Ed Steer's Gold & Silver Daily

08/06/2009

Wednesday in the gold world was uneventful. True, there was an eight-dollar sell-off in New York starting at about 9:30 a.m ...but I wouldn't read a thing into that.

Silver was a little more interesting. A rally began at 4:00 p.m. in Hong Kong trading...just before London opened for business on their Wednesday morning...which lasted until precisely 9:30 a.m. in New York trading...where it ran into some serious selling pressure as well. The high in Comex silver trading was $14.87...the low about an hour or so later...$14.59. The price struggled back to almost it's high...but ran into the N.Y. bullion banks in after-market electronic trading.



The open interest numbers for Tuesday did not warm the cockles of my heart one bit. The big rally on that day blew out gold’s open interest once again...this time by an additional 9,446 contracts [29.38 tonnes], up to a total 392,834 contracts open interest...on decent volume of 104,986 contracts. Silver o.i. actually fell 928 contracts to 99,477 on big volume...34,600 contracts. I'm not overly excited about the o.i. number in silver because Ted Butler said that involved a spread trade in 2010 someplace.

Neither Ted nor myself are happy with this turn of events in gold. This, at least to me, is shaping up to be the usual 'same old, same old' sort of rally...where the U.S. bullion banks go short against all comers...and then trigger the usual sell-off and plunge in price, so they can ring the cash register. Silver's o.i. situation is still very bullish, and it's too soon to write off this price "DIVORCE" between the gold and silver that Ted wrote about on Monday. Neither Ted nor myself are happy with this turn of events in gold. This, at least to me, is shaping up to be the usual 'same old, same old' sort of rally...where the U.S. bullion banks go short against all comers...and then trigger the usual sell-off and plunge in price, so they can ring the cash register. Silver's o.i. situation is still very bullish, and it's too soon to write off this price "DIVORCE" between the gold and silver that Ted wrote about on Monday.

Tuesday's o.i. numbers should be in tomorrow's Commitment of Traders report...but I wouldn't bet money on it knowing how these crooks at the bullion banks operate.

The Comex Delivery Report yesterday showed that only 137 gold contracts were delivered. There wasn’t anything reported delivered in silver. There were still about 2,150 gold contracts open for delivery in August. There were no changes reported in the GLD, SLV or U.S. mint statistics yesterday. And over at the Comex-approved warehouses...409,723 ounces of silver were withdrawn from inventory.

The usual N.Y. gold commentator had the following to report yesterday..."gold drifted higher in the European morning, to a slight gain in early Comex trading. Gold was then hit by what ScotiaMocatta called 'heavy selling,' which had knocked over $8 off the price by 10:30 a.m. N.Y. time. It then abruptly rallied, as it did again to overcome a late selling bout. December gold closed [the Comex close - Ed] down $3.40 at $966.30...and it was $4 higher within the hour. Estimated volume was only 79,829 lots."

"This morning The Gartman Letter, which is becoming very negative on the dollar, went long the Euro...and Yen gold. €645 [circa US$926] was mentioned as a preliminary stop. Given the magnetism exhibited by TGL's stops, many of gold's friends would have preferred a simple currency-shorting strategy." [As reported here via the usual N.Y. gold commentator, Dennis got his head handed to him last week in his dealings in the gold market...plus many more times before that. However, we're all still rooting for you Dennis, because the law of averages says that sooner or later you're going to get it right. - Ed]

The only gold story I could find worth mentioning was posted over at mineweb.com. A hero of the gold business, Donald W. Doyle, chairman of New Orleans-based coin and bullion dealer Blanchard & Co., which sued Barrick Gold and JPMorgan Chase over manipulation of the gold market and got Barrick to stop hedging, has just published a review of gold's prospects. The headline reads "Indicators Suggest Gold Poised for Big Breakout by End Q3"...and the link is here.

Below is an excellent chart that's seen the rounds. It was originally produced by Haver Analytics. From there it got copied into The Wall Street Journal business story. That story ended up in the King Report the other day...and here it is...shamelessly stolen from it. It's the graph of Durable Good Shipments...plus a table showing the changes in shipments and orders for the first half of 2009 compared to the same period in 2008. Brace yourself, because it's beyond ugly.



In this morning's King Report was a MarketWatch.com story that General Electric had to pay a $50 million dollar licensing fee [sorry, I meant penalty] on SEC violations having to do with derivatives swaps in 2002 and 2003. Then a Forbes.com article later yesterday read "Accounting Tricks Catch Up With GE: Since 2001, the company kept its decade-long earnings streak going through manipulations, SEC alleges." [No! Really! Who would have thunk that? - Ed]

I have three stories today...all of which deserve your attention. The first is from the Financial Times in London. The lead-off paragraph reads "The crackdown on ‘naked short-selling’ intensified on Wednesday as the Securities and Exchange Commission brought its first enforcement case against the practice – betting that a stock will fall while failing to borrow the underlying shares." The link is here.

The second story is all about real estate. As you may remember, I'm a 27-year veteran of the residential real estate market in Edmonton, so this is an area that is near and dear to my heart. It's a Bloomberg story that bears the headline "'Underwater' Mortgages to Hit 48%, Deutsche Bank Says". "The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011." As I've said from the beginning of 2007...call me in 2013 sometime and we'll talk about a bottom in the U.S. real estate market. Before this is all said and done, I think we'll find that Deutsche Bank's numbers are rather optimistic. That's right...optimistic! The link is here.

And lastly is this commentary by Casey Research's Chief Economist, Bud Conrad. Bud is one of the sharpest knives in the drawer over at CR and it's a pleasure to be able to put one of his commentaries, as most of his work is for subscribers only. This essay, posted over at financialsense.com, is entitled "The FDIC is in Trouble". It's definitely worth the read...and the link is here.



The economic miracle that has been the United States was not produced by socialized enterprises, by government-upon-industry cartels or by centralized economic planning. It was produced by private enterprises in a profit-and-loss system. And losses were at least as important in weeding out failures, as profits in fostering successes. Let government succor failures, and we shall be headed for stagnation and decline. - Milton Friedman

So...what will today bring? Don't know. But as I mentioned earlier, I'm not enthralled by the short positions that the bullion banks are piling on to cap this rally in gold. Can they put on more shorts? Sure...as they've been short around 26 million ounces of gold in the worst case scenario that I can remember..but we're still well into the danger zone where we are now. These bullion banks in the Commercial category of the COT are the only entities left that are prepared to go short these metals at these price levels...and as I said yesterday, they don't even have to make a move to cover their short positions for gold and silver prices to explode to the upside...all they have to do is put their hands in their pockets, and in a few hours, it would be a day for the history books. That's why they're still doing it...but one wonders for how much longer.

I'll see you on Friday morning.