Ed Steer's Gold and Silver Daily

Gold drifted quietly lower in early trading in the Far East yesterday morning...but by 1:00 p.m. in Hong Kong's afternoon, gold began drifting quietly higher... and just kept right on going up. This up-trend accelerated a bit starting at about 10:30 a.m. on the Comex, but any serious attempt by the gold price to really accelerate to the upside, ran into serious selling. The high of the day came at the Comex close... a couple of bucks shy of $1,000/oz... then the U.S. bullion banks sat on the price from that point on. Thursday, like Wednesday, was a pretty big volume day as well.

The silver price was comatose in early Far East trading, but began to climb slowly at the same 1:00 p.m. Hong Kong time as gold. But at 1:00 p.m. in New York... the price began to accelerate rapidly to the upside... just like the gold price was doing. And just like gold, the moment that electronic trading began around 1:25 p.m... the silver price was also capped.

The precious metals shares turned in another wonderful performance yesterday. A lot of my little junior mining companies, which I found out about through Casey's International Speculator newsletter, did astoundingly well. I hate to harp on this, but this is the flagship of Casey Research's publications... and even though it has a high cost, in reality it doesn't cost at all, as it pays for itself many times over... and I urge you to seriously consider the investment. Please read more about it by clicking here.

Now for the open interest numbers. I said yesterday that Wednesday's gold o.i. numbers would be "u-g-l-y". In actual fact, they were beyond u-g-l-y. Gold o.i. rose by one of the largest amounts that I've ever seen in the ten years that I've been involved in the precious metals market...26,051 contracts. Total open interest is now 410,754 contracts, and yesterday's volume was a very large 165,302 contracts. Silver was better, with o.i. rising 'only' 1,629 contracts to 108,300 contracts of total open interest... on volume of 33,296... which is a lot.

It should be obvious to anyone that this price rally in gold is being met with ferocious resistance from the bullion banks, who are going short against every long placed. Without a doubt, they piled on the short positions again on Thursday... and I won't be going too far out on a limb to say that we are very near to having the largest net short position in gold in the history of the Comex. That's about 265,000 Comex contracts, or 26.5 million ounces of gold... more than one third of 2009 gold production held short by a handful of bullion banks. And two U.S. bullion banks are short about 18 million ounces of that total. Where the hell is the CFTC???

And, as I mentioned yesterday, because all this price action began on Wednesday, none of what's been happening since the Tuesday cut-off, will be in today's Commitment of Traders report. And, to add insult to injury, today is also the release date for the Bank Participation Report for positions held also as of the Tuesday cut-off... so none of this action will be in there either. Coincidence??? Not bloody likely.

As you can imagine, Ted Butler and I spent a fair amount of time yesterday talking about this whopping increase in open interest. Neither one of us were happy campers. But we both agreed on how it was going to end. Either the bullion banks get totally overrun and we have the much vaunted "Commercial Signal Failure" or, at some point down the road, the bullion banks [who will then be short even more obscene amounts of gold and silver] will engineer a sell-off and we all get our heads handed to us... again. There's just no other way out. It's only a matter of timing as to which way this all ends.

The Comex Delivery Report showed that three gold and 145 silver contracts were delivered yesterday. And, for the first time in a while, there was activity at both the GLD and SLV ETFs. The GLD took in 470,959 ounces... 14.65 tonnes. Over at SLV, they finally added some silver... 1,967,020 ounces... after taking out over 5 million ounces during the prior five business days. There was no report from the U.S. Mint yesterday, and a smallish 36,482 ounces of silver were removed from the Comex-approved warehouses.

The usual New York gold commentator did not put in an appearance at all yesterday, so I [regrettably] have no story from him. However, as a consolation prize of sorts, here's an interview I did with Al Korelin of Korelin Economics yesterday. In it, I elaborate on the current major escalation in the gold price, and the link is here.

Moments after I filed my commentary in the wee hours of Thursday morning, I ran into the following gold story filed at marketwatch.com, which is now widely disseminated on the Internet, but here it is again... "Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday." The link is here.

The next story is another one I found shortly after I filed my Thursday commentary. It's a story posted over at mineweb.com and is introduced as follows... "Reports suggest that China's main sovereign wealth fund and other state entities are under pressure to invest in strategic Western assets as the country tries to offload its dollars for firmer-based wealth including gold and oil." The headline reads "Chinese sovereign wealth fund dumping dollars for strategic investments like gold"... and the link is here.

Here's a gold story that appeared over at cnbs.com yesterday. I remember three years ago when the first stories about gold began appearing in the main-stream press... and how ecstatic I was at the time. Now they're commonplace. This one is special in two ways: first of all, it's talking about a four-digit gold price; and secondly, the lead-off paragraph mentions that investors are now taking physical possession of the metal, as they are becoming wary of other investment choices... and rightly so. I thank Donna from Florida for sending this along, and the headline reads "Gold Rush by Many Investors Could Push Price Up to $1,200"... and the link is here.

The next piece contains only one paragraph and one chart, which should take about a minute of your time. It appears that the U.S. Treasury has just announced another Treasury auction for next week... where $70 billion will be created out of thin air. Click on the chart to get the 'big picture'. I thank Craig McCarty for sending it along, and the link to the zerohedge.com 'story' headlined "$128 Billion in Total Treasuries On Deck, $70 Billion in Bonds"... is here.

And lastly is this story from The Times in London. Apparently the $1.1 trillion global rescue package agreed by G20 leaders in London in April, is in serious danger of coming apart at the seams... and Prime Minister Gordon Brown is trying to save whatever's left of his crumbling legacy... as this was his baby. The headline reads "Gordon Brown's $1 trillion global rescue package unravels". Once again I thank Craig McCarty for the story, and the link is here.

Short-sighted and impatient efforts to wipe out poverty by severing the connection between effort and reward can only lead to the growth of a totalitarian state, and destroy the economic progress that this country has so dearly bought. - Henry Hazlitt

So... where do we go from here? Silver is now entering oversold territory, with gold close behind. Can we go higher from here? Absolutely! Can 'da boyz' engineer a sell-off from this point? Absolutely! It's my opinion that this bull run in gold could still have a lot of legs left to the upside, but I must admit that the record net short position in gold just screams of 'Danger Ahead.'

If we do go higher from here, it will follow one of two scenarios... either the bullion banks stand back and let this market run... or they continue to go short against the spec longs that have been entering the market in droves in the last several days. Which will it be? So far, it's been the latter option.

As I put this Friday commentary to bed, I note that not much happened in gold in Far East trading... and a small spike in silver during early morning trading in Sydney got hammered flat. But with London now open, I see that both metals have come under a bit of selling pressure from the U.S. bullion banks. But, as we've seen over the last few days, all the action [and volume] is in New York trading on the Comex... as it will be again today.

With the long weekend upon us, it will be interesting to see what sort of day the bullion banks have planned for us. I'm sure they don't want a gold price over $1,000 for everyone to talk about over the Labour Day long weekend. But as I told Al Korelin in my interview yesterday, every gold analyst out there [including yours truly] is making this up as we go along... so we'll just have to wait and see.

I hope you, dear reader, have a good long weekend... and I'll see you here tomorrow.