Gold & Silver Daily: Precious Metals at 'Bargain Basement' Prices - Feb 05, 2010

Precious Metals at 'Bargain Basement' Prices - James Turk
Gold didn't do a heck of a lot in either Far East or early London trading on Thursday... and by the time the Comex opened for business in New York yesterday morning, gold was only down about $6 from it's opening price in Sydney earlier in the day. Then, about 8:40 a.m. Eastern time, the U.S. bullion banks showed up... and that was that. By the time the smoke cleared, gold had been hammered for around $47... down 4.16%. The low of the day [according to Kitco] was $1,057.40 spot.



Silver's high of the day was pretty much its opening price in Sydney... $16.37 spot... and the price more or less held up until about 1:30 p.m. in Hong Kong trading. From that point it began a gentle decline right in to the London silver fix... which is at 12:00 noon local time in London... 7:00 a.m. in New York. From that point, silver actually rallied about a dime over the next 90 minutes or so... and was down less than 15 cents from its opening price in Sydney. But, by the time JPMorgan was through with it... and all the blood had been wiped away... silver was down $1.11 on the day... 6.78%... with the low [$15.17 spot] occurring minutes after 4:00 p.m. in New York.



The U.S. dollar chart is a laughable excuse as to why all the precious metals got hammered yesterday. Between the Sydney open on Thursday morning... and the New York close yesterday afternoon... the dollar gained about 50 basis point. Twenty of those came between the Sydney open and the point in time yesterday morning when the bullion banks showed up about 8:40 a.m. That 20 basis point rise in the dollar caused gold to drop $6 and silver to decline less than 15 cents. Then, during the time that JPMorgan et al did the dirty, the dollar rose another 30 basis points. Yesterday's crash had nothing to do with the dollar or the Dow... as the precious metals were already heading into the toilet before the equity markets opened. One has to wonder, dear reader, as to what the precious metals would have really done if the bullion banks hadn't received their orders to do what they did. And it's obvious from looking at all four precious metals charts that nothing much of anything was going on in any of these metals until the magic time of 8:40 a.m. in New York. I guess 'da boyz' didn't want anyone running to the precious metals while the Dow was doing a face plant.



The stocks were slaughtered. The HUI [if you can bear to look at the chart] was down 5.91%... and finished basically on its low of the day.



Well, the CME has their act together again. Gold open interest for Wednesday showed a minor decline of 528 contracts. I'm not complaining mind you, as it's better than an increase of 528 contracts! Volume was on the light side once again at 171,264 contracts. Silver o.i. rose 1,031 contracts on decent volume of 51,563 contracts.

Without doubt, there was monstrous tech fund [Non-Commercial] liquidation yesterday in both gold and silver. And while they were puking up their longs... JPMorgan et al [Commercials] were busily covering short positions and going long themselves. These white-collar criminals are very clever at covering their tracks, so the open interest numbers posted tomorrow may not tell us a lot... and if that's the case, we won't get a clear picture of what they actually did until February 12th's Commitment of Traders report.

Today's COT report, when it's published at 3:30 p.m. Eastern time, should show a further large improvement in the bullion banks' net short position in both gold and silver. If you can't wait until my Saturday report... the link to the COT report is here. They release it at 3:30 p.m. right on the button, so don't check to see if it's there any sooner... because it won't be.

The CME Daily Delivery Notice showed that 586 gold and 5 silver contracts are scheduled for delivery on Monday, February 8th. This delivery notice stands out because the two big issuers were both JPMorgan... the bank itself... and it's holding company. The two big stoppers were the Bank of Nova Scotia and Deutsche Bank. You can see for yourself by clicking here.

Both GLD and SLV showed withdrawals yesterday. GLD's inventory fell by another 186,117 ounces... and SLV was down a smallish 135,201 ounces. There was no report from the U.S. Mint... and the Comex-approved depositories showed a decline of 301,560 troy ounces.

In a piece from yesterday's Financial Times in London comes this headline "Bank of America accused of enormous fraud". Why just former CEO Ken Lewis and CFO Joe Price... one has to ask? I thank Australian reader Wesley Legrand for sending it along... and the link is here.

And in a Los Angeles Times article [sent to me by California reader Joseph Weiler] comes this piece headlined "Government-owned GMAC loses $5 billion in Q4". It's just another bill that the American taxpayer has to pay. The link is here.

Yesterday I linked a story about California's Teachers Pension Plan being short about $43 billion. In an e-mail from reader "Dave from Denver" comes this comment... "If California is publishing a $43 billion underfunding, I bet the number is much larger because of real estate, private equity and derivatives." I won't disagree with that. He went on to say that "Estimates are that State pensions are at least $3 trillion underfunded." I'm not about to argue with that comment either... as he had January 20th Bloomberg story to back it up. The piece bears the headline "Unfunded Benefits Dig States' $3 Trillion Hole: Orin S. Kramer". The story is very much worth the read... and the link is here.

Sponsor Advertisement

Almaden Minerals Ltd. is an exploration company specializing in the generation of new minerals projects with world-class potential. The company's business model is to option their properties to other companies which then carry the cost of all further exploration in order to earn a share in the projects. By building such partnerships and maintaining a carried interest in a large number of properties, Almaden significantly reduces the risk and cost of exploration while exposing shareholders to the greatest opportunity for wealth creation from discovery. Using the management's technical acumen, geologic database and state-of-the-art exploration technology and methodologies, Almaden has created a significant track record of identifying prospective mineral properties. Almaden currently has over 40 properties in our portfolio, 14 of which are currently optioned. Learn more about Almaden Minerals.

Here's another contribution by reader Wesley Legrand. It's posted over at bbc.co.uk. It appears that the Bank of England has decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy. Let's see how long this decision lasts before they start running the printing presses again. The headline is perfect... "Bank of England's time-out for quantitative easing plan". Notice it says 'time-out'... not 'end'. That's why it isn't going to last. The link is here.

The next item is a brief audio interview of goldmoney.com's James Turk by Al Korelin of Korelin Economics. The link is here.

And the last two stories also involve James Turk. They're short pieces that were posted at his fgmr.com website. The first is headlined "Gold is Testing 'Floor' Theory". There is a popular theory that India's purchase of 200 tonnes of IMF gold put a floor under the gold price around $1,050/ounce. That theory is now being tested... and the link to the story [and the usual excellent graph] is here.

The last James Turk offering is entitled "Precious Metals at 'Bargain Basement' Prices". James is quick to point out what I've said a couple of times this week... "When there's 'panic in the air' and 'blood in the streets'...that's the time to back up the truck. It's almost pointless to say it, but I will anyway... this is a must read... and the link is here.

Talking about 'blood in the street's... I just finished reading Casey Research's February edition of their flagship publication International Speculator. In it, Louis James say basically the same thing... "The takeaway message here is not to sweat the fluctuations. Instead, use them for what they are: potential buying opportunities." The feature in this month's edition is headlined "Colombia: A New Gold Rush"... and it's dynamite! I urge you, dear reader, to consider a subscription to International Speculator. Please click the link and check it out.

Talking about checking things out... yesterday, when I was reading our own David Galland's comments in his FREE daily publication Casey's Daily Dispatch, I noticed him mentioning a 9-DVD box set entitled The Fall of America and the Western World: A Survival Guide. It's aim is to sound the loudest possible alarm for U.S. citizens, to catch their attention and alert them as to what’s happening to their country and the civilized world. Before it’s too late. [And this would apply to citizens of most western countries]. The discs feature impassioned monologues by eight authors, publishers, political activists and media personalities... including our own Doug Casey. No one is better at articulating the causes of our current problems, nor of projecting the inevitable result – the Greater Depression that’s unfolding before our eyes. I urge you to listen to the free video clip regarding this 8-DVD set... which has quotes from all the authors. Click here.

Dillie the deer [complete with GPS tracking device] lives in her owner's house... just like the family dog... Lady. Dillie can turn the lights on and off, and knows how to take ice from the dispenser in the fridge... and is fully toilet trained to boot! Here she poses on the bed with fellow pet... and her owners... who live in Canal Fulton, Ohio. The owner is a vet... and she rescued it from death's door when it was four days old. And no... it's not Photoshopped!



Today brings the jobs report... and it's already looking ugly! I shudder to think what the bullion banks have in store for us after yesterday's pounding. Reader Ken Metcalfe sent me a Bloomberg piece that shows that based on the 'birth/death' model... "824,000 Jobs Will Disappear on February 5th"... or so reads the headline. The short story [with lots of interactive graphs] is well worth the read... and the link is here.

Well, the silver price is now well below its 50-day moving average... and the RSI is deep into oversold territory. There still could be more downside pressure, but I would think that the worst is behind us... unless the 'powers that be' have some nefarious plan similar to what they dropped on the market back in 2008. Here's the 1-year silver chart.



But the 200-day moving average in gold is still a work in progress... and a test of around the $1,000 mark could still be in the cards... allowing JPMorgan to put even more pressure on the silver market. But can they, or will they? However, I have seen this particular movie a few times before over the last ten years. And, as Mark Twain is oft quoted... "History doesn't necessarily repeat itself... but it rhymes."



One thing is for certain... and that is that there was massive liquidation by the tech funds yesterday... with the bullion banks covering shorts and probably going long themselves. The preliminary volume numbers for Thursday are already posted on the CME website... and they show that around 298,000 gold contracts and an absolutely monstrous 73,000 silver contracts changed hands yesterday as well. When the final open interest numbers are posted later this morning, these volume numbers will certainly be revised higher. It will also be of interest to see how much 'plain vanilla' short covering that the banks did... but, if they're trying to hide they're tracks, they could easily do it by going massively long. If that's the case, we won't know for sure what happened until next Friday's COT.

I note, as I put the finishing touches on today's column, that not much happened price-wise in Far East trading earlier today... at least not up until 3:30 p.m. in Hong Kong trading, where the prices in both metals have not only rolled over... but have now fallen quite a bit. Both gold and silver are already at a new lows for this move down. I also note that the dollar is continuing to 'rally'... and it appears that the 'powers that be' want no safe exit except for the U.S. dollar as the world heads for financial Armageddon. But this, too, shall pass.

Gold volume [as of 5:23 a.m. Eastern time] is a massive 48,437 in the April contract... and in silver, the CME shows volume already at a monstrous 9,560 contracts for March. These are the biggest volume numbers I've ever seen for this time of day... especially for silver.

Even though this correction is financially and emotionally painful, the market structure in both metals is improving with each passing hour. Although the timing of the absolute bottom is not knowable... what we, dear reader, should be contemplating from hereon in, is will the U.S. bullion banks [led by JPMorgan] go short on the next rally? Or will what's going on behind the scenes between the CFTC and the bullion banks mean it's a whole new ball game? That answer is unknowable as well.

I see that the British newspapers are all over the debt problems of Portugal and Spain this morning... but this is certainly a case of the pot [Britain] calling the kettles [Greece, Portugal, Spain et al] black. On top of that is a marketwatch.com story [filed at 12:44 a.m. Eastern time] that the Swiss National Bank was seen selling the Swiss franc during Asian trading hours. One dealer said "I've been in the currency market for two decades, but this is my first time to see the SNB doing interventions in Asian time."

It will certainly be a wild one today... as it's already pretty wild in the wee hours of Friday morning as it is. So hang onto your hats... and I'll see you on Saturday.