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How to Analyze Gold Inventories in Exchanges: A Framework

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Eligible gold versus registered gold

The two basic categories of physical gold and silver stored vaults are: eligible and registered. Eligible stores are the type of silver and gold that should meet an exchange’s purity and size requirements. Also, the refined quality must be approved by an exchange-approved refiner for eligible stores. The “registered” category includes metals that meet the same criteria as eligible but that are available for the contract settlement of futures traded on COMEX.

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Conversion from the eligible category to the registered category

Friday afternoon, on July 31, the month ended with squaring off positions. The COMEX gold vault depository shared an update. It transferred 270,000 ounces of gold transferred from the eligible category of the J.P. Morgan (JPM) vault. Out of these 270,000 ounces of gold, 25,386 ounces were redeployed from the registered category to the eligible category. This classification resulted in a drop of deliverable COMEX gold from 376,906 ounces on Thursday to 351,519 ounces on Friday. These figures raise concerns over the rising physical sales of gold and silver.

The above chart shows the pattern that India follows for its gold imports. The Indian market’s gold imports rose by close to 61% due to the recent easing of the Reserve Bank’s gold import restrictions. Gold imports have risen from ~96 tonnes last year to the current ~155 tonnes this year.

Miners have consistently unperformed in the last month. The VanEck Vectors Gold Miners ETF (GDX) and the SPDR S&P Metals and Mining ETF (XME) saw a reasonably big downfall on the last trading day, with losses of 3.49% and 2.17%, respectively. The 30-day trailing loss for these two miner ETFs has been 24.73% and 17.01%, respectively. Most of the mining companies on GDX had a down-day. Kinross Gold (KGC), Cia De Minas Buenaventura (BYN), Anglogold Ashanti (AU), and Royal Gold (RGLD) lost 6.04%, 5.76%, 3.43%, and 1.86%, respectively. These four stocks together contribute close to 15.37% of the VanEck Vectors Gold Miners ETF’s (GDX) holdings.

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