Gold & Silver Daily: China Eyes Ban on Rare Metal Exports – Sept 03, 2009

World Faces Hi-Tech Crunch as China Eyes Ban on Rare Metal Exports

There was nothing in Far East and London trading yesterday that gave any inkling of what was coming at 8:30 a.m… shortly after the Comex open on Wednesday morning. Gold tacked on a quick $10… then sat at that price for two hours… took another $8 jump, then slowly rose another $7 to $980 shortly after 1:00 p.m. From there, the gold price basically traded sideways until the close of electronic trading at 5:15 p.m. Eastern time.

I was surprised that silver didn’t do better. The price popped a bit along with gold on the early morning Comex rally… but promptly gave it all back within two hours. Then, on the second gold run-up… silver finally took the bit between its teeth, and in the next two and a half hours, tacked on some really respectable gains. But shortly before the Comex close, the silver price looked like it was about to go vertical… and it got stepped on.

Needless to say, I was happy at all these price gains, but in the back of mind I was concerned about who was taking the short side of all these new long positions that were driving up the price. It would be a safe bet that it would be the bullion banks… so it nearly goes without saying that their short position is growing even more grotesque with each passing day.

The shares were on fire yesterday… with the HUI and XAU both up nearly 10%… and closing pretty much at their highs of the day. My stock portfolio [which is 100% in the precious metals] had a pretty good day… as I’m sure, dear reader, did yours. But looking at the 2-year HUI chart posted below, we’ve still got a long way to go [150 points… give or take] to get back to the highs of March 2008… so I’m not breaking out the party favours just yet.

Open interest in gold for Tuesday, September 1st, showed that o.i. rose 2,320 contracts to 384,703… on pretty big volume of 104,075 contracts. Silver o.i. also showed a healthy increase, up 1,614 contracts to 106,671… on decent volume of 30,006 contracts. I’m already cringing at what Wednesday’s open interest numbers will be when they come out later this morning because, without a doubt, they will be u-g-l-y! The thing that concerns Ted Butler is whether or not the ‘big four’ shorts in both silver and gold were actively going short in the market yesterday… or was it other bullion banks carrying the ‘short’ load. Unfortunately, or deliberately, depending on your point of view… we won’t find out until the Commitment of Traders report next Friday… September 11th… because all this action happened on Wednesday…the day after the cut-off for tomorrow’s COT report. As I’ve pointed out many times in the past, this is S.O.P. for the bullion banks when they want to cover their tracks when something big is afoot.

Yesterday’s Comex Delivery Report showed that only 9 gold contracts were delivered… but, once again, there was another big number for silver deliveries… 1,010 contracts… 5 million ounces. The big issuers were the ‘usual suspects’… Deutsche Bank, Bank of Nova Scotia and JPMorgan… with Bank of Nova Scotia taking virtually the entire delivery yesterday by themselves… 951 contracts.

Over at the usual ETFs, there was a small increase of 49,058 ounces at GLD… but over at SLV, for the second time in less than a week, there was a big draw-down. This time it was 2,477,429 ounces. So, in the last week, over 5 million ounces of silver have been withdrawn from the SLV ETF… and since June 13th, the price of silver has increased from $12.40 to 15.49. That’s a hair over three bucks. Silver should be pouring into the SLV ETF… but inventories have been drawn down instead. You would be quite right in asking yourself… “What the hell is going on?”… but it’s obvious that the entity that owned that silver needed it for something else. If there’s lots of silver laying around… why did they have to pull it out of the ETF to get it? Just asking.

There was no report from the U.S. Mint yesterday… and the Comex-approved warehouse stocks showed that 106,820 ounces of silver were withdrawn.

The usual New York gold commentator had the following yesterday… “Today, of course, gold exploded spectacularly on the Comex open, and again just after 10AM. Euro gold tracked $US gold closely, and the move was made before the $US Index started weakening Volume is heavy: estimated at 47,133 lots at 9AM and an even more impressive 113,015 at 12noon. Estimated volume [for the day] was 135,895 contracts.”

The much-abused Gartman Letter deserves credit for its instincts, expressed in the small hours of this morning: ‘…we get the sense that something really quite ominous is upon us and that some news… and clearly not good news… is waiting out there on the market’s periphery that shall tend, on balance, to weigh heavily upon stock prices, shall weigh heavily upon government intervention efforts; shall weigh heavily upon the global capital market’s collective psychology… we have the sense that we are at an historic turning point for the gold market, and that turning point was made mid-day yesterday when the dollar began to strengthen, as commodity prices began to weaken, and yet gold held steady as a rock.'”

“Wide acceptance of this type of thinking amongst the sort of Professionals who read TGL would be [and perhaps is being] an important development for gold.”

“ScotiaMocatta and MKS are both adamant that the rise stemmed from heavy fund buying, with MKS in particular noting “large buying orders before the U.S. market open”… and concluding with… “Large strategic buying from funds helped gold higher…”

“That being the case, a higher estimated volume might have been expected. It also appears that the leader of this advance strongly prefers operating in Comex floor hours.”

“Gold’s price, at present, is in the hands of powerful US-based operators. In this situation, technical input can have real influence. ScotiaMocatta says this evening: “Gold has finally broken out of the topside of our 3-month consolidation triangle at $965… We expect a good extension on this move with $991 [May high], $1006 [2009 high] and possibly $1,032 [2008 high] as technical targets. We expect the market to buy any dip now to $960/965 with only a close back below $950 removing the bullish sentiment.”

“Gold shares had a spectacular day… rising almost unfalteringly into the close. The CEF [Central Fund of Canada] bullion vehicle closed at a 13.6% premium to NAV, a recently high level.”

Talking about the CEF, I received an e-mail from Richard Nachbar yesterday that showed the monthly premium/discount to net asset value for both CEF and Central Gold Trust going all the way back to 1983. It’s hard to believe that CEF ever sold at a 25% discount to NAV at one time… but, as the graph shows, it did!

I thank Richard for the graphs. Richard Nachbar, is a rare coin dealer in upstate New York. His website, is linked here.

Today’s first story is courtesy of Craig McCarty and is a post over at Wegelin Bank, the oldest bank in Switzerland is pulling out of the USA. In an 8-page report entitled “Farewell America” dated August 24th, the bank spells out the reasons for leaving. In the closing paragraph they state the following… “The USA will remain the unquestioned military power and also an enormous repository of debt and other problems. Because they are painful, and there is always an inclination to shift the blame for them onto third parties, redimensioning processes always harbour the potential for aggression. Switzerland is currently experiencing just this. But it won’t end there. Potential aggression and economic progress are mutually exclusive. Which is why we are well advised to take a general farewell of America. This will be painful, for the USA was once the most vital market economy in the world. But for now, it’s time to say goodbye.” The entire article is linked here.

The last two stories of the day are courtesy of the King Report. I’d seen this story on Monday, but didn’t have the space… but now I do. “Traders in London and Frankfurt were buzzing with talk that a major hedge fund was headed for default. Much of the talk was directed at Cerberus, a private equity and hedge fund firm hit hard by losses on investments in Chrysler and GMAC.” The Reuters headline reads “Cerberus dismisses talk of fund defaults”. It’s not a long article, and I suggest you take the time to run through it, and the link is here.

And lastly today, is another piece from Ambrose Evans-Pritchard from The Telegraph in London. It’s a blockbuster and your must read of the day. The headline reads “World faces hi-tech crunch as China eyes ban on rare metal exports”. I didn’t see silver mentioned, but that day may come as well… and if it does, you’ll see a three digit silver price almost overnight. The link is here.

The Constitution is not an instrument for the government to restrain the people, it is an instrument for the people to restrain the government… lest it come to dominate our lives and interests. – Patrick Henry

It’s almost 11:00 a.m. London time [6:00 a.m. in New York] as I put this report to bed. I note that both silver and gold prices have come to life during London trading. But let me quickly point out that the traders are all U.S. bullion banks, as they all have London offices. It’s obvious that we’re in for an interesting day during Comex trading in New York. The precious metals market looks like it wants to bust wide open. With China telling the U.S. bullion banks to take their commodities derivatives and stick ’em where the sun don’t shine… along with the threat to severely restrict exports of rare earth elements [including silver at some point?]… the ‘Big Game’ appears to be on between China and the U.S.A. Hold onto your hats!

See you on Friday.