There’s Ample Gold to Go Around in Futures Markets After All

(Bloomberg) -- Just a few days after fears of a shortage gripped New York’s gold futures market, turns out there’s plenty of supply available for those who want it.

Wednesday is the first day that those who held April futures could demand delivery of the metal. The market was plunged into turmoil last week as logistical disruptions caused by the coronavirus pandemic led to speculation there wouldn’t be enough bullion in New York to deliver against contracts traded on the Comex.

For more on the squeeze, read: When a Hot Gold Trade Blew Up, the Rush for 100-Ounce Bars Began

Fears of a crunch flared when not many investors were rolling over their paper positions into forward monthly contracts as they typically do. However, as expiry approached, they did roll over. That helped push the volume of gold due for delivery below how much is in Comex warehouses, at least for now.

While ample supplies exist for such deliveries, the wider market for items such as gold coins is still being rocked by the chaos from the virus crisis. The bullion held in big trading hubs like London by banks and other institutional investors are much larger in size, making it impractical for regular consumers to purchase.

Open interest in April futures -- or the amount of outstanding contracts eligible for potential delivery -- on Tuesday was the equivalent of 737,800 ounces, down from as much as 1.96 million ounces last week.

By comparison, total deliverable stocks in Comex warehouses were 3.7 million ounces on Wednesday, jumping from about 1.8 million ounces a week earlier.

“These issues are transitory,” Bart Melek, the head commodity strategist at Toronto Dominion Bank, said of the shortage fears last week. “What we’re seeing in the marketplace is in a month there should be less stress and some logistics should open up.”

The stockpiles tracked by Comex surged as banks including JPMorgan Chase & Co. put the equivalent of about 1.73 million ounces of gold up for April delivery, more than double the amount for the previous most-active futures this year, data from bourse operator CME Group Inc. show.

As of Wednesday, total stockpiles on the Comex were at the highest in more than three years, at about 9.9 million ounces, or about 309 metric tons, according to bourse data. More than half of that meets exchange requirements to potentially become deliverable.

In Europe, the London Bullion Market Association said London vaults had a record amount of gold -- amounting to 8,326 tons, worth $408 billion -- at the end of last year.

Gold futures for June delivery fell 0.3% to settle at $1,591.40 an ounce on Wednesday in New York.

Meanwhile, the cost to swap swap New York futures and spot physical gold in London -- the world’s biggest market -- has come down to about $11 an ounce from as much as $40 last week.

The structure of the futures market is also signaling that traders appetite for physical gold has subsided for now. While near-term contracts were much costlier than those for later last week, that’s flipped since. Now, futures for June delivery and those for August -- the next most-active contract -- are almost at parity.

©2020 Bloomberg L.P.