Bullion Banks Now Net Short 22 Million Ounces of Gold

I made the observation in my closing commentary in the wee hours of Friday morning, that the mid-morning activity in London may prove to make the Comex trading day a tad more interesting...even on a late-summer Friday. Well, that turned out to be the case.

Although the gold price gained about three dollars in Far East and early London trading, the real activity began the moment that the Comex opened in New York. Gold tacked on about $12 between the open and precisely 8:30 a.m... when a not-for-profit seller showed up. The top spot price posted at Kitco on this spike was $963.40... and heaven only knows how high the price would have gone if the New York bullion banks hadn't stepped in. From that point it was a long, slow slide into the close of electronic trading at 5:15 p.m. By the time the close came, gold had 'given up' eight dollars of those gains.

Silver's action was similar... but the gains were far more substantial. By the time that the Comex opened, silver had gained two bits... that's 25 cents for my 'younger' readers! The price spike at that time added another 33 cents... with the peak price of the day being $14.90... and the close only down a dime from that price. Once again, one has to ask 'how high was up' for silver, as it was obvious from the chart that silver wanted to break higher, but some bullion bank was there to keep the price well under the $15.00 mark.

Thursday's open interest in gold showed an increase of 1,277 contracts to 375,221... on very small volume of 66,753 contracts. Silver o.i. fell 191 contracts to 100,357... on 48,143 contracts, most of which were switches and spread trades. And, without a doubt, the big action on the Comex open on Friday will result in a huge jump in gold open interest [Ted Butler says about 10,000 contracts... I think more] and a smaller increase in silver o.i. when Monday's NYMEX Open Interest Report becomes available.

The latest Commitment of Traders report [for positions held at the end of trading on Tuesday, August 25th] came out yesterday. There was a minor improvement in silver, as the bullion banks decreased their net short position by 403 contracts... a hair over two million ounces. The silver net short position now stands at 213.6 million ounces... about a third of world silver mining production... all held by 'four or less' bullion banks. This is grotesque beyond description. The full-colour version of the silver COT is linked here.

In gold, the bullion banks increased their net short position by 6,797 contracts... which is 679,700 ounces. The bullion banks' net short position now stands at 211,342 contracts... 21.1 million ounces. This is well over 25% of world gold production. This is also grotesque beyond description. The full-colour version of the gold COT is linked here.

And, without a doubt, the net short position in gold [as of the close of Friday's trading] has deteriorated by at least another million ounces... so the current net short position as I write this, is north of 22 million ounces. This is well into the danger zone in my opinion. Ted Butler has his opinion on this and other things... and he shares it with Eric King in this audio interview posted over at kingworldnews.com. I urge you to stop reading at this point and listen to what Ted has to say. The link is here.

Yesterday was the last day for delivery into the August contract for both gold and silver. The Comex Delivery Report shows that 41 gold and 10 silver contracts were delivered. The final totals for August are as follows... gold 5,728 contracts [572,800 ounces] and silver 91 contracts [455,000 ounces]. August was a big month for gold deliveries... but not for silver. September is a big month for silver deliveries... but not for gold. First day notice for delivery into the September contract is on Monday. More silver will be delivered on Monday than all of August combined... several million ounces is my guess.

There were no changes in either the GLD or SLV ETFs on Friday... and there was no report from the U.S. Mint either. Over at the Comex-approved warehouses, a smallish 59,307 ounces of silver were added to their inventories.

In the first of two reports, the usual New York gold commentator had the following to say... "Mitsui's monthly Refining Monitor, which is generally downbeat of physical demand prospects, reports 'sizeable bouts of demand' from India and the Far East in early July as gold approached $900. Of course, the same effect can be achieved by a strong rupee. With the Indian stock market continuing to behave comparatively well, this is a factor gold's friends need to watch. Mitsui also repeats that scrap supplies have dried up and that their impression is that fabricators are under-stocked, both bullish points."

"This morning, after drifting sideways all day, gold found powerful buying on the Comex open, jumping $9 in 30 minutes. Estimated volume at 9 a.m. was a heavy 29,042 contracts, Gold then made the familiar right angled turn and volume has fallen away: Estimated volume at 11 a.m. was only 67,485 lots. A significant feature of the move was that it was closely tracked by Euro gold. Clearly there is an interested party in NY."

"On Thursday, The Gartman Letter bought sterling gold, and today has kind words for the metal [while noting opposition]: We could not help but pay heed to the fact that gold held very, very steady yesterday even during the period when crude was under pressure, when the grains were under pressure and when share prices, for the briefest of moments, sold lower. Through it all, gold held steady, and gold priced in currencies other than the U.S. dollar held steadiest of all..."

"...there has been someone or 'something' willingly selling gold at progressively lower dollar levels since early this month. They, or 'it', stopped gold firstly at $970; then again at $960; then again at $957 and again thus far this morning at $950. If $957 is taken out to the upside, we shall have no choice but to be very much impressed."

"Not all of gold's friends will be happy to have The Gartman Letter as company, but if TGL's powerful friends are of the same mind, the new month could see a change in tone--particularly if the rupee helps in accentuating India's seasonal strength."

Then on Friday evening, he filed this commentary... "Spot gold is, in fact, challenging downtrends from both the early August and early July peaks. The UBS gold analyst, John Reade, was quote on Bloomberg today, saying: Our coin and investment-bar sales in Europe this week... for the first time in several months... were reasonable, or even quite good,"

"And as noted this morning, firmness in the rupee, if sustained, could well bolster the usual Indian seasonal physical demand upturn, despite the poor Monsoon."

Dennis Gartman's Friday commentary on gold was also noticed by writer, Izabella Kaminska, over at ftalphaville.ft.com as well. She expands further on Gartman's comments with the following quote... The trading range is drawing down tighter and tighter, as the bullish and the bearish forces face each other in the trenches at ever closer range. Soon, one side shall have the other on the run; we'll join the winning side, allowing others to be braver than we. Her brief missive is entitled "Gold War"... and the link to this must read piece is here.

The first story today is a video brief at USAGold.com, the Internet site of Centennial Precious Metals in Denver, market analysts Jonathan Kosares and Peter Grant rebut what they call "the myth of declining gold demand." Reductions in jewelry and electronic purchases are getting the headlines, Kosares and Grant note, but these reductions are being more than offset by investment demand and the reversal of the posture of the central banks in the gold market. The link to the video is here.

The second story is from Reuters... and is [unfortunately] no surprise to me whatsoever. "The U.S. Federal Reserve won a delay of a federal judge's order that it reveal the names of banks that have participated in its emergency lending programs...the judge directed the Fed's board of governors to file a notice of appeal and an emergency stay application with the 2nd U.S. Circuit Court of Appeals." The link to the story, headlined "Judge puts Fed's bailout revelations on hold"... is here here.

In the next story, the Fed has others breathing down its neck, as this story in the Washington Times points out. It appears that Representative Ron Paul's bill to audit [and end?] the Fed will pass out of the House Financial Services Committee in October as part of a larger regulatory package. The story, headlined "Barney Frank says Ron Paul bill will pass"... is linked here.

And lastly is this incredible interview of a "very angry" Gerald Celente by Eric King of kingworldnews.com. It's absolutely explosive!!! Celente discusses bank bailouts, The Fed, Paulson, Gheitner, civil unrest, increases in crime and the future of the United States as he sees it... and much more. Needless to say it's a must listen... and I thank Casey Research's Bud Conrad and Doug Hornig for bringing it to my attention. The link is here.

Bureaucrats and their institutions have no need of competence. Being insulated from any and all form of economic reality, they are not subject to the need to co-operate with those around them, nor is there any requirement that they earn or create the resources which they so casually use up. The wielders of government do not need to show a profit, they merely need to write a law or a regulation. - Bill Buckler

Today's 'blast from the past' is a live performance from 1973 by one of my favourite bands of that decade. I remember that era very well, when my hair was that long... headband and all... and dressed up in my best polyester leisure suit. So turn up your speakers and then click here.

So... Dennis Gartman is sitting on the fence waiting to see which way the wedge formation in gold resolves itself before jumping in with both feet. I must admit that that's where my head is at, too. The chart [below] looks like it should break to the upside... and Friday's action tends to confirm that... but I look at that monstrous and obscene gold short position of 22+ million ounces held by the bullion banks and I wonder if/when the hammer is going to fall.

That's why I mentioned in my Friday commentary that it's going to be either 'blast off' to the upside... or 'in your ear' to the downside. I know that Gary Gensler, the CFTC chairman, is talking about position limits and concentration issues for all commodities... and even though I desperately want to believe that he will do the right thing in both silver and gold... there's still that problem of being born in Missouri in another life that keeps eating away at me.

And as I also said on Friday... we shall find out in the fullness of time, and not too much time either.

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