Gold & Silver Daily: China Tell Its Citizens: “Buy Silver Now!” – August 15, 2009

China Tell Its Citizens: “Buy Silver Now!”

I mentioned in my closing commentary on Friday morning that neither gold nor silver were doing very much in either the Far East or during early morning trading in London… and by the time the Comex opened, gold was up about three bucks. Then the long knives came out… as gold was under pressure immediately… and the moment they hung up the “Closed” sign in London at 4:30 p.m. local time [11:30 a.m. in New York], ‘da boyz’ pulled the rug out from under the gold price as gold dropped $7 in minutes. This is the second day in a row that you could set your watch by what the N.Y. bullion banks [JPMorgan/HSBC USA] were doing in the gold market. “It was as neat a post-European close [bear] raid as one could hope to see.” as the usual New York gold commentator so succinctly put it. The Kitco graph below tells all.

Trading in silver during the Comex session was somewhat similar… but just looking at the Kitco graph below, it took JPMorgan et al five attempts to bash the silver price into submission, as it rallied vigorously after every hit. As I’ve said before, these guys are so obvious, that even Stevie Wonder could see it.

Well, I wasn’t surprised when I saw the open interest numbers for Thursday’s big day in both gold and silver. Surprisingly, gold o.i. was only up 2,606 contracts to 389,149… on smallish volume of 78,613 contracts. But in silver, the o.i. rose a very large 3,636 contracts to 108,964… on big volume of 43,607 lots. I’m sure [at least I’m hoping] that there was some minor improvement in open interest numbers for Friday when they finally get published on Monday. No major moving averages were broken to the down-side during Friday’s bear raid, but there should be some improvement nevertheless.

In the Commitment of Traders report, silver and gold went different directions. In silver, the bullion banks piled on the short positions against the tech funds in the Non-Commercial category once again. The bullion banks increased their net short position by a rather large 3,305 contracts. As of Tuesday’s cut-off, JPMorgan et al are now short 42,346 Comex contracts… 211.7 million ounces… which is about six times the amount of silver that the United States produces in a year! And to make matters worse, the bullion banks’ short positions in the three days since the Tuesday cut-off have blown out even more. The full-colour COT graph for silver is linked here, and you can follow the bullion banks [Commercials] ever-increasing short position. Click here.

Gold open interest for positions held at the end of Tuesday’s trading showed an improvement in the bullion banks’ net short position… but only by a smallish 5,288 contracts, which is 528,800 ounces of gold. The bullion banks are still net short a grotesque 22.3 million ounces of gold… a bit over 25% of expected 2009 world production… and still well into the danger zone for a major price correction at some point down the road. The full-colour gold COT graph is linked here. This takes a little while to load. Once it’s up, you can see how obscene the Commercial gold short position really is… and it’s been that way since about mid-February.

Ted Butler did an excellent radio interview with Eric King over on Friday afternoon. It has to do with the current situation in the gold and silver market… and, of course, his read on the yesterday’s Commitment of Traders report. This is a ‘must listen’ for anyone serious about precious metals, and the link is here.

Friday’s Comex Delivery Report is hardly worth mentioning as only five gold and three silver contracts were delivered. Their were no changes in the either GLD or SLV. The U.S. Mint had a couple of minor updates to their eagle production numbers, as they added another 3,000 gold eagles and 50,000 silver eagles to their August production numbers. And over at the Comex-approved warehouses 104,855 ounces of silver were added to their inventory.

The usual New York gold commentator had the following on Friday… “Today, The Gartman Letter published a chart of the narrowing wedge constraining US$ gold and said: … we draw everyone’s attention to the chart of gold in US dollar terms at the bottom left of p.1 this morning… what must/needs to be taken away from this chart is that a huge multi-month consolidation has been forged. The battle between the gold market bulls and the gold market bears is being waged, but on a steadily smaller field. Our propensity is to believe that the bullish side shall win this battle eventually, and our propensity then is to buy gold rather than to be short of it. Were it not so crowded already, we’d have already joined the bullish camp. When gold breaks out to the upside… or when gold in dollar terms tests the lower end of the consolidation… we’ll buy gold in US dollar terms readily and aggressively.”

“As many of gold’s friends know, positive comment on gold… and even worse… positive actions on gold by TGL are very frequently followed by sell-offs in the metal. Some think this amusing. IMO, this pattern following the judgments of such an experienced and serious observer of markets is a vindication of the conspiracist view of gold… from which TGL has been scrupulous in disassociating itself.”

Ted Butler was kind enough to let me reprint a paragraph from his ‘subscriber’s only’ website. I’d run this video clip before, but that was when my daily commentary was posted on an obscure part of Casey Research’s website in the transition between the old Casey’s Daily Resource Plus, and my new web page, and I’m not sure how many people had seen it… but it’s definitely worth paying full attention to. Quote: “Over the past week, a YouTube – Broadcast Yourself. video of a commercial from China promoting the retail purchase of silver, has been circulated on the Internet, and the link is here. Since the government there heavily controls the media, it is not hard to imagine this encouragement of silver ownership is intended by Chinese leadership. Considering China’s silver history, this is potentially profound. (I especially appreciated the commercial’s special noting of how cheap silver was in relation to gold). I don’t think I have to explain the significance of great numbers of Chinese citizens buying physical silver for the first time in half a century.”

The only interesting gold-related story on the Internet was sent to me by reader, Gerold Becker. It’s a piece posted at Mining Weekly – Home Page and is headlined “South African gold output dropped 12% in June”… and the link to the story ishere.

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The first of three stories today is from Bloomberg. This was all over the Net yesterday… and is no surprise to me… or should it be for you, dear reader. The lead-off paragraph reads “More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.” I would bet a fair amount of coin that the real number is at least ten times that…minimum! As I’ve said before… the last time being in yesterday’s column… the entire Western world’s banking system is insolvent as of right now, and all the money printing in the world isn’t going to make one iota of difference… and it’s only going to get worse. I thank Craig McCarty for this… and the link to this ‘must read’ story is here.

The next story is from the German website SPIEGEL ONLINE – Nachrichten. I stole this from David Galland’s column here at Casey Research yesterday. I just wanted to make sure that you have the opportunity to read this piece, as it indicates the depths to which international trade has sunk as we enter this “greater depression” as Doug Casey has so accurately described it. The story is headlined “The Container Crisis: Shipping Industry Fights for Survival” and is certainly a ‘must read’… and the link is here.

And lastly is another piece that I highlighted during the transition phase to this new column. It, too, is commentary that is not to be missed. It’s contained in a GATA dispatch with a preamble by GATA’s secretary treasurer, Chris Powell. As I said in my previous comments about this report… it’s certainly above my pay grade in places, but it’s not the parts that I don’t understand that scare me. I urge you to spend some time on this 9-page offering entitled “A Grand Unified Theory of Market Manipulation”… and the link is here.

It may be true that you can’t fool all of the people all of the time, but you can fool enough of them to rule a large country. – Will Durant

This week’s ‘blast from the past’ goes way back to the mid 19th century. Edvard Greig [1843-1907] wrote his famous piano concerto during 1868… and with characteristic humility, he took it to pianist Franz Liszt for the Master’s approbation. Liszt congratulated the young Norwegian composer… and the first performance was in Copenhagen in 1869 with Greig himself as soloist. The work was an immediate success, became one of the composer’s best-loved compositions, and the most frequently played of all concertos.

Playing the third movement of Grieg’s Piano Concerto in A Minor, Op. 16… is Artur Rubinstein [1886-1983]… one of the few romantic pianists that was still alive [Vladimir Horowitz the other] when colour television was finally well established. Without question, he knew Grieg personally…and by the age of 21 [when Greig died in 1907] had probably played his concerto many times.

Born in Loda, Poland… and considered by many to have been the greatest all-around pianist of the post World War Two era… Rubenstein had a remarkably long and triumphant career. A great story-teller and a legendary bon vivant, he ate, drank and played his way around the world in one of the 20th century’s most remarkable musical adventures. Here he is…a ‘living’ legend, and 88 years young at the time… accompanied by the London Symphony Orchestra under the baton of a very young-looking André Previn. Turn up your speakers and then click here. Enjoy!

Well, it was one heck of a week. I was discouraged, but not surprised, by the further deterioration in the bullion bank’s short positions in both gold and silver as the week progressed. Even Ted admitted that he wasn’t a happy camper. I still think we’re going to have a major price correction in gold that will take the silver price down with it. When that ‘bottom’ occurs, then I think we may see that silver “Divorce” that Ted is talking about. I just hope that the CFTC changes the position limits in both gold and silver.

But my biggest fear is that the bullion banks will time their big correction for the anticipated stock market decline that a lot of people are calling for this fall… sometime in September or October. It wouldn’t surprise me if they did that, and if that’s the case, we could see another hammering like we got that started in early July of 2008. But, as Ted Butler has pointed out… as have I… the 50-day moving averages in both metals aren’t very far below Friday’s closing prices, so they wouldn’t have to drive the prices down too far to get big technical fund liquidation of their long positions. But lurking further down are the 200-day moving averages. Silver is two dollars lower at $12.61… and gold’s is about sixty dollars lower at $892.71…and rising. The bullion banks certainly have the fire power in gold to smash the price well below the 200-day moving average if they put their minds to it. But can they, or will they?

I have a feeling that the next couple of months or so are going to be one hell of a ride.

Enjoy the rest of your weekend and I’ll see you on Tuesday morning.