Ed Steer's Gold & Silver Daily

07/29/2009

Both gold and silver prices peaked around 4:00 p.m. [3:00 a.m. in New York] on late Tuesday in the thinly-traded Hong Kong market. Then prices slid gently into late-morning trading in London. From there, the sell-off got a tad more serious, as gold lost five bucks, and silver a dime as Comex trading began in New York. A rally began in both metals, both of which got hit by a wall of selling just a few moments before 9:00 a.m. Eastern time.

The rest, as they say, is history...as the 'same old, same old' pattern emerged...the bullion banks precipitated a sell-off in both metals and rang the cash register. Both metals were pushed off another cliff the moment that London gold trading closed for the day at 4:00 p.m. in London...11:00 a.m. in New York. Volume was monstrous...far in excess of 200,000 contracts.



Gold and silver recovered somewhat during the rest of floor trading...but came under more selling pressure again in the electronic market that followed.

True, the US dollar gained a bit...but nothing to suggest a bloodbath like this was coming during the New York session...as the dollar was on the rise long before New York opened. The gold price decline between 3:00 a.m. and 8:00 a.m. New York time, perfectly mirrored the dollar's rise. It wasn't until the bullion banks showed up with this 'bear raid' of theirs that the roof caved in. As you can tell, these guys aren't very subtle...and aren't even trying to hide. They couldn't be more conspicuous if they'd hired a brass band...or maybe taken out a full-page ad in The Wall Street Journal.

Anyway, dear reader, what happened yesterday should have been no surprise to you, as I've been predicting this for weeks. Just on Saturday I said that Friday's trading action felt 'more like a top' then a stepping-stone to much higher prices. Then the absolute 'kiss of death' came on Monday, when Dennis Gartman [finally] doubled up on his long gold position...after failing to do so on the previous Thursday. If that wasn't the sell signal of the month, I don't know what was.

Anyway, the real target of the bullion banks was silver...and here they did most excellently well. When I spoke to Ted Butler yesterday, he felt that the bullion banks had covered as many as 3,000 contracts of their short position. The open interest numbers this morning may tell us more...but yesterday was options expiry, and an improvement like this can be buried under a mountain of spread trades and switches. The only good thing to come from this was that this event occurred on a Tuesday...which is the cut-off for this Friday's Commitment of Traders report. How many of these bullion bank trades actually get reported before the deadline, remains to be seen...but you'll pardon me if I'm not overly optimistic that they will.

Open interest for Monday's trading showed that gold o.i. fell 1,133 contracts to 394,629...on big volume of 154,024 contracts. In silver, o.i. rose 1,206 contracts to 97,498...on 19,622 contracts. I wouldn't make an attempt to read anything into these numbers as it was the day before options expiry in both metals...and the spreading and switching going on is phenomenal right now. What I said yesterday about this week's activity in gold and silver still stands...which was that we probably won't know how this has all shaken out until we see the Commitment of Trader's report on August 7th.

The Comex Delivery Report showed that 77 gold and 29 silver contracts were delivered yesterday. There were no changes in SLV for the umpteenth day in a row...but over at GLD, another 107,971 ounces of gold were withdrawn. The U.S. Mint updated their eagles production again yesterday. In gold they added another 14,000...bringing their monthly total up to 74,000 for July; and in silver they produced another 275,000...bringing their monthly total up to an even 2,500,000 for the month. We might get one more update from them before month-end...we'll see. And over at the Comex-approved warehouses, there were no changes reported in their silver inventories.

The usual N.Y. gold commentator had the following to report yesterday..."The European Central Bank weekly statement of condition indicates no gold disposal at all for the second week running. This is unprecedented in the almost 10 year history of the Washington Agreements. The ECB banks appear to have withdrawn from the market. On the other hand, renewal of the Washington Agreement, which finishes at the end of September, is getting conspicuous by its absence."

"As noted last Thursday, it is curious fact that whatever market conditions tempt The Gartman Letter to try doubling up to buy breakouts, seems very often to precipitate violent selling. TGL's 1-hour >$955 was triggered yesterday." [Monday - Ed]

And in further commentary yesterday, he added this..."Today was not indecisive. Massive selling overwhelmed a strong [according to ScotiaMocatta] early Comex bid...estimated volume of 124,953 lots by 10 a.m. has rarely, if ever, been surpassed. August gold closed down $14.40 at $939.10...having bottomed down $19.70. At 231,284 contracts estimated volume, today's trading has only been exceeded by actual volume on three days this year. Days of over 200,000 volume recently, have tended to be climactic." "

On July 22, The Gartman Letter set a 1-hour/$937 stop for its new gold position. If this holds for the second tranche bought yesterday, the stop was almost triggered...on the basis of thebulliondesk's charts, the time spent under $937 was slightly less than an hour. Technical observers are, of course, very dismayed by today's events: many in India will be delighted." [Based on Hong Kong trading earlier this morning, Dennis was probably stopped out at that point, as gold spent well over an hour under $937. - Ed]

Before getting into my stories for the day, the following is from the King Report..."Business Travel News: The Air Transport Association reported June passenger revenue for the largest U.S. airlines fell 26%, compared with June 2008—marking the eighth consecutive month of y/y declines. That the number of passengers is down only 6.5% indicates the absence of high-yielding business passengers. The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.4% in June. In May, SA tonnage jumped 3.2%. June’s decrease, which lowered the SA index to 99.8 (2000=100), wasn’t large enough to completely offset the robust gain in the previous month. The not seasonally adjusted (NSA) index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 107.3 in June, up 5.2 percent from May. Compared with June 2008, tonnage fell 13.6 percent, which surpassed May’s 11% y/y drop. June’s contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2% drop in April."

Today's first story is from the huffingtonpost.com. It's another article about High Frequency Trading...a story that's certainly been in the news of late. Here, the author opines that "If the financial crisis has proven anything, it is that capital markets have become an insiders' game in which trading profits crowd out the legitimate business of investment. The business models of the most lucrative firms on Wall Street are a menace to the rest of the economy." And, as GATA's secretary treasurer, Chris Powell, said..."High Frequency Trading is just another name for insider trading." The story...headlined "Wall Street on Speed"...is well worth the read, and the link is here.

The meeting in Washington between the U.S. and Chinese banking officials is now history...with Little Timmy Geithner "pledging to rein in the U.S. deficit to a 'sustainable' level by 2013." Let's hope the Chinese aren't stupid enough to fall for that. The relevant Bloomberg story [courtesy of CR's John Grandits] is linked here.

The next story is an AP story filed with the Star Tribune out of Minneapolis/St. Paul in Minnesota. The CFTC is currently holding talks about position limits in the trading of energy futures..."as well as those in the metals", according to CFTC Commissioner, Bart Chilton. The metals he's talking about are most certainly the precious metals in general...and silver in particular. The article [which is worth the read] is headlined "Regulators weigh limits on energy futures trading as price swings hurt industries, consumers" and the link is here.

And lastly is this 20-minute interview of Eric Sprott...Chairman, Chief Executive Officer & Portfolio Manger of Sprott Asset Management in Toronto...by kingworldnews.com. Needless to say, this is a must listen, and the link is here.



When any welfare scheme is being proposed, its political sponsors always dwell on what a generous and compassionate government should pay to Paul; they neglect to mention that this additional money must be seized from Peter. - Henry Hazlitt

As far as gold is concerned, it took out its 50-day moving average with great conviction yesterday...and there was huge liquidation of long positions by the technical funds. Silver made it almost to, but never did penetrate, its 50-day m.a. to the upside, so breaking it on the way down was never a concern. So what now? A good question for which I have no answer. Will they continue hammering the gold price to beat the last few thousand speculative silver longs out of their positions? Are they gunning for the 200-day moving averages? Don't know. But can they...or will they? However, current circumstances being what they are, I have to agree with Ted Butler. With the CFTC shouting from the roof tops about position limits in "the metals"...when the 'bottom' comes this time, I think that the "D-I-V-O-R-C-E" between the silver and gold price that Ted spoke of in his last essay, will probably become final that day.

Until Thursday...