Ed Steer's Gold & Silver Daily

08/02/2009

In Far East trading, gold added about six bucks to its price by 3:30 p.m. in Hong Kong...but had trouble hanging on to this minor gain through London trading and the Comex open in New York. The low price for Friday trading came shortly after 8:30 a.m. in New York. From there, things really started to heat up, as gold added a quick $10 into the London p.m. fix. From there it did nothing until about 11:40 Eastern time. Then the price exploded for $15 in fifteen minutes...before the usual non-for-profit seller showed up with their 20-pound sledge hammer.

Just like Thursday, the silver price mirrored the gold price exactly...and from its low of $13.37 at the same time as gold's low of $930.90...silver managed to add 54 cents to its price before the JPMorgan sledge hammer dispatched it at the same time.

I figured that today's price explosions were short covering rallies. Ted Butler wasn't so sure. He figures that the bullion banks were very reluctant to squash this rally...but did for obvious reasons. If they hadn't, we'd be looking at a gold price way over $1,000...and a even larger corresponding increase in the silver price. You can tell by the price action, that it was only the U.S. bullion banks that are the short sellers of last resort yesterday...as London was already closed for the weekend. If they hadn't, we would have been 'limit up' in both metals in a New York minute. As a matter of fact, it was a New York minute when all this excitement happened!

The open interest numbers for Thursday were educational. Both gold and silver rose slightly in price on Thursday...but the o.i. numbers for both metals were down. Was there short covering involved...or more delayed reporting from the price declines on Tuesday and Wednesday? In gold, o.i. fell 3,080 contracts to 369,572...on rather large volume of 116,542 contracts. In silver, o.i. fell 955 contracts to 97,827...on 20,640 contracts traded. Unfortunately, this activity won't see the full light of day until next Friday's Commitment of Traders report. And as events are unfolding at the moment, that report may be immaterial by the time it does arrive.

Talking about the COT...here's the scoop on the one that was issued yesterday. As soon as I glanced at the silver numbers I knew that not a single contract of Tuesday's improvement in silver open interest had made it into this report. The bullion banks [principally JPMorgan] increased their net short position by 2,675 contracts...but in gold, there was a slight improvement, as the bullion banks decreased their net short position by a smallish 1,705 contracts.

This Commitment of Traders report showed, that as of Tuesday's cut-off, the bullion banks were net short 35,886 silver contracts...which is 179.4 million ounces of the stuff...and in gold, the bullion banks were net short 202,521 contracts...20.3 million troy ounces.

However, since absolutely none of the improvement in open interest after Tuesday's slaughter in the Comex gold and silver pits is in this report...this COT doesn't mean much...and it's highest and best use would be to wipe the nether parts of your body with it.

There certainly has been a big improvement in the open interest numbers since Monday...but that will be tempered somewhat by what happened yesterday...as you will see when you get down to the jottings of the usual New York gold commentator. We won't be able to tell whether this was a short covering rally...or a new buyer...until the open interest numbers for Friday's activity are reported on Monday. A short covering rally means a drop in o.i....while a buyer would have forced the bullion banks' hand when it came time to cap the rallies in both gold and silver...and o.i. would rise. Ted Butler and I agree that there was little volume in the price spikes themselves...that's why the prices went vertical in the first place...there were no sellers...only buyers. That's what Monday's open interest changes should tell us...provided a lot of spreads and switches don't obscure it.

First day notice for delivery into the August contract showed that 303 gold and 29 silver contracts were delivered...which isn't a lot. I would expect that we'll see bigger numbers reported during the first few days of next week. There were no changes in the alleged holdings over at the GLD ETF...but in the SLV there was a pretty big increase, as another 1,967,860 ounces were added. This is noteworthy in the fact that the silver price 'fell' 90 cents during the early part of the week that was. And just to make me look bad, the good folks over at the U.S. Mint did another big update to their July gold and silver eagles production. In gold, another 9,000 one-ounce eagles were added, bringing the final July total to 86,000. And in silver eagles, they reported minting another 225,000...bringing their final July total to 2,810,000...the second largest one-month production this year. Year-to-date the U.S. Mint has produced 756,500 one-ounce gold eagles and 16,634,500 silver eagles. These are big BIG numbers! By the end of September...at current production rates...2009 production will have equaled all of the production for 2008 in both gold and silver eagles. And over at the Comex-approved warehouses, another 599,470 ounces of silver were withdrawn on Thursday. Friday's inventory report doesn't come out until Monday afternoon.

In one of two reports yesterday from the usual New York gold commentator came this..."The rupee staged a powerful rally today, in the wake of the Indian stock market rising 1.83% to a 13-month high. The result was to give India a strong bid in the world bullion market. UBS remarks today: The $30 sell off in gold this week prompted a spike in our physical sales to Indian clients. Wednesday saw our best day of sales to this region for the year, although only about a quarter of the strength that our sales peaked at last year. As we noted in the Daily on Thursday, however, this was not entirely surprising considering the quick drop in gold and that what we would look for is physical clients to return to the market and buy gold in a stable market. This did not happen and our sales slipped back to low levels on Thursday and have remained quiet in early trade on Friday. Peak sales in India last year were at phenomenal levels, and hardly make a good benchmark. Today's UBS note was really written too early to properly assess the day."

And here are the highlights from his second report yesterday..."Actual volume [on Thursday] was 116,542 contracts...a startling 30.4% above Comex estimates. Open interest is now down to 369,572 lots...8% [or 99.9 tonnes] below the high reached in the early June breakout attempt. Gold's friends will see some potential buying power here."

"Today gold withstood the usual Comex-open pressure [meeting 'good investor demand' according to ScotiaMocatta] and then, of course, exploded up over $15 just before noon as the Dollar suddenly slumped. The gain was well held, with December gold closing up $18.50...only $4 below the zenith...and rising in the after-market. Estimated volume was 112,425 lots, of which more than a third traded between 11:00 a.m. and 12 noon."

"Has gold's Fall rally started? Summer Friday's and month ends are dangerous times to discern trends starting. But quite a few technical bells were rung today, both in gold...and even more so in the dollar. The Bears [bullion banks - Ed] will need help next week."

The only precious metals story of interest I could dig up was this one over at numismaster.com. "National Gold Exchange of Tampa, Florida...a driving force in the rare coin market for a generation, filed for bankruptcy under Chapter 11 on July 24th."

One look at the photo accompanying the article will show you why it went under. The story, headlined "NGE Goes Broke", is linked here.

In other news, and as per usual, the FDIC announced late on Friday that they had closed five more banks in five different states. The money.aol.com story is linked here.

Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow/Gold ratio...or the cost of the Dow in ounces of gold. For example, it currently takes 9.8 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the US stock market has been in a bear market for the entire 21st Century...and is currently trading 78% off its 1999 highs. The recent five-month rally, however, has the Dow (priced in gold) putting in a significant test of resistance of an accelerated downtrend that began in mid-2007. I thank P.S. for sending it along...and the link to chartoftheday.com is here.



I have a handful of stories...plus one video for you this weekend. The first story was posted over at yahoo.com. It appears that the natives are getting restless. Boobus Americanus, as Doug Casey so eloquently calls them, is waking up...as the sheeple are starting to realize that they are being lead to the financial abattoir. The headline..."Town halls gone wild". This is a must read and the link is here.

Now here's the video. I got a couple of e-mails about this yesterday, but only one had it attached. In a word...it's absolutely terrifying! I'm sure glad that I don't live in the United States. The police state is upon you! It's Glenn Beck over at foxnews.com exposing how Cars.gov's Privacy Agreement taps into the users personal computer. [Note to ALL readers...please don't go anywhere near this site!!! - Ed]. I hope it's all a big mistake...but doubt that it is. I thank Donna for sending this to me, and the link is here.

In a story at The New York Times comes this headline..."Billions in Lehman Claims Could Bury an Elusive Insurer". The insurer is called the Customer Asset Protection Company...or Capco for short. "Capco was created in 2003 by Lehman and 13 other banks and brokerage companies as a kind of marketing tool. The pitch was that while Capco would not insure customers against investment losses, it would compensate them if the firms failed. Capco promises to provide virtually unlimited coverage above the $500,000 offered by the Securities Investors Protection Corporation and its equivalent in Britain." This is a real can of worms in the making, and is certain to blow up in somebody's face. “Right away, the whole Capco thing just did not pass the smell test,” said Robert Meave, an outside consultant for Schwab at the time, who evaluated the insurance company." It's a longish article, but must be read...and the link is here.

And lastly comes this story from The Wall Street Journal. The $235 billion Treasury action last week was not all sweetness and light. I'd heard stories to that effect on the Internet over the last couple of days, but now here's the whole story in the pages of the WSJ. It's provided here as a GATA Dispatch, as you need a subscription to the paper to view the whole article. The headline reads "Bond Worry: Will China Keep Buying?" and the link is here.



The modern mind dislikes gold because it blurts out unpleasant truths. - Joseph Schumpeter

This week's blast from the past is from a Canadian rock group. They had many great songs...but this was their mega hit...and most rock fans should know it note for note. This is a live performance from May of 1982 in Vancouver, B.C. right here in Canada. So crank up those speakers a lot...and then click Texas Hold 'em...I'm "all in."

Enjoy the rest of your weekend, and I'll see you right here on Tuesday morning.