U.S. Bullion Banks Short 32+ Million Ounces of Gold!

The gold price fell about ten dollars early in Far East trading on their Friday morning... and from there it basically vacillated between $1,045 and $1,050 for the rest of the Friday's trading around the world. Nothing much to see here, folks.

Silver's price action was a little more volatile. It, too, got sold off starting the moment that Globex trading began on Friday morning, and had it's low for the day about 10:00 a.m. in London while North America slept. But from there it rose back to almost unchanged around the London close at 4:00 p.m. in their afternoon... 11:00 a.m. in New York. Then a not-for-profit seller showed up to drop the price almost back to its London low before a buyer showed up... and by the New York close, silver was only down eight cents from Thursday's close.

All in all, it was pretty much a nothing day in both metals, but it was obvious that a determined seller showed up in both metals shortly after the London close, It's easy to see on the silver chart, but not quite so obvious on the gold chart... but it's there if you look.

Open interest in gold for Thursday's trading was a bit of an eye-opener. I had mentioned yesterday that I expected Wednesday's gold o.i. numbers to be quite high, and was surprised when they weren't. Well, I expected Thursday's o.i. numbers to be low... and they were sky high! So it's my opinion that the bullion banks are dragging their feet [by 24 hours] when it comes to reporting their changes in open interest... and I'll have much more on that below. Anyway, gold o.i. rose a huge 17,492 contracts on big volume... 215,849 contracts. Total gold open interest is now 500,187 contracts!

Silver open interest rose another 1,696 contracts to 133,113 contracts. Volume was a respectable 38,364 contracts.

And now for the Commitment of Traders report. I knew at first glance that the vast majority of the increase in open interest that occurred during Tuesday's big move to the upside, never made it into this report like it should have. As I mentioned in a prior paragraph, the bullion banks are dragging their feet... and it's my opinion that [in this case] it was deliberate. There are two reasons for this; the first being that the COT would have shown a net short position of over 30 million ounces of gold; and secondly, it would have made the Bank Participation Report an even bigger embarrassment for the 'Three U.S. banks' that are massively short both the gold and silver market. More on that later.

Anyway, without those incriminating numbers in there from Tuesday, the COT report didn't show a lot of changes in either metal... but the changes they did show, indicated that the bullion banks were still going short against all comers. In silver, the bullion banks increased their net short position by another 1,082 contracts, and are now net short 65,188 contracts which translates into 325.9 million ounces of silver... about 186 days [six months] of world silver production. And the real scary part is that '4 or less' bullion banks hold that entire short position against literally thousands of longs. If Tuesday's numbers had been in there, the net short position held by the '4 or less' bullion banks would have increased by another 20-25 million ounces. Any questions as to why the silver price can't get back to its old highs? The full-colour COT report for silver is linked here.

Now for gold, the net short position held by the bullion banks increased by another 6,630 contracts... which is almost a rounding error. The total net short position held by the bullion banks now sits at 281,864 contracts, which is 28.2 million ounces of gold. Don't forget that they didn't include much of the 32,995 contracts from Tuesday's big day for gold. It doesn't take much math to see that if this number had been included in the net short position, we would now be looking at [on paper] a gold short position north of 31 million ounces. Remember, this COT report is for positions held at the close of trading on Tuesday... at least it's supposed to be... if all the numbers get reported on time, which they weren't! For fun, lets add in another 16,000 for Thursday's increase in o.i... and as of right this minute, the true net short position in gold is knocking on the door of 33 million ounces. Any questions? The full-colour COT graph for gold is linked here.

I know Ted Butler had a thing or two to say about this week's COT report... and as per usual, he was interviewed by Eric King of King World News yesterday afternoon. His commentary is always worth listening to... and the link is here.

Well, I was all prepared to dissect and bisect the Bank Participation Report, but there's nothing behind the link to the October report. I don't know what to make of that. I never had the opportunity to talk to Ted Butler yesterday, so I wasn't aware that it wasn't posted until I checked just now... so hopefully it will be posted on Monday. If you don't want to wait until my report on Tuesday, the link to the page is below... so you can check it yourself on Monday if you wish to do so. Click on October 2009 Futures. Silver and gold are about two-thirds of the way down the page. It's all posted in Grade-3-level arithmetic... and the link is here.

The CME's Daily Delivery Notices showed that 59 gold and zero silver contracts are to be delivered against on Tuesday. There were no changes in either the GLD or SLV. But the U.S. Mint had another update. They added another 2,500 gold and 250,000 silver eagles to their monthly totals. And over at the Comex-approved depositories... 232,349 ounces of silver were reported withdrawn from their inventories.

The usual New York gold commentator had the following to report on Friday. This commentary arrived in my in-box at 10:00 a.m. New York time, and I haven't heard a thing from him since...

"Not all Indian conduit cities were in import mode. But, analytically, the point is that India is liable to stop any serious decline in world gold."

"The TOCOM continued to sell. The public cut another 25.7% from their longs -- 7.6 tonnes. This leaves only 22 tonnes. Seeing the TOCOM public actually go short is unheard of."

"Gold reached an intraday low [so far] of down $11.60 as Europe got underway. The Bears failed to gain traction on the N.Y. open. Estimated volume at 9 a.m. was a pretty heavy 47,240 lots."

I have a couple of graphs for you today... the first of which I stole from Bill Murphy's MIDAS commentary over at lemetropolecafe.com a couple of days ago. The second arrived out of the blue from Nick Laird over at sharelynx.com.

The first graph shows the CPI-Adjusted gold price going back 300 years. Of particular note is the devaluation of gold in 1933 by the Roosevelt administration after the gold confiscation in the United States. The second, is the price of gold once Nixon closed the gold window in 1971. From there it rose to a CPI-adjusted price of $2,391 in January of 1980. These inflation numbers are the ones that the U.S. government currently uses to calculate the Consumer Price Index. As you know, dear reader, these inflation numbers have always grossly understated the true inflation rate.

The second gold graph is one calculated by John Williams over at shadowstats.com. He uses the true CPI numbers that were in effect during the Carter administration way back when. This chart is quite a bit different, with the most outstanding feature being the peak gold price of January 1980 now coming in at $7,267. Even if you use an average of the two peak prices on each graph, it's not hard to see what the true price of gold might be if allowed to trade freely. Is it any wonder why the U.S. government is sitting on the gold price?

I have the same graphs for silver, which I won't bother posting, but I'll give you the January 1980 peak numbers for silver using the regular CPI calculation... and then John Williams' numbers... they are as follows: Regular CPI - $116.71... John Williams CPI - $353.91. You can use your own imagination as to what the silver price might rise to under the current economic, financial and monetary circumstances that we have today... IF the grotesque short position in silver didn't exist. The same reasoning would apply to gold's price as well.

A couple of days ago I mentioned in my commentary that you should read what I call "the three most important paragraphs ever written." They were contained in an essay by British economist Peter Warburton that he wrote way back in April of 2001. In case you never did take the time to read his essay, or the three paragraphs mentioned... I will quote them here. I urge you to print a copy of them and read them every day until you 'get it."

"Central banks are engaged in a desperate battle on two fronts"

"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely-traded market for non-financial assets."

"It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices."

"Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade."

The whole point of derivatives, and the lack of position limits in much commodity trading [particularly gold and silver] was precisely to suppress commodity prices and to divert massive monetary inflation into financial assets and away from things that might get measured by consumer price indexes.

Peter Warburton's article is entitled The Debasement of World Currency: It Is Inflation, But Not as We Know It. The essay was originally posted over at David Tice's website prudentbear.com... but this link is to the copy posted over at gold-eagle.com... and the link is here.

Al Korelin of Korelin Economics was kind enough to interview me twice on Friday. If you care to listen to what I have to say, the first interview is linked here... and the second interview is here.

As far as stories go today, the cupboard is virtually bare. I have only one story... and one interview for you. The only story I have is by Mike Zielinski, editor of the Mint News Blog. He contrasts the efforts made recently by the U.S. Mint to keep up with gold and silver coin demand... with the efforts made by the Canadian, Austrian, and Perth mints. The U.S. Mint does not compare well. Zielinski's commentary is headlined "Final Thoughts on U.S. Mint Product Cancellations" and you can find it linked here.

The last 'story' is an interview of multi-billionaire, Hugo Salinas Price by Eric King from King World News. He is the founder of Mexico's Elektra retail chain. He's retired from retailing and focuses on being a proponent of a sound financial policy for Mexico. Salinas Price is President of Mexican Civic Association Pro Silver, A.C. This interview is well worth your time... and the link is here.

No currency can hold up in the face of an economy that survives on borrowed money and debt. - Richard Russell

Today's 'blast from the past' is a double feature from the late 1970s. I re-discovered this group quite by accident as I was wandering around youtube.com earlier this week. They had two really big hits, and rather than separate them, I thought I'd put them both up at the same time. The leader singer has an incredible voice... but the women who back him up are all world-class singers in their own right. So turn up your speakers... and enjoy! The first song is linked here... and the second, here.

Well, I'm still sitting on the fence! As I've said for more than a month now, this thing could go either way... a blast off to the upside... or 'in your ear.' This week's market action made me nervous. The U.S. bullion banks are now net short close to 33 million ounces gold... about $36 billion worth. I don't like what the RSI or MACD lines on either the gold or silver charts are telling me right now. But, as I've also said many times in the past... maybe I'm just looking for black bears in dark rooms that aren't there.

Then there's still the matter of new position limits for silver. Will the CFTC move against the big shorts in silver [and gold]... or will they chicken out at the last minute? Gary Gensler sure sounds like he means business... but my 'born in Missouri' attitude still prevails. Ted Butler spent some time talking about this issue in his interview that I posted earlier in this commentary.

Before signing off, I thought I would take the time to mention Casey Research's bargain-of-the-century gold report... Casey's Gold and Resource Report. My good friend, Jeff Clark, is the editor. It costs a whole $39/year in U.S. fiat currency. That's just a hair over three bucks a month! And don't forget that your satisfaction is 100% guaranteed!, as you can cancel within 90 days and get your entire subscription price back... no questions asked. Just click on the link above.

I do believe that the U.S. gold market will be open on Monday, so I will probably have a report on Tuesday... and I look forward to seeing you then.

Enjoy the rest of your [long?] weekend.