The Correlation Between Open Interest And COMEX Stock Levels

Just a few days ago, I reported that J.P. Morgan vault had a significant amount of eligible gold taken away. I didn’t know what it meant.

Today, another 175000 eligible gold was taken away, this time by HSBC and J.P. Morgan, who are seen to be the main manipulators in the precious metals market.

This is all nice to report, but I still don’t know what it physically means.

But let’s try to understand the CFTC market and COT data.

First off, when open interest increases in gold (Chart 2), it means that inventory needs to be replenished. Analogy: if you get increasing orders (higher open interest), you should have a higher stock level to meet demand.

So if open interest increases on Chart 2, registered bullion stock levels should go up too on Chart 1. We can see that Chart 1 and Chart 2 correlate very well. Also, Chart 3 and Chart 4 correlate very well too.

Gold:

Chart 1: Gold COMEX Stock

Chart 2: Open Interest Gold

Silver:

Chart 3: Silver COMEX Stock

Chart 4: Open Interest Silver

If for one or another reason, the open interest goes up, while the inventory doesn’t go up, then we have a problem. The most likely reason is a shortage of bullion gold/silver. That’s when you need to worry about physical shortages. So that’s important to monitor.

So actually it’s very handy to monitor the COMEX stock levels and compare it to the open interest chart of the CFTC.

Believe China or HSBC?

Today on Zerohedge, I learnt that the official China PMI was 53.1 in March 2012, while the HSBC China PMI was 48.3. This has been the second highest divergence since 2008. I wonder why this big difference is occuring and who is to believe. China or HSBC?

To find out, go to: Divergence in China PMI.

Chart 1: China PMI VS HSBC PMI