 9,444 ended up "standing for delivery" on First Notice Day, and when all was said and done at the end of December, the total number of deliveries was 9,337 for about 47,000,000 ounces.
- Total Sep '20- contract open interest with three days to go was 43,375. Again, though, only 10,548 eventually stood, and the delivery total by the end of September was 11,080 contracts for 55,000,000 ounces.
- Total Jul '20 contract open interest with three days to go was 39,224. More stood in July with the total heading into First Notice Day of 16,834. Deliveries by the end of July reached 17,294 contracts for 86,470,000 ounces
The point is this...
If there were just as many contracts still open at this time during the previous three cycles, why would we expect some outrageous number of contracts standing for delivery in March? Additionally, if the COMEX could survive up to 86,000,000 ounces of delivery demands last July, why can't it handle a similar amount next month?
Look, my point in writing this is NOT to discourage or frustrate you. It's just that the likelihood of a "COMEX collapse" in March is extremely low, and if you are going around hanging your hopes on this one-time event occurring within the next 30 days, you are very likely to be disappointed.
And frustration, despair, disappointment, and capitulation are the last things we need right now. Instead, if we are ever to defeat The Banks and force a change to their fraudulent pricing scheme, we need persistence. As we wrote three weeks ago, the only way to effect change is through a forced deleverage of the system...and only the removal of metal from the dirty hands of the Bankers can make this happen. Therefore, we must not get discouraged when the COMEX doesn't fail in March, and we must instead redouble our efforts in acquiring physical metal.
In conclusion, let's paraphrase Paul Simon:
"So I'll repeat myself...at the risk of being rude...there's only one way to break The COMEX"...
And that "way" is through enough physical silver demand and delivery that we outstrip the already-stretched global physical supply. Buy bullion and coins. Drain and take delivery of your unallocated accounts. Utilize the SLV only for trading purposes while making long-term investments in funds like PSLV and CEF, which are guaranteed to hold 100% physical metal.
Only physical demand can free us from the bondage of the criminal bullion banks. Don't fall for hype. Educate yourself. Be persistent. Take delivery. And I can assure you that we will prevail in the end.