➡ The article discusses the current state of various metals and oil, with gold being the best performer this year with a 9% increase. It also mentions that the supply of these commodities is not static and can be influenced by price spreads and arbitrage incentives. The author suggests that despite the significant increase in silver prices, it has not yet reached its final peak. The article also addresses the misconception that the COMEX (a major commodities exchange) could default, explaining that it can always settle in cash, thus avoiding a default.
➡ The article discusses the movement of silver between bullion banks and the COMEX, emphasizing that most of the metal stays within the exchange and doesn’t physically move. It also addresses fears of cash settlement and the potential for a systemic event, but suggests that such an event is unlikely due to the damage it would cause to the credibility of the CME Group. The author argues that while there is speculation about an imminent failure in silver delivery, there is no evidence to support this. Instead, he suggests focusing on lease rates, spreads and backwardation, physical premiums, and ETF flows to understand the silver market better.

135 million ounce open interest versus 77 million ounces available. But the eligible stocks can be converted or registered, but how many would? Now, if that depends. And metal can be brought into the system quickly if spreads justify it. In other words, supply is not static. It responds to price spreads and arbitrage incentives. Well, hello there, my friends. Chris Marcus here with you for Arcadia Economics on a Monday afternoon. Hope you’re doing well out there. Had a great weekend. Quick update. Straight still closed. So we’ll leave that aside for today. Although David Morgan, who kindly allows us to repost his weekly updates, did a video because there’s been a lot of talk on whether the May silver contract on the COMEX is going to default.

There are many months where there is a lot of talk about that. At the same time, there have been those coolant shutdowns in the past couple of months. So all valid perspectives. And in either case, David did last week’s weekly update on that topic. And especially with David’s great experience, I thought you would enjoy that. So for today’s show, let us hand it over to my dear friend, David Morgan, the Morgan report with David Morgan. Discover how to build and protect your wealth at the Morgan report.com David Morgan of the Morgan report.com. Well, I want to do a review of where the metals and oil stand at this point in time.

So let’s run through a few of these. Let’s see at the base metal side. Aluminum is up 24% for the year. Copper is up about 6% for the year. Lead is flat. Nickel is up 13% on the year. Tin is up 23% on the year. And zinc is up about 14% on the year. Moving to the precious metals, the best performer so far is gold up 9% this year. Palladium is off 7% for the year. Platinum is down 2% for the year. And silver is almost at 6% up for the year. The HUI index is up 14% and the XAU is about 12%.

So the XAU is just slightly better than gold itself at 9%. Crude oil, no surprise here. It’s up 64% for the year. Heating oil is up 82% for the year. Natural gas, bit of a surprise, down 24% for the year. Gasoline is almost doubled, up 95% for the year. It seems that all of the precious metals have established trading ranges. And that means sideways action between now and when it stops doing it. My conjecture is it’s going to take some time. Would not be surprised to see some large trading range for both gold, silver and other white metals.

Until the end of the summer, perhaps longer, obviously there’s always a caveat. There could be a black swan or something that takes place that would ignite the precious metals markets. But there’s so much news to boost them higher right now. And it’s not having an effect that I doubt anything outside of something extraordinary. It takes something extraordinary to move the metals from here, in my view. Talking about this ad right here that, you know, a big mistake is thinking silver’s already had its run. It has had a heck of a run. I just don’t think it’s had the final run.

So a lot of people cashed out and good for them. I suggest to take impartial profits going into the hundred dollar level. Many of my members did so. But the big, big picture is still intact. In other words, the fiat system coming to an end is obviously unraveling as we speak, has been for some time and will continue to do so. So that’s why this silver is not near the final top, not even close. Well, it may be close. I mean, maybe 150 is the total top, maybe 200. But, you know, there’s people out there well-respected talking, you know, $600 and higher.

My take on the whole thing has always been before we get to $100 silver. Let’s see 50 again. Well, we did and it went through 50 really quickly and bounced around there for a little bit. Some people dumped at 50 thinking that’s it’ll never get higher than that. After that overhead resistance is worn through it shot up as we all know, well beyond 100 in the month of January. And now, as I just explained, we’re sitting there in the 80s or so for the silver market. I think we’ll continue to do so. Finalize this about where silver is going and reading from this advertorial hill.

You understand what capital is like with Flow Next. And I’ll be doing an update at the Money Show Live in a few months talking about money flows and where they’re going and why so much moving into the precious metals. Has been by the central banks as most of you listening to me would know. However, we’re going well beyond that and we’ll continue to do so. So the sector is still undervalued, it’s still under owned and it’s still misunderstood. And that is the basic window that we’re looking for. Have an opportunity for the next advance. I do think it’ll take some time to build a base before we move forward.

And again, this week, I want to talk a little bit again about the constant drum beat that we get again. And again, and again, and it’s been for at least a decade that, you know, the COMEX is going to fail. We can’t deliver. And there is truth to it. I mean, there is the fundamental possibility that enough contracts stand for delivery and the COMEX doesn’t have the amount of metal and they don’t match and therefore there is a quote-unquote default. The reason I put it in quotations is because by contract, the COMEX can settle in paper.

Therefore, it’s not a default because you, be it you individually or you a corporation or an LLC or hedge fund or whoever has a contract with the COMEX knows or at least should know that they can’t default. They can always settle in cash. So let’s get that out of the way. I think everyone understands that part of it. But there’s a lot going on again for this month. We had it happen a couple months ago. I was one of the few that stood up and said, it’s not going to happen. Now, that doesn’t negate the fact that there’s been some very interesting glitches in the COMEX.

I don’t deny those. In fact, I call them shenanigans in a podcast very recent to the time that those took place. But nonetheless, let’s talk about what actually happens. First of all, the headline COMEX is going to run out of silver. Does sound compelling, but you got to understand how the COMEX actually works. Remember, the COMEX is not a bullion dealer. It’s a futures exchange. It’s derivatives markets. Market, it’s used for hedging. Miners, refiners, industrial users and primarily bullion banks. It’s a speculative play field. There’s so many more contracts in actual metal. It’s been that way in all commodities.

Silver just happens to be the tip, meaning it’s the top one. There’s more paper versus actual metal than there is paper versus actual oil or paper versus actual wheat or paper versus actual copper. But nonetheless, it’s an arbitrage market as well, because there are different global markets. There’s arbitrage opportunities between the LBMA, Shanghai Exchange and the COMEX that go all aware of that if you’ve been in the silver market for at least a year or two. Remember, the vast majority of contracts never intend to take delivery, and that means intend. They never intend to take delivery.

So this massive amount of contracts that comes every month, particularly in delivery months, are big numbers. And if you did the math, they would fail, but they don’t. Why not? And the reason is, historically, only a small percentage, often 1% of the open interest actually results in delivery. It can be higher, and it has been, but most of the time, all commodities are around that 1% level. So right away, we’re comparing the total open interest to available physical metal. It’s categorically an error. It’s really looking, you should look at 1% of that and say what that would do relative to the amount on the COMEX, or it could go to 5%.

Second, 135 million ounce open interest versus 77 million ounces available, and the 77 million is in the dealer’s inventory. And this argument sounds fantastic, and mathematically, it sounds great, but under scrutiny, we’ve got to look at it. Open interest is the top number of open contracts, both long and short, not a measure of immediate delivery demand. Available, registered is, metal, that’s eligible for delivery if needed, but the eligible stocks can be converted or registered. Some can, some can, all theoretically can, but how many would, that depends. And metal can be brought into the system quickly if spreads justify it.

In other words, supply is not static. It responds to price spreads and arbitrage incentives. Look at all the metal that came over from the LBMA. You could argue the reason why, but you can’t misrepresent the fact that tons of silver came over from the LBMA into the COMEX, and then shortly thereafter, after a couple of months, it left the COMEX and went other places. Third, the misunderstanding about delivery. Even when deliveries occur, much of the delivery, and I want to emphasize the word much of it, is bullion bank to bullion bank. This is something that just does not seem to get into the general discussion about silver and the COMEX.

So many of these deliveries are implied to take metal off the exchange and drain the COMEX. Right now, as I said, I haven’t checked at 77 million. This is off a Twitter feed I read. It could be, last time I looked, it was 85 or so. Regardless, that’s a pretty big number, relative to how low it’s been. I’ve seen around 30, and it’s been at 30 for months, and nothing happened. And if there was a way to attack the register category, that would be the time. Now, could it happen in the future? Of course it could.

But the idea is that most of this metal moves bullion bank to bullion bank remains in the COMEX, the medallion changes. It goes from HSBC to JP Morgan, or JP Morgan to coins and things, or whatever. The metal often does not move. It moves on paper. They can show you the deliveries on paper, but it doesn’t leave the exchange. The warehouse warrant, which is called a medallion, ownership title, simply changes hands. This is what is referred to as medallion changing, and that’s exactly right. So, counting deliveries, as if they represent trucks leaving the COMEX, is misleading.

And fourth, cash settlement. This is one more persistent of the fears online, and justifiably so, because if you couldn’t deliver, a good or service that you contracted for, that would be a default. And I don’t want to negate that. However, as I said at the beginning, once you’re in their game, you’re playing their game under their rules. So, could an exchange force cash settlement, of course, in extreme conditions it would. But here’s the reality. It would be the last resort systemic event. It would damage the credibility of CME Group globally. So, chances of them letting that happen are pretty small, and it would impact all futures markets, not just the silver markets.

It happens in silver, it could happen in other markets. And most importantly, we’ve seen tight markets before, we’ve seen high delivery months before, and the system has continued to function. I don’t want to sound like an apologist for the CME. I am not. However, I do think hedging is legitimate. I just think that the rules need to be changed to where they’re equitable, they’re fair and meaningful across the board, not just silver. As I said earlier, silver is the extreme case, but it could hold in all the commodity sector because there’s way too much speculation and a little price discovery.

And the rules favor those that are, let’s say, on the side of the shorts from almost all the commodities you can name. There is no evidence that we are going to have an imminent failure on the next delivery. And the deadline narrative, this is something that’s a bit of a nuance. In reality, futures markets operate on a well-known notice periods and roll cycles. Participants are fully aware of timelines. Most of these tweets are not. There’s nothing sudden or hidden about it. Deadlines are not surprises, part of the structure, and you can go well past final notice day and still make good on it.

I know I’ve done it. Does it happen a lot? Not that much, but it can. So even the final numbers are not necessarily final. I just want you to bear that in mind. So what’s really going on? The type of post thrives because it gets the idea into silver investors particularly, but other commodities and vectors that they have a real positive movement coming up that’s imminent because it’s just a few days away, the thing’s going to blow up and the price explosion is going to take place. And of course, as I’ve said, I’m tired of it.

I’ve seen this so many times and it hasn’t happened. Again, could it? Yes. Will it? I doubt it. Basically, this is not analysis. It’s narrative engineering. They’re controlling the narrative. The grounded takeaway is this. There are legitimate things to watch in silver. Lease rates would be one. Spreads and backwardation would be two. Physical premiums in London, New York, and Shanghai. In other words, that arbitrage opportunity. We saw high lease rates, big backwardation, and big premiums that differ between London, New York, and Shanghai, and ETF flows. That would indicate that maybe we are getting to a point where it’s really going to be hard to meet the delivery.

We’re not seeing that. And of course, we finally throughput and arbitrage flows. One thing to keep in mind is the amount of silver that retail investors sold from 50 upwards. It’s a lot. I haven’t got a number for you yet, but it’s substantial. I’ve talked to many of the major dealers throughout the United States and one in Europe. And there are silver sitting there backlogged, waiting to be refined into basically 999 fine commercial bars. Although some could be manufactured into retail silver products or whatever. Usually, they don’t really find those type of products. You just put them back on the shelves, wholesale them out to metals dealers.

So the bottom line is everyone wants delivery at once. The supply is fixed and the game’s over, but that’s not what really happens. The COMEX doesn’t fail because of a spreadsheet. It only fails with confidence in the entire pricing mechanism collapses. And if that ever happens, the story will be much bigger than we have 77 million ounces in the registers category and 135 million ounces standing for delivery. When you understand the mechanics of the silver market, you think you can understand that not to believe everything you read. And the last question might be the motivation, the why.

David, you sound like an apologist for the CME. Again, I am not. However, the reason I’m doing this is because how many people that communicated with me that heard from very prominent, well-known and well-respected, pretty well-studied personality in this space. And we’re pretty convinced that the failure of the COMEX was imminent. This is a couple of months ago and took more money than they should have on a bet of that possibility. Or in their case, they thought it was a high probability and it just isn’t true. And therefore, they lost their money. Now, I’m free market.

If you want to make a bet or a gamble or what you think is an investment, that’s your choice. But I think you need all the information. And not all the information that is out there is valid. I don’t have the final say on this, but I’ve been around for more than 40 years. I traded futures for a living. I’ve been on the floor of the exchange. I know brokers on a first-name basis. Again, I don’t know everything. But it’s been interesting because I’ve had discussions with brokers on the floor, which there aren’t hardly any more.

It’s all electronic. I wouldn’t say I knew more than them, but let’s say I had a different look at the markets than they did, being from the investing side. Regardless, I don’t want to go on and on too long. This has gone longer than I expected it to. But I just want people to be aware that you’re probably going to hear the same song and dance from now until there is a failure. Will there be one? I don’t know. I think there will be another re-pricing. But right now, we’re kind of quiet in both the metals, as you know.

The China factor is there, but it doesn’t seem to have any strength anymore. The deliveries into the Shanghai market, where they are, where they stand right now, not really sure. We saw a lot going into China recently. That’s been all over the web. And a lot of that silver was not financially available. It’s called unrot silver. You can look up unrot silver if you want. It’s not silver in investable form. In other words, it’s not 9-9-9-fine LBMA bars that are approved. It’s other forms. So that’s called unrot. So that silver that went into China, for the most part, was unrot.

Which doesn’t mean it’s meaningless. It’s still silver. But what it does mean is it isn’t financialized, which anything on the COMEX or the LBMA or the Shanghai futures exchange is. I’ll leave it at that. I’ll be with you next week with another weekly perspective. This is David Morgan signing out. He tracks what actually drives markets, from precious metals and mining stocks to global debt and monetary policy, and show you how to protect and grow your wealth when the system is under stress. This isn’t just about gold and silver. It’s about having a clear-eyed view of where things are headed and making sure you’re not caught off guard.

The Morgan Report gives you real research, honest analysis, and strategies you can act on, even in a world of rising debt, unstable currencies, and economic uncertainty. Go to thenmorganreport.com today, download your free report, get informed, get ahead, and take back control of your financial future. The Morgan Report.com, because $37 trillion in debt won’t fix itself. [tr:trw].

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