Gold's 200-Day Moving Average Breaks Through US$900/Ounce

Gold didn't do much of anything [once again] during Far East trading on Thursday. The low price in Europe was about the time of the London a.m. gold fix. From there it rallied about six bucks into the Comex open... and very shortly after that came the high of the day [$951.70 spot]... and then came the usual take-down into the London p.m. fix, which turned out to be the low of the day at $940.50 spot. From that point, gold rallied as usual... but was not allowed to close [or even stay long] above $950... even though the U.S. dollar fell off a cliff after the Comex close.

Silver didn't do much of anything either, except mirror the goings-on in the gold price. Ted Butler said that [after removing spreads and switches] it was the slowest volume day in silver that he could remember.

I want to spend a little time on the Kitco gold chart posted above. You will note that gold always seems to rally at the Comex open where it usually post its high of the day. Then, within half an hour, the rug gets pulled out from under the price until the London p.m. fix is in at 10:00 a.m. in New York. Then... or shortly after London closes at 11:00 a.m. N.Y. time... gold rallies a bit. You will [more or less] see this pattern in all three days posted on the above graph. It was also the same pattern during Monday's trading.

Well, several years ago, a German chap by the name of Dimitri Speck noticed the same thing... and had the knowledge and ability to dig further into the past to see what this trend looked like over time. This intra-day anomaly has existed for quite a while, but has weakened during the last few years in the course of the continued upward trend in prices. The average is calculated by taking the minute-by-minute prices throughout the day from about 2,000 days and consolidating them as a single day. By doing that, he produced the chart below that showed at a glance how intra-day prices have behaved between August 1998 and June of 2006. It looks quite similar to what's been going on all this week... doesn't it? And from that, you can draw whatever conclusions you wish.

The article from which this graph is taken, is posted over at gold-eagle.com and is entitled "Gold Market Interventions" and the link is here.


Wednesday's price declines in both gold and silver brought a predictable result in open interest. Gold o.i. fell 5,685 contracts to 373,944 contracts... on smallish volume of 74,737 contracts. Silver o.i. was down 991 contracts to 100,548... on big volume [almost all of it was switches, spreads and roll-overs] of 54,298 contracts. Since this is Wednesday's volume, it won't be in today's Commitment of Traders report.

The Comex Delivery Report for yesterday showed that only 16 gold and 12 silver contracts were delivered. Today is the last day for delivery in the August contract... and I'll report on those numbers on Saturday. There were no changes over at the GLD ETF... but for the first time in many months, there was a big drop over at SLV... as 2,655,698 ounces were withdrawn. But there were some fairly significant additions over at the U.S. Mint, as they reported another 14,500 gold eagles and 275,000 silver eagles added to their August production totals. Even though there are still two business day left in the month, this may be their last update for August. As of right now, the totals for the month are 74,500 in gold and 1,655,000 in silver. If these numbers stand, this will be the second lowest month in gold eagle production and the lowest month of silver eagle production for 2009. And lastly, over at the Comex-approved warehouses, a smallish 10,459 ounces of silver were withdrawn.

The usual New York gold commentator had the following yesterday, the first comment came before the dollar fell out of bed... "Today, gold made a spirited rally attempt around the Comex open, which was, as usual, completely defeated--December gold was down $1.60 by 10 a.m. with estimated volume of 32,999 lots. Subsequently it drifted up to a [Comex] close of up $1.50 on the day." Then late last night came this comment... "Today was a very unusual day. An hour after the Comex floor close, the US$ abruptly nose-dived. The dollar index shed more than half a point in 30 minutes and December gold jumped $4.90 in the aftermarket. Subsequently, the US$ has stabilized slightly above its low, and gold is drifting sideways just under $950."

"The gold shares were delighted. Having been as low as down 2.2% and 2.3% respectively, the XAU and HUI shot up, holding their gains into the close and finishing up 1.88% and 1.89% respectively. The Canadian bullion vehicle closed with a 12.1% premium, which is relatively high."

I got a little tidbit of information yesterday from Simon Black's International Man e-mail commentary yesterday. His source in China had this to say... "Gold was attainable by Chinese via Panda coins (China's version of Eagles) or jewelry since the 1980s. Walking into a bank and buying coins/bars however is a recent phenomenon."

"The critical point to understand is that the government has never before pushed gold and silver as an investment vehicle. It has gone from being illegal, to being the hottest asset on the market simply because of the government's marketing efforts."

"I'm convinced that this will create significant upside, especially for silver. You should see how people stand in line at banks to buy silver bars now."

The only gold story of interest yesterday was posted over at mineweb.com. The headline reads "Down 2,606 tonnes in 9 years: Global gold hedge book drops just 31 tonnes Q2 - Socitété Générale". Nothing in here surprised me. Barrick and AngloGold Ashanti are still holding the lion's share [at least two thirds] of all remaining hedge book positions on the planet. Two things were of note... the paragraph regarding Barrick's 'evergreen' hedge book with JPMorgan... meaning that they can roll over their hedges indefinitely... never having to pay them back; and secondly, the closing sentence of the article which really tells you that hedging is dead forever ... "Fresh hedging activity has so far been largely constrained to project financing. The group has yet to see a move towards strategic hedging and does not expect such a development in the near term." Amen to that, brother! The link to the complete story, which is worth your time, is linked here.

The first story today is posted over at marketwatch.com. "The FDIC said Thursday that the number of troubled banks rose to 416 at the end of June from 305 at the end of March. FDIC said this is the largest number of banks on its "problem list" since June 30, 1994, when 434 banks were on the list. Assets at troubled banks totaled $299.8 billion, the highest level since Dec. 31, 1993, the agency said." As I've said many times before, if every U.S. bank foreclosed on every property that they should [both commercial and residential] and marked everything to market according to GAAP [Generally Accepted Accounting Principals], then virtually every bank in the U.S. would have to shut their doors tomorrow. I thank Craig McCarty for this story and the link is here.

Today's second story is from reuters.com. The first paragraph reads... "The U.S. Federal Reserve has asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy." Golly gee!!! I wonder what we'd find out? One can only guess, dear reader, how ugly it really is under the hood. This is a really important story as far as "We, the people..." are concerned, and we should all be paying close attention to the outcome. No doubt [behind the scenes] the judge will be under enormous pressure to back down. Let's hope she's got the gonads to stand up and do what is right. The link to this 'must read' story is here.

And lastly, comes this story from the Financial Times out of London. "Last month, the Swedish Riksbank entered uncharted territory when it became the world’s first central bank to introduce negative interest rates on bank deposits." The problem, dear reader, is that banks world-wide are refusing to lend, in spite of central bank stimulus, because of fears over the dire state of the economy. These are very good reasons for not lending money... which is the course of action they should be following. The problem is that the banking system will fail altogether unless the credit market continues to grow to infinity. That's how the banking system works... and it doesn't work in reverse... ever! The central banks are trying to reignite the credit cycle... but the rest of the retail banks aren't co-operating. The story, headlined "Bankers watch as Sweden goes negative", is definitely worth the read... and the link is here.

Socialism and interventionism. Both have in common the goal of subordinating the individual unconditionally to the state. - Ludwig von Mises

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I note, as I write these last words, that gold has spiked up above the $950 mark in mid-morning trading in London...at the London a.m. gold fix. This is a price that 'da boyz' have been defending all week, but with options expiry [and the $197 billion Treasury auction] out of the way, one wonders what their plans are from here... especially considering it's Friday. It could turn into an interesting day on the Comex. I guess I'll find out when I roll out of bed [much] later this morning. Another thing that is noteworthy... I see, that for the first time in history, gold's 200-day moving average has snuck above $900 the ounce... $902.02 to be precise.

Looking at the 2-year gold graph, I see that the chart pattern looks very bullish... and the silver chart looks pretty good, too. But the bullion banks' net short position in gold is still in the danger zone for a sell-off. So, what are we going to get... 'blast off'... or 'in your ear?' I don't know, but the situation looks like it may resolve itself in short order. Time, as they say, will tell.

Have a great weekend, and I look forward to seeing you here again tomorrow.