The Bullion Banks Are Now Net Short 31 Million Ounces of Gold!

Gold began rising shortly after Far East trading began on Monday, but it was on really light volume, so it wasn't hard to shove the price higher... or lower... and that's what happened until about 1:15 p.m. in Hong Kong afternoon trading. Then some really serious selling showed up, with some decent volume behind it... and about an hour after London trading began, gold was down about $12 from it's New York open on Sunday night. That proved to be the low of the day, and gold struggled back to a bit over $1,000 by the London p.m. gold fix, and closed a hair under $1,000 by the time electronic trading ended in N.Y. at 5:15 p.m.

The silver price was much more 'volatile' yesterday. After a bit of a rally in Sydney, the price got capped the same moment as gold... shortly before Hong Kong opened for trading yesterday morning... and it was all down hill from there. Silver's low price came in London... about a half an hour after the low in the gold price... almost at the London a.m. gold fix. From its high in Sydney to its low in London, silver 'lost' more than 50 cents. But from its London low, it rallied until 12:45 p.m. in New York, before 'selling' showed up.

The peak price for both gold and silver yesterday occurred in early morning trading in Sydney... half an hour before Hong Kong opened for the day.

Open interest for Friday's attempted run higher going into the London p.m. gold fix, showed that gold o.i. increased another huge number, this time by 15,477 contracts to 473,192... on big volume again... 144,035 contracts. The bullion banks [as my headline states] were net short 31 million ounces of gold as of Friday's market close. In silver, the o.i. was up a depressing 1,842 contracts to a total o.i. of 123,004 contracts on decent volume of 27,173 lots. According to the usual N.Y. gold commentator... "Open interest has not been this high since July last year, when it peaked at 496,778 lots." This is beyond ugly... it's now just outright dangerous!

The Comex delivery report for Friday showed that it was a slow day, as 139 gold and only four silver contracts were delivered. The GLD ETF showed a small increase yesterday... up 39,242 troy ounces... and the silver ETF was unchanged. As I mentioned the other day, Ted Butler feels that it's owed about 30 million ounces. I won't be able to report the additions to the Swiss Zürcher Kantonalbank ETFs until tomorrow. Over at the Comex-approved depositories, I note that silver inventories fell a smallish 34,297 troy ounces.

There were a couple of e-mails from the usual New York gold commentator yesterday. The first was at 5:30 a.m. yesterday morning.... "In (I believe) an unprecedented step, the UBS gold analyst John Reade published on Saturday an alarmist piece on the CFTC data. (How did he get his Compliance drones to work? The data of course is put out on Friday evening London time.)"

"Friday's COTR report for gold…on US futures markets confirms our view that Comex - trading investors and speculators have vastly increased long positions in gold and silver last week…net speculative long position in gold was at a record high of 29.02moz as of Tuesday 8 September, 2.2moz more than the previous record long position seen in February 2008. The one-week increase in the long position of 6.4 moz is the fourth largest in our records (from Jan 96) and the largest since September 1999….we estimate that the net long position now probably stands at about 31moz. Looking at the previous occasions when the net speculative long positions increased by more than 6moz…we recommend that nimble investors take profits on any long gold and silver positions, looking to re-enter after a correction."

"Negative comment by UBS on the Barrick transaction was credited by some with Thursday’s weakness. This is an area in which Reade’s views deservedly carry weight, and they are echoed elsewhere this morning."

"As I pointed out myself on Saturday (my Compliance does not charge overtime) sentiment and charting indicators do not support such alarmism. Neither does the Indian situation. A congenial view of gold is to be found linked here."

Then there was this yesterday evening... "To complete this [early] morning's partial: Indian ex-duty premiums: AM [88 cents] PM [86c] with world gold at $1,000.91 and $997.75. Below legal import level, but not by much. This was despite a soft rupee, which closed down 0.5% at $1=$48.74 [Friday $48.48]. The stock market lost 0.31%. This is bad news for the Bears. India is likely to turn a buyer and stop any meaningful down thrust if given the chance."

"Today, gold was beaten down pretty equally in [both] US$ and Euros from the TOCOM open to the London a.m. fix of $994.25. A rally was then attempted, causing a pretty fierce fight in the early Comex floor session as spot gold tried to clear $1,002. Estimated volume at 10 a.m. was a quite heavy 70,485 lots. Being blocked, gold went to sleep: estimated volume in the final 2/3rds of the day was less than 30% of the total. December gold went out down $8.30 at $1,001.10. Both the HUI and XAU responded well to a slight recovery late in the day."

"Gold did well today not to be pulled down further, particularly on the well-publicized negativism of UBS. Interestingly, the usually vague MKS comment this evening remarked that... "gold could move higher, especially with physical sales not quite as important as first expected." [Emphasis by the N.Y. commentator]

"This was a disappointing day for the bears."

I've got a couple of stories here that I stole from the King Report yesterday. The first [from CNN] bears the headline "Insiders selling like there's no tomorrow: Corporate officer and directors were buying stock when the market hit bottom. What does it say that they're selling now?". The link is here. The second story is from Reuters and is headlined "U.S. junk bond default rate rises to 10.2%". The default rate is expected to rise to 13.9% by July 2010 and could reach as high as 18% if economic conditions are worse than expected. It's astounding that junk bond defaults have worsened, yet quality spreads have narrowed and equities have rallied. This means even thought conditions are worse or worsening, investors are eagerly taking on more risk! Go figure! The link is here.

Here's a headline that shocked even me. I'd heard comments about it on the Internet, but considered the numbers to be pure exaggeration. How wrong I was. The story that was sent to me is from the dailymail.co.uk and is headlined "A million march tot US Capitol to protest against "Obama the Socialist'" The size of the crowd, by far the biggest protest since the president took office in January, shocked the White House. I thank Gil G. for sending it along... and the link is here.

The following story was also posted over in David Galland's column Casey's Daily Dispatch today, but is worth posting here as well. It's a Bloomberg piece that came out on Sunday with the headline "Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman". Stiglitz went on to say that "The problems are worse than they were in 2007 before the crisis." As I've said before, if every bank in the U.S. foreclosed on all the real estate they should, and marked their ABS, MBS and CDS paper to 'market'... 99% of all banks in the U.S. would be insolvent... and it's only a matter of time before they start dropping like flies. The link is here.

The next story is on the longish side, but well worth your time. It's similar to a couple of other stories I've run on this subject in the last year, but this time things are just so much worse. It's also a story from the dailymail.co.uk and is headlined "Revealed: The ghost fleet of the recession". "The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year." I thank P.S. for sending me the story and the link is here.

Here's another story that P.S. was kind enough to send my way yesterday. It's a piece that's posted in the London paper, The Economist. It's about the trade war between China and the USA that has suddenly boiled over. It's about tires, car parts... and chicken meat, of all things. It's not overly long, but it's in-depth nevertheless... and I consider it very much worth the read. The headline is "Wearing thin: How strong is Barack Obama's belief in free trade?"... and the link is here.

And lastly is a gold-related story. I see that Jeff Christian of CPM Group gave the keynote speech at the Denver Gold Forum on Monday, where he said the following... "What we are seeing is that central banks are making the transition from large net sellers to large net buyers... You will see a net buying of 6 to 10 million ounces per year by central banks, and that is an extremely conservative projection." [Emphasis is mine. - Ed]. While what he says is undoubtedly true, Mr. Christian [and his ilk] have never met a precious metals bear market that they didn't like. We at GATA consider him to be card-carrying member of the anti-gold/silver forces. Jeff is currently one of the front-runners for this year's coveted MOTY Award. MOTY is an acronym for "Moron of the Year". I think that this will be the third year that GATA has awarded this prize to a worthy individual from the "Dark Side of the Force". The story is a Reuters piece and the link is here.

To the masses the catchwords of Socialism sound enticing... so they will continue to work for Socialism, helping thereby to bring about the inevitable decline of the civilization which the nations of the West have taken hundreds of years to build up. - Ludwig von Mises

In a 6-page letter to his private clients yesterday, Ted Butler had this to say... "Never has the net speculative long and [the] dealer short position been larger. And this was as of the Tuesday cut-off; surely it is much larger through Friday. [31 million ounces. - Ed] It would appear the Razor's Edge has been sharpened, meaning a quiet price resolution is hard to imagine from the current set-up. The only question is which side blinks first."

I note that a little selling pressure appeared at 3:00 p.m. in the Hong Kong afternoon. Pressure at this time of day has become relentless since we had the high price in both gold and silver last week. This is standard operating procedure for the bullion banks, as they try to rig a follow-through sell-off during London... and then Comex trading. But, will they succeed this time? And if they do, how low can they take the gold [and silver] price? The answer to both questions is unknowable.

In his Gold This Week commentary last Saturday, Bill Buckler over at the-privateer.com had this to say... "Don't forget, there is a G-20 Finance Ministers meeting going on this weekend in London to prepare for the Heads of State meeting coming up late this month in Pittsburgh. A soaring Gold price is NOT a part of the agenda that those meeting in London would feel very comfortable with."

"Once again, the 'enemy' (of governments and their banking and financial systems) is at the gates. Lets see if this time Gold can kick them down. It has always been just a matter of when."

"If there has ever been a week to prove the point we make in the introduction to this commentary... In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a POLITICAL metal. In the true meaning of the word, its price is "governed".... the week just ended was the one to do it."

So, dear reader, we'll just have to wait it out.

See you on Wednesday morning.