Saturday, August 27, 2011

Q&A With The Doc: What's the Difference Between Registered & Eligible COMEX Inventory?

Jeffrey writes:

So, in the last year I have dumped years’ worth of financial and economic data into my head. Last December I bought my first silver, and about 2 weeks ago I found your site via I think from day 1 I started checking your site every couple hours. (Okay, enough with the boot kissing on to my question) I am trying to understand the silver market and what goes into the price (manipulation and all) but I believe I’m lacking a critical component, so bluntly, what is the difference and implications of registered vaults and eligible vaults?
Thanks Doc

Great question Jeffrey, and one that likely many readers have as well.

The Eligible category means that the silver meets the exchange requirements.  Exchange requirements include purity, size (eligible silver bars must weigh within 10% plus or minus of 1000 ounces), and also must be from (stamped with) an exchange approved refiner.
Eligible silver essentially means that the silver is stored in COMEX warehouses, and conforms to exchange standards.  It is being stored in the COMEX warehouse for a private party, but it is NOT available for delivery to contracts.
For example, Warren Buffet decides to store 30 million ounces of silver owned by Berkshire Hathaway (he has no intention of making the silver available for sale at current prices) in a COMEX vault rather than his Omaha basement, he could do so, and the silver would be eligible inventory.

Registered silver means that the silver is fully available for delivery to longs who stand for bullion delivery.
Registered silver used to have a paper bearer warrant attached for delivery, but these paper warrants are reportedly being phased out.
To simplify, registered silver is deliverable- or available for delivery to a long standing or demanding bullion delivery.

Eligible silver can become registered, and vice-versa. (i.e. the owner can decide to make his silver available for sale at a certain price)
This is seen almost daily in the adjustments section of the COMEX inventory data reports.
In order for eligible silver to become registered, the owner must have an exchange licensed depository (Brink's, The Delaware Depository, HSBC, JPM, or Scotia Mocotta) issue a depository receipt (warrant).
In addition, the bars must total 5,000 ounces (size of 1 contract) plus or minus 6%.

As far as the silver manipulation and the dwindling COMEX silver supplies, registered and Total COMEX inventories have been substantially decreasing over the past few years.   Just in the last few years registered silver has declined from 70 million + ounces to 33 million ounces (touching a low of 25 million oz in July), and Total inventories have declined from 140 million oz + to ~ 100 million oz.  Eligible inventories meanwhile have been increasing.

The most emphasis on COMEX silver inventories is placed on registered, as technically, this is the only silver that is available for delivery to longs.  Theoretically, if 34 million oz worth of longs stood for delivery in September, the COMEX would default, as only 33 million ounces of registered silver remain.
In actuality however, I believe that the TOTAL silver inventories are what matters.  Eligible silver supplies meet exchange requirements- they are simply not currently offered for sale by the owners.  Clearly this silver would become available at a certain price.   I also believe it likely that the owners would likely be strong-armed or forced into converting their eligible supplies into registered should things become desperate for the cartel.

I hope I have been successful in clarifying the differences between the COMEX eligible and registered categories for you.  Continue to keep an eye on both registered and total COMEX inventories for signs of the impending COMEX silver default finally coming to fruition.