Gold & Silver Daily: First Issue - August 11, 2009

August 11, 2009

Welcome to Gold & Silver Daily

It seems like forever since Doug Casey asked me if I would be interested in writing for his organization... but in actual fact, it's only been two years this month since I started. The instructions I received from David Galland back then were for a couple of paragraphs on the day's activity in gold and silver... and then a link to a related precious metals story... and that was it. As you can see from my last two years worth of commentaries, it's grown into more than that... much more.

And, out of that, came a readership of a size that surprised everyone at Casey Research... including yours truly. Today is the launch of my own stand-alone commentary which you have before you now. I thank all the computer geniuses at CR for their wonderful work on this page. And, of course, I welcome back all my faithful readers... and many new ones.


My format will remain as it has been. Nothing will change. I will continue to provide a daily, in-depth analysis of the goings-on in the gold and silver markets from my perspective... and the perspectives of my peer group.

We are currently living in the most incredible economic, financial and monetary times the world has ever witnessed. History is being made virtually every day. Gold and silver... the monetary metals through all of recorded history... are at ground zero of a life and death struggle between paper money and real money. It's a fight against all the money... and all the power in the world. That's what my daily commentary is all about. So let's begin...


23 Million Ounces of Gold

It was unfortunate that I didn't have a Saturday commentary, so I will discuss Friday's precious metals activity very briefly. As I mentioned in the wee hours of Friday morning... the jobs numbers were to be released later in the morning... and in the last five years there has only been one up day in gold when that number was released, bad or good. That's 59 out of 60 months. Now it's 60 months out of 61. A smallish rally that started at 11:00 a.m. in London went vertical the moment that the Comex opened. As soon as the jobs number was released, gold got smacked... only to come roaring back within 15 minutes or so. It had to be hit hard one more time to make it stay down for the day... and gold basically finished on its low of the day. Ditto for silver.

In early Monday morning trading in the Far East, gold stayed pretty close to $955, but slid a little as soon as London trading progressed. The U.S. dollar was enjoying a pretty decent rally, so it should be no surprise that gold was on the defensive a bit. But apparently gold wasn't falling fast enough to suit some not-for-profit seller/short seller, as gold dropped over $10 in a couple of minutes shortly after the Comex opened... and from there, the gold price didn't stray to far from $945 for the rest of the Comex and after-market trading in New York. Monday's price 'action' [such as it was] had absolutely nothing to do with the U.S. dollar Here's the Kitco gold chart for Friday and Monday



The silver chart for Monday was similar to gold's, but did manage a 20 cent rally the moment that the London p.m. gold fix was in at 3:00 p.m. [10:00 a.m. in New York]. But that 20 cent gain was reversed by the time trading in New York was done for the day.

I'll lump Thursday and Friday's changes in open interest together for both gold and silver. In those two days, gold open interest rose another 5,098 contracts to 398,293 contracts. Volume on Friday was 95,418 contracts. In silver, open interest rose 1,669 contracts to 102,476 contracts. Friday's volume was a huge 44,028 contracts. That's a lot! Monday's open interest numbers that go with the waterfall decline in both metals at the Comex open yesterday should be interesting when they're released later this morning.

Another casualty of no Saturday report was commentary on the latest Commitment of Traders report that was released on Friday at 3:30 Eastern Time. Here's the Reader's Digest version. In a word, it was wall-to-wall ugly! In silver, the bullion banks piled on another 3,155 short positions. The new net short position in silver is now up to 39,041 contracts... 195.2 million ounces. In gold, the bullion banks really piled on the short positions as they stopped this gold rally dead in its tracks. The banks in question added another 25,672 contracts to their net short position, which now sits at 228,193 contracts... 22.8 million ounces of the stuff.

If you want to see what "wall-to-wall ugly" looks like in living, breathing colour... here's the full colour COT graph for gold... which is linked here. This chart takes a little while to load. And in silver [which is actually in a rather bullish configuration] the link is here. Silver analyst Ted Butler had an interview with Eric King on the COT report... it's meaning... and it's probable outcome. This is well worth listening to, as Ted is the real expert in this area. The link to that is here.

Speaking of Ted Butler... we talk on the phone at least once a day. Although the COT report for gold is bearish in the extreme... he's happy about one aspect of it. Since the low in gold about July 10th, gold had rallied about $60 at its 'top' around August 1st. This rise in price was accompanied by an increase in the bullion bank's short position of around 46,000 contracts. Butler says that the 'big 4' traders only increased their short position by 4,000 contracts of that amount. The rest of the shorts came from much smaller commercial traders. In silver, there's been a $2.50 rise from the July 10th bottom... and only a 6,000 contract increase in net short position [which isn't much]... and none of that amount was put on by the 'big 4' bullion banks. Ted says that the biggest market makers [price managers] have become very reluctant to take on any more short positions than they already have.

Gold closed within four bucks of its 50-day moving average yesterday... and silver within 28 cent of its 50-day m.a. It will be interesting to see if the bullion banks drop the prices and force the tech funds to sell their long positions so they can cover. Gold is a trap waiting to be sprung... and the only unanswered question is how low silver will go on the next down-move in gold.

Along with the COT on Friday came the latest Bank Participation Report... another smoking gun found at the price management crime scene. As of the close of business one week ago today, two U.S. banks were short 29,813 silver contracts. They were long 15 contracts. This represents 30.0% of the entire silver open interest of 99,477 contracts on the Comex. The 15 non-U.S. banks that play on the Comex hold 8,038 longs and 3,211 shorts... and hold 4.9% of the total open interest. Guess which bullion banks control the price?

In gold, two U.S. banks are short 106,282 contracts... and long 346 contracts. This represents 27.1% of the entire gold open interest on the Comex. The 21 non-U.S. banks that hold positions on the Comex are long 25,061 contracts and short 36,453 contracts. Net, they hold 2.9% of the entire Comex open interest in gold. Once again you have to ask yourself... who controls the price?

And... without doubt... the two U.S. banks are JPMorgan and HSBC USA. Between the two of them, they hold 96.0% of all U.S. precious metals derivatives as reported by the OCC in their Q1/09 Report on Bank Trading and Derivatives Activities.

The link to the latest Bank Participation report is here. You have to scroll about two thirds of the way down the page to find silver and gold... and it's all presented in Grade 3 arithmetic.

The Comex Delivery Report for Friday and Monday combined showed that 288 gold contracts and five silver contracts were delivered. There are still about 1,400 gold contracts left to deliver in August... subject to change, of course. There were no changes in the SLV ETF over the last couple of days... but in the GLD, another 138,917 ounces were taken out. Over at the Zürcher Kantonalbank in Switzerland, there were no additions to their gold ETF last week... but, once again, a large increase in their silver holdings was reported, as their silver ETF added a chunky 774,221 ounces. And, as per usual, I thank Carl Loeb for those numbers. Their were no changes in the U.S. Mint's gold or silver eagle production numbers either. And, in the last couple of business days, the Comex-approved warehouses have added 455,587 troy ounces of silver to their inventories.

The usual N.Y. gold commentator had the following on Friday... and yesterday... "In the week closing on Thursday, December gold gained $28 [3%] and open interest added 28,866 lots... 83.56 tonnes or 7.3%. The $960 level is being quite obstinately defended; a point The Gartman Letter noted this [Friday] morning: There is clearly someone or something of size and consequence holding gold in U.S. dollar terms from moving upward through $965-$975.... Mitsui reports that the abrupt $3 drop in world gold just after the TOCOM open on Monday morning was due to a 'sweep'... a large institutional seller hitting all bids. Something similar occurred on the Comex open, with gold dropping $9 in just a few minutes. Today's down $12.60/$946.90 December gold close, was on quite light estimated volume of 77,670 lots. 80% of the day's volume traded in the first half. No heroes in N.Y. this Monday."

Because I haven't done a report for four days, I have a lot of stories today... too many to be linked... so I will hit the highlights of some of them in this paragraph. I see in a Reuters story that Little Timmy Geithner has "formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October." In a Bloomberg story Goldman Sachs says "A commodity shortage is likely next year as output of metals and agricultural products potentially rises too slowly to match revived demand... Producers of corn, copper, petroleum, coal, wheat, coffee and zinc are using more than 90 percent of their capacity." In a story in The Epoch Times, they report that "For the first time, more than 34 million Americans received food stamps." [That's equivalent to the entire population of Canada! - Ed] And lastly, in another Bloomberg story... "Turkey’s central bank adjusted its current-account records as it struggles to explain the origin of $18 billion in foreign currency inflows that have reduced the need for International Monetary Fund loans... The unexplained money has sparked newspaper reports of trucks laden with gold and banknotes rumbling across the Iranian border into Turkey, which the central bank on June 30 dismissed as false." [I'll leave it up to you, dear reader, to figure out which western country that might want to buy influence in Turkey right now. - Ed]

I have four precious metals related stories today. The first one was posted over at seekingalpha.com. It's about silver and entitled "Who Let China's Silver Bulls Out?" The article contains a video entitled "China encourages Silver Bullion for Investment". The short commentary... and the video clip... are definitely worth your time. I thank Craig McCarty for the story... and the link is here.

The second article is a GATA release entitled "'Managed devaluation' will multiply gold price, report says". The preamble by GATA's secretary treasurer, Chris Powell, is worth reading... as is the report itself entitled "Trade of the Century"... and the link is here.

The big story over the weekend was another GATA release entitled "Germany's gold is in U.S. custody, Bundesbank confirms". This is a detail the Bundesbank long has denied to others who have inquired and is potentially a matter of great controversy in Germany. It raises the question of whether the German gold reserves are actually intact at all or whether they have been used by the U.S. government as part of its long-time gold price suppression scheme. The story is linked here.

The fact that half of German gold is in the United States is no surprise to goldmoney.com's, James Turk. Back on April 23, 2001... Turk wrote an essay on this very issue subject entitled "Behind Closed Doors". This story dovetails nicely with the previous story. If you really want an idea of the opaque world that gold and silver are hidden in... this is a 'must read'. It's a bit on the long side, but worth the effort. This particular copy is borrowed from usagold.com and the link is here.



With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. – Friedrich von Hayek

Since last Tuesday's cut-off for the COT... the net short position in gold has now increased into the 23 million ounce area... almost a record high. Ted Butler figures that the bullion banks have all the mice they're going to get in the trap, and it's only a matter of timing as to when these banks pull the lever and flush out all the tech longs that are trapped. Fortunately, both gold and silver prices are very close to their respective 50-day moving averages, so we may not need a huge decline in prices to panic the tech longs out of their positions. That's the way this whole scam has worked in the past... and if you use the past as prologue... it's going to happen again. The US$ is in a 'rally' mode, and could break above its 50-day moving average, giving the banks the opportunity they need.

We will find out, as they say, in the fullness of time.

See you tomorrow.