Gold & Silver Daily: So, How Do You Think This Movie Will End - Feb 03, 2010

So, How Do You Think This Movie Will End
The gold price declined a few dollars once Tuesday trading began in the Far East... with the low for the day [about $1,099 spot] coming around 12:30 p.m. in Hong Kong trading. From there, the price began climbing unsteadily until it reached its 'high' of the day sometime during New York trading... which was reported as $1,119.10 spot. This high was on a brief price spike, as the New York spot gold price showed that every serious attempt that gold made to break through $1,117 spot was firmly and thoroughly rebuffed over a period that last more than two hours. Below is the spot chart for trading activity in New York, as what happened in the rest of the world yesterday didn't matter much. The ceiling at $1,117 spot is obvious.



Silver was also under pressure in Far East trading... and its bottom came at the same time as gold's... around half past lunchtime in Hong Kong. The high of the day was either at the London silver fix [noon in London... 7:00 a.m. in New York] or shortly before 9:30 a.m. in New York. It appears [at least to me] that every attempted rally in New York trading got sold... and, all in all, silver wasn't allowed to do much yesterday.



The dollar was in decline for virtually the entire 24-hour period once again, but, unlike Monday, the price of both gold and silver didn't do much... and, as I said in the prior two paragraphs, it looks like there was a not-for-profit seller lurking about in both metals.



The stocks were not amused... and after their highs at 11:00 a.m. Eastern time... they faded into the close, with the HUI only up 0.49%.



Well, the open interest numbers for Monday's big move were exactly what I was hoping to see. In the face of a 2% rise in the gold price, gold's o.i. rose an insignificant 105 contracts. What that means is that it's almost a certainty that the buyers driving up the price were the bullion banks themselves... they did this by covering some of their short positions and also by buying long positions to cover their tracks. Volume was a pretty light 173,450 contracts. Total open interest in gold is now down to 478,576 contracts.

In silver, open interest actually fell 1,774 contracts... which means that even though the bullion banks were driving up the price by going long themselves... they actually covered more of their own short positions... which is why silver o.i. fell instead of rose. Volume was a smallish 37,459 contracts. But total open interest is still up there at 121,619 contracts.

This is the first tentative sign that the bullion banks might be inching towards the exits. All of the above data will be in Friday's Commitment of Traders report... and it should be wondrous to behold.

The CME Daily Delivery Report showed that 960 gold and 8 silver contracts are up for delivery tomorrow. There were no reported changes at either GLD, SLV or the U.S. Mint. The Comex-approved depositories showed a minor withdrawal of 12,855 ounces of silver.

The European Central Bank weekly statement of condition indicated that there was about a one million euro rise in "gold and gold receivables" attributed to a purchase by one captive central banks. [Thanks to the usual N.Y. gold commentator.] It appears that the European banking system has totally abandoned the gold price management scheme.

Today's first story is courtesy of Russian reader, Alex Lvov. It's a Bloomberg piece bearing the headline "U.K.'s Royal Mint Doubles Production of Gold Coins". This is sort of old news... but there's a lot 'new news' in this short piece as well... and I urge you to spend what little time it takes to read it... and the link is here.

The next gold-related story is from Florida reader, Charles Dubelier. It's a piece from yesterday's edition of The Telegraph in London. It's nice to see the World Gold Council get on stick and state the following... "The WGC said that suggestions of a gold price ‘bubble’ do not take account of gold’s market fundamentals, which remain robust." The headline states a similar opinion... and the link to the very short article is here.

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I've got a couple of stories about what Paul Volker had to say yesterday. The first is a story that appeared over at marketwatch.com. It's headline reads "Banks shouldn't be hedge funds, Volcker tells Senate"... and the link is here.

The second item on Volker is this cnbc.com video of his actual testimony on Capital Hill. It runs a hair over 12 minutes... and it's very important, so I urge you to take the time to listen to the whole thing. I thank Florida reader Donna Badach for bringing it to my attention... and the link is here.

On a related note is this January 29th speech by CFTC chairman Gary Gensler to the American Bar Association's Committee on Derivatives and Futures Law. In it, Gensler speaks of putting limits on the OTC derivatives market... and shifting a lot of what is already "standardized products, into trading platforms and regulated clearinghouses." Amen to that! Then he goes on to talk about end-user exemptions and transparency, saying "The more transparent a marketplace is, the more liquid and competitive it is." Also it lowers risk. This is about a ten minute read, but what Gensler [and Paul Volker above] is talking about, is crucial to the American financial system... and I urge you to read it when you have a moment. The link is here.

But what is unsaid, is that these rules are being aimed at the six biggest [too big to fail] U.S. banks... all of which happen to be bullion banks as well. These 6 banks hold about 97% of all derivatives contracts in the entire U.S. financial system. Volker and Gensler are up against all the money and all the power in the world... and I wish them well.

In another story sent to me by Alex Lvov in the wee hours of this morning is this piece from zerohedge.com. Tyler Durden's thinly disguised contempt for the corrupt rating agencies is on display for all to see. The piece is only three or four paragraphs and is titled "Moody's Sees US Rating Under Pressure After $3.8 Trillion Budget"... and the link is here.

And lastly is this piece that I 'borrowed' from yesterday's King Report. It's by Henry Blodget and is posted over at businessinsider.com. The headline [which is the headline to today's column] reads "So, How Do You Think This Movie Will End?". It's not a big read... but it's a must read... and the two charts in the article are well worth looking at, and the link is here.



Tuesday was pretty much a 'nothing' day as far as gold and silver were concerned... and it appeared that the bullion banks weren't about to tolerate any price rise in either metal during New York trading yesterday.

I was delighted at the short covering that occurred in Monday's rally. I've been looking for that sort of move for a quite a while... and its been a long time coming. As I mentioned yesterday, it certainly wasn't the technical funds buying on Monday, as they won't show up as buyers until the price breaks above the 50-day moving average... so it must have been the bullion banks themselves. In our usual daily telephone conversation, Ted Butler heartily agreed. We're both hoping for more of the same as the days and weeks pass. But all bets will be off on Friday morning, as that's when the jobs numbers are reported... and the U.S. bullion banks are always ready to hammer the price when these numbers are released.

I note that there's a bit of action this morning in Far East trading. After a dip just after 10:30 a.m. in Hong Kong, both gold and silver began to rise a bit, but as a two gentle rises turned a little steeper, there was obviously a not-for-profit seller there to tap the price down both times... despite the fact that the U.S. dollar had just fallen off a cliff. The first occurred shortly before 4:00 p.m. in Hong trading... and the second, shortly after London opened for trading. The CME [at 4:52 a.m. Eastern time] is showing gold volume is already a healthy 31,572 contracts for April... and a very robust 5,008 contracts have traded in March silver already.

The CME reported Tuesday's preliminary volume in gold trading as 170,000 contracts... and in silver it's just under 34,000 contracts. The final numbers will undoubtedly be higher... and I expect open interest in both metals to show a slight increase based on yesterday's price action.

It could be an interesting day in New York precious metals trading... but, as per usual, it's the U.S. bullion banks that will determine what happens.

In closing, I want to point out to all you guys that Valentine's Day is eleven days away... and if you forget... this could be the result. I thank reader Dave Delve for passing along this 'friendly' reminder by a South African florist. Click .

See you on Thursday.