The Sword of Damocles

Neither gold or silver did very much in Far East and European trading on Tuesday. It was very quiet. A rally attempt right at the Comex open ran into the usual brick wall... and gold was down $8 in the next couple of hours of New York Trading. But before Comex trading was done, gold had gained back about five bucks and finished basically unchanged from Monday. Volume was extremely light... with the usual N.Y. commentator stating "estimated volume was a pitiful 50,144 lots... a quantity which has sometimes traded by 9 a.m. quite recently."

Silver had a somewhat more interesting day... and, for a change, took a somewhat different path than gold... gaining about a percent in Far East trading. However, starting early in the London trading session, silver began to sell off... and by the time the London p.m. gold fix rolled around, silver was down two bits [25 cents] from its earlier high. From there, silver recovered a bit, and only finished down about seven cents on the day.




Although Tuesday's action may have seemed a little like watching grass grow, it was still significant in the fact that new low prices were made [for this move] in both gold and silver... and, without doubt, there was some liquidation as more tech funds puked up their long positions.

The open interest numbers in gold certainly bear this out, as o.i. fell 11,119 contracts to 387,174... on volume of 91,132 contracts. Ted Butler said that around 3,000 of this drop was spreads being lifted, so only about 8,000 contracts or so were liquidation of long positions by the technical funds. In silver, o.i. actually rose 1,194 contracts to 103,670... on another huge volume day of 33,739 contracts. My bet is that, based on the price action on Tuesday, there was liquidation... but it was hidden by bullion bank spread trades. All this data will be in Friday's Commitment of Traders report.

The Comex Delivery Report for Tuesday showed that another 201 gold contracts were delivered. There was nothing delivered in silver. There were no changes reported in SLV yesterday... but in the GLD, another 98,140 ounces were removed. There were no reported changes at the U.S. Mint yesterday either... and over at the Comex-approved warehouses, 397,019 ounces of silver were withdrawn from their inventories.

The usual New York gold commentator had some points of interest yesterday... "Reuters has published an interesting story arguing that Indian gold imports are not as sensitive to the monsoons as they used to be... a close analysis of import patterns over the past decade shows that rainfall is a poor predictor of gold demand in the latter half of the year, when harvest revenues and a series of festivities typically cause a spike in buying. The story is linked http://www.kereport.com/dailyshow/daily-aug1009-seg2.html" target="_blank">here.

Today's 'Chart of the Day' shows the unemployment rate from 1948 to date. The Labor Department reported that the unemployment rate actually decreased from 9.5% to 9.4% during July. [Does anyone really believe that? - Ed] The chart below illustrates that despite this month's encouraging decline, there was only one general period in the post-World War II era during which the unemployment rate was higher than the current rate of 9.4%... and that was June 1982--June 1983. [I'd like to point out that since 1982, the Labour Department has dramatically altered the way they report unemployment numbers. If they used the same methodology today that they did back then, the real unemployment numbers would be in excess of 20%. - Ed] The chart is courtesy of chartoftheday.com and their website can be found by clicking bloomberg.com. It's a couple of days old, but well worth the read. It appears that investors are betting that the current equity rally is about to get scuppered next month. The headline reads "VIX Signals S&P500 Swoon as September Approaches". I'm not surprised, as I've been expecting the next down-leg in this bear market for some time now. The link is http://www.dailymail.co.uk/money/article-1205631/Customer-probe-Blair-bank-targeted-8-5bn-FSA-probe.html" target="_blank">here.

The third story today is commentary from James Turk over at goldmoney.com. Turk has gotten out his charts and concluded that gold and silver have done very well lately even as overwhelming selling by the agents of central banks has sent the metals back toward support levels. Turk sees a danger of collapse for the British pound prior to any collapse of the U.S. dollar. Turk's analysis [well worth the read] is headlined "Back Toward Support" and the link is If you wish to be heard by the CFTC on the issue of speculative limits in the silver [and gold] futures market... this is your last chance. Butler provides a link [in the first paragraph] to the e-mail address that you can send your comments to. Ted's letter to the CFTC on issues relating to silver can be found at investmentrarities.com... and is linked