Silver Default Possible...Miners' Cash Flows Are Parabolic: Rick Rule

¤ Yesterday in Gold and Silver


The gold price started out in slightly positive territory early in the Far East trading day on Thursday...but at 9:00 a.m. Hong Kong time, the selling began.

However, the gold price was down less than five bucks by the time the London a.m. gold fix was in at 10:30 a.m. BST...which is 5:30 a.m. Eastern. Then the real selling started, with gold's low price tick coming a couple of minutes past 11:00 a.m. Eastern time.

Once the selling pressure disappeared, gold rose slowly but steadily...and by 3:15 p.m. Eastern had gained back about $18 from its morning low. The gold price then proceeded to trade sideways for the rest of the electronic trading session in New York.

Gold finished down $31.30 spot on the day...and net volume was a pretty chunky 200,000 contracts, give or take.


The silver price was under quiet pressure through most of the Far East and early London trading session, with the real selling beginning shortly before Comex trading began at 8:20 a.m. Eastern. The low of the day...$39.24 spot...came about fifteen minutes before Comex trading ended at 1:30 p.m. From that low, the silver price recovered nicely...and 'only' finished down 84 cents. Net volume was a healthy 45,000 contracts, or thereabouts.

From its Wednesday close of $40.75 in New York on Wednesday afternoon...to it's low tick of $39.24 yesterday afternoon...silver was down $1.51 spot.


The gold and silver stocks gapped down at the open...with the low for the HUI coming at the low for gold, which was about one minute after 11:00 a.m. Eastern time. From there, the gold stocks climbed back to close a hair higher than when they opened. Considering the price action in the metal itself, this performance by the shares was incredible...but fits precisely into the pattern of what's been going on with the strong hands/deep-pocket buyers that have been gobbling up all the precious metal shares they can for the last three weeks. The HUI only finished down 0.79% on the day.


The silver shares got hit pretty hard earlier in the day, but closed well off their lows...and Nick Laird's Silver Sentiment Index finished down only 1.37%.


The CME's Daily Delivery Report showed that 86 gold and 52 silver contracts were posted for delivery on Monday. Jefferies was the big short/issuer in both metals...and JPMorgan, Bank of Nova Scotia and Merrill were the long/stoppers. The link to the action is here.

There were no reported changes in either GLD or SLV yesterday...and the U.S Mint's sales report showed that they sold another 42,000 silver eagles.

Wednesday was another busy day over at the Comex-approved depositories. They reported receiving 1,256,037 troy ounces of silver...and didn't ship any out. Most of the action was at HSBC USA and Scotia Mocatta. The link to that action is here.

Here's an interesting graph that Australian reader Wesley Legrand sent me a few days back...and it requires no further embellishment from me.


Mercifully, I have very few stories for you today.



There's no way that the bullion banks can get a willing party [or parties] to take over their 17+ million ounce short position in gold...and their 210+ million ounce short position in silver. Ain't going to happen.


Love the buying opportunity in gold: Stephen Leeb. Charles de Gaulle predicted the US monetary crisis back in 1965. The $2 Billion UBS Incident: 'Rogue Trader' My Ass: Matt Taibbi


¤ Critical Reads


Peter Schiff's testimony to the Congressional hearing on Jobs


Here are two video clips of Peter Schiff at these hearings. They run about 15 minutes apiece. And, as the introduction at economicpolicyjournal.com says..."Watch these clips and you'll learn more about sound economics than you would ever get from a full semester sitting in a Paul Krugman class at Princeton."

I agree totally. I also thank reader Tariq Khan for sending them along..and the link is here.







China to 'liquidate' US Treasuries, not dollars


The debt markets have been warned.

A key rate-setter for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."

"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.

This Ambrose Evans-Pritchard blog posted over at The Telegraph yesterday is courtesy of reader Roy Stephens...and it's certainly worth the read. The link is here.







UBS Has $2B Loss; Man Arrested in London


Switzerland’s biggest bank, said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank.

London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the situation who requested anonymity. City of London police and UBS declined to identify the man.

UBS management aims to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened.”

This story broke before I posted my Thursday column in the wee hours of yesterday morning...but I didn't have a useable link...and I already had too many stories as it was. This Bloomberg piece was sent to me by reader Jon Schroeder...and the link is here.







The $2 Billion UBS Incident: 'Rogue Trader' My Ass: Matt Taibbi


Well, the UBS incident sure got Rolling Stone writer Matt Taibbi's knickers in a twist....and you should be warned [and the headline should give you a clue] that this blog is written in his usual 'pithy prose'.

I thank Roy Stephens for sending us our first must read piece of the day...and the link is here.







Germany and France: eurozone will not force out Greece


On Wednesday night, both Germany and France were forced to insist that Greece would not be pushed out of the eurozone amid new warnings that the single currency was poised to “explode”.

Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France held a conference call with George Papandreou, the Greek prime minister. Following the call, the three leaders insisted that Greece, which is still struggling to pay its debts, would not be forced to leave the single currency.

But beyond telling Greece to stick to the austerity measures imposed on it by the European Union and the International Monetary Fund, the German and French leaders announced no new measures to support the eurozone.

This is another Roy Stephens offering from yesterday's edition of The Telegraph...and the link is here.







Eurozone debt crisis 'in dangerous new phase' warns IMF chief


International Monetary Fund chief Christine Lagarde has warned that a "vicious circle is gaining momentum" in Europe and the US that could wreck attempts at a recovery and undermine rescue operations for Greece and other indebted EU countries.

She said "political dysfunction" was feeding policy indecision in a "dangerous new phase of the crisis" that could make a delicate situation harder to resolve.

Her comments, most of which were directed at eurozone's chief policymakers, came as the world's major central banks agreed to provide unlimited dollars to European banks to prevent a rerun of the Lehman Brothers collapse three years ago.

This article was posted in yesterday's edition of The Guardian...and is Roy Stephens last offering of the day. The link is here.







Charles de Gaulle predicted the US monetary crisis back in 1965


In February 1965, former French President General Charles de Gaulle predicted, during a press conference, the monetary crisis that the USA has brought the world today. At the end, he asked for the return to a gold standard.

Here's the 1:52 youtube.com video clip of that portion of the press conference. If you haven't seen it before, it's an absolute must watch. I remember the day it happened, because our history teacher brought it up in class the next day.

I thank Washington state reader S.A. for sharing it with us...and the link is here.







Silver Default Possible...miner's cash flows are parabolic: Rick Rule


Here's a Rick Rule blog that Eric King slid into my in-box very late last night. The headline pretty much tells all...and I'd guess that what he has to say is a must read. The link to the King World News blog is here.







Love the buying opportunity in gold, Leeb tells King World News


Fund manager Stephen Leeb today told King World News yesterday that he's unfazed by gold's decline. The paper money world is falling apart, he says, and the lower gold goes, the more it's a buying opportunity.

All the same, a few more buying opportunities like this won't make gold investors quite as happy as Leeb seems to be. Maybe he wouldn't be quite as happy about gold's prospects if his thinking encompassed surreptitious intervention by central banks.

I borrowed the introduction from Chris Powell's GATA release. The link to the KWN blog...headline "Stephen Leeb - Gold, Minimal Downside, $12,000 Upside"...is here.







Gold-Backed Dollar Puts ‘Fair Value’ at $10,000 an Ounce


The "fair value" for gold exceeded $10,000 an ounce in June, according to calculations by Dylan Grice, a global strategist at Société Générale. That value is based on the price at which each dollar in the U.S. monetary base would have been backed by an ounce of the precious metal. The formula shows gold has the potential to jump more than fivefold as its price catches up with the surging amount of money in the U.S. economy.

This Bloomberg piece was sent to me by reader Matthew Nel in the wee hours of this morning...and the link is here.







James Turk interviews Reg Howe at GATA's London conference


Reg Howe's name, like John Brimelow's name that appeared in this spot in Thursday's column, is not one that's well know by most people outside of 'GATA's Army'. But his efforts...and those of his business partner, Bob Landis...loom large over everything that GATA has done over the years.

Reg, who spoke at GATA's Gold Rush 2011 conference in London last month, was interviewed there by fellow speaker James Turk, founder of GoldMoney, about gold and silver as the money of the U.S. Constitution.

To my knowledge, this is the first time that he's ever been interviewed...and, in my humble opinion, is a must watch from one end to the other...as it's a real history lesson about gold going all the way back to the Civil War. The interview runs about 26 minutes...and the link is here.

If you wish to delve further into the works of Reg Howe and Bob Landis...their Internet site, goldensextant.com, is linked here.









¤ The Funnies





¤ The Wrap


The gods perceive things in the future, ordinary people things in the present, the wise perceive things about to happen. - Philostratus the Athenian [c.172-250 A.D.]

Well, I must admit that yesterday's price action was no surprise to me, even though it was not fun to watch...as I've been warning for a while that it was a highly probable occurrence. Of course, there was a lot of tech fund long liquidation yesterday...and that's pretty much confirmed by the CME's preliminary open interest numbers.

But how much is 'a lot'? How much improvement in their gold and silver short positions are JPMorgan et al actually getting on these engineered price declines?

There's no way that the bullion banks can get a willing party [or parties] to take over their 17+ million ounce short position in gold...and their 210+ million ounce short position in silver. Ain't going to happen. They're trapped on the short side with the bulk of these short positions intact...and one way or another, they're going to have to eat them.

There are only four ways out for these bullion banks...deliver, cover, default...or have the government [read CME] change the rules.

Can they get more liquidation on further engineered price declines? Absolutely. But they can only get so much tech fund long liquidation on these price declines...because at some point, when they've beaten every possible speculative long out of their positions that they can...then the price bottom is in.

How far along are we in this liquidation process in both metals? Don't know that either. We are now well below the 50-day moving average in silver...and still have a ways to go to get to the 50-day moving average in gold. But can they...or will they? It's the age-old question that Ted Butler keeps asking...or I ask in his stead.

Unfortunately, Thursday's [and Wednesday's] changes in open interest won't show up until the Commitment of Traders report on Friday, September 23rd.

Today's COT report will be issued by the CFTC at 3:30 p.m. Eastern time, sharp. Neither Ted nor I know what to expect. But whatever the report shows, the numbers will be in this column tomorrow.

Wednesday's final open interest numbers in gold and silver showed declines as expected...but they weren't very large declines. I'm sure that Thursday's final o.i. numbers will be much larger. Of course these crooks are great at hiding their tracks, so these final o.i. numbers should be taken with a grain of salt, which is why I no longer show them. It's always the COT report that leaves no room for the banks to hide.

Here's the 6-month gold chart...and you can see just how far JPMorgan et al have to go to get to the 50-day moving average. But can they...or will they...and is it really worth their while?


Here's the 6-month silver chart...with the big drop below the 50-day moving average plain to see.


But let's not forget what the gold stocks are telling us. They are NOT confirming this move down in the gold price. As I've been harping on for weeks now, there are deep-pocket buyers loading up the boat with underpriced shares. As I also said...what do they know that we don't...yet? These buyers are backing up the truck during a major sell-off in gold, either because they are very courageous, or because they really do know something that we don't. I'd call it 'insider information'...and I thing we should be comforted by that. I know that I certainly am.

So we'll just have to wait this out. The old adage of buying 'while blood is running in the streets' was never more apropos than it is right now.

So now is the time to either re-adjust your portfolio...or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], or BIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. A subscription to the International Speculator also includes a free subscription to BIG GOLD as well. And don't forget that our 90-day guarantee of satisfaction is in effect for both publications.

In overnight trading in the Far East, gold came under selling pressure at precisely 8:00 a.m. Hong Kong time...and silver was under pressure as soon as the New York Access Market opened at 6:00 p.m. in New York last night. London has been open about an hour and a half...and both metals are enjoying tiny rallies as I hit the 'send' button on this column at 4:22 a.m. Eastern time. Gold is down $14...but was down about $30 at one point. Silver is down about two bits.

Gold volume is already very high...north of 46,000 contracts. Silver's volume is about 4,700 contracts. I'm only guessing here, but I'd say that the Indians and Chinese are buying gold [and silver] with both hands at these JPMorgan-engineered sale prices. If I were them, I would be too.

Since today is Friday, I have no idea what the bullion banks will have in store for us during the Comex trading session...so I await the New York open with more than the usual amount of interest.

Have a great weekend...and I'll see you here tomorrow.