News Leak Prompts Russian Postponement of Gold Sale

From the open on Tuesday morning... and until that mysterious 4:00 p.m. Hong Kong time... 3:00 a.m. in New York... gold managed to tack on about five bucks. Then, at that precise time, a smallish dollar rally began... and the gold price began a slow decline. The gold price followed the dollar movement almost tick for tick... especially the spike up in the dollar [and down in gold] at the London p.m. gold fix at 3:00 p.m. in London... 10:00 a.m. in New York. Based on 'all of the above'... I wouldn't read a thing into yesterday's trading activity in gold. The low of the day was at the London p.m. gold fix... $1,031.50 spot. However, gold managed to close higher on the day... up $1.60 at $1,039.60.

Silver was the same, but different. It gained a bit over a dime in Far East trading... but starting right from the same 4:00 p.m. time in Hong Kong trading... and until the close of floor trading in New York... silver was under continued selling pressure. By the time the smoke cleared, silver had 'lost' another 37 cents... with a spot low price at the London fix of $16.48.

Gold open interest numbers for Monday were interesting to say the least. After the big decline in the gold price, one would have expected that the open interest would have fallen, as some longs liquidated and the bullion banks covered short positions. That may have been what happened, but the numbers don't show that. Open interest in gold rose 5,891 contracts on pretty big volume of 173,354 contracts. Total gold o.i. sits at 509,265 contracts. If long positions were liquidated, that action could have been hidden by using spread trades over top of that. Liquidation decreases o.i.... spread trades add to o.i., but are market neutral. The other possibility is that there was fresh shorting... but based on the price action, that doesn't seem plausible. We should have more clarity when the Commitment of Traders come out on Friday.

In silver, open interest did what one would have expected... it declined 2,478 contracts on big volume of 49,489 contracts. Open interest is currently sitting at 134,414 contracts. Frankly, I was expect more liquidation than that... but Ted Butler said that no major moving averages were broken to the downside on Monday, so I shouldn't read too much into that number. Ted went on to say that there was larger liquidation in silver yesterday. The preliminary open interest numbers for Tuesday should be published on the CME website in a few hours... and I'll devote a paragraph to them at the end of this report once they've been posted.

The usual N.Y. gold commentator, in his early Tuesday morning commentary, was still bitching about the open interest data... "The CME, which controls the NYMEX and COMEX, has now got itself in the absurd position of distributing different open interest to the media than it posts on its website. However, reported volumes are the same." [I had high hopes yesterday that this was sorted out. Obviously not. - Ed] Then in the wee hours of this [Wednesday] morning, he added these comments... "According to the data circulated to the media by the CME, Monday's down $13.60 close was associated with a 5,891 contract [18.32 tonne] rise in open interest on volume of 173,354 lots. This compares with a 3,553 lot fall on volume of 167,009 lots derived from the CME website. Both sources agree on open interest: 509,265 contracts. If the circulated data were true, it would be rather bullish, indicating aggressive short selling on Monday. In fact, the report probably includes an adjustment to return the press release to conformity with the web site. A similar event occurred earlier this month. It's a pity the CME creates this confusion." [Hopefully the confusion is now over. - Ed]

The CME delivery report for gold and silver showed nothing worth mentioning. There was another minor withdrawal from GLD yesterday... this time it was 39,224 ounces. And you won't be shocked to learn that there were no changes in the SLV ETF. The U.S. Mint provided another update. They increased their gold eagle production another 26,000.. and their silver eagle production by a healthy 615,000. Month-to-date gold eagle production sits at 102,500... and silver eagles are now at 2,240,000 for the month. One would think that there should be one more update before the end of October, but we'll have to wait and see. Over at the Comex-approved warehouses it was reported that 554,398 ounces of silver were withdrawn. At the moment, the four Comex-approved depositories hold 115,548,337 ounces of silver between them.

The usual New York gold commentator had the following remarks yesterday... "India was not a force in the gold market today, as the stock market was down 2.31% and the rupee slid as well. Rupee weakness is always bad news for gold's friends. Reuters has a story filed from Singapore and Mumbai headlined "Indian weddings, softer gold price lift premiums"...Demand is emerging as prices have come back to the stable level we have seen in the last two months. Marriage-related buying is there, but people who postponed buying earlier are buying more, said Jayanti Lal of Mahavir Bullion Corp, a wholesaler in Vijayawada in southern India. There is also a discussion of Eastern kilo bar premiums as well... where the numbers are not quite so upbeat: Singapore premiums slipped 10c to 60/70c and Tokyo discounts remained at $1. Hong Kong did pick up 20c." [The link to the Reuters story is here.]

"TOCOM seems to have started buying gently... as the public added 1.359 tonnes to its long."

"The European Central Bank weekly statement of condition indicated no change in 'gold and gold receivables' last week. The prior week there was a tiny coin purchase [0.05 tonnes]. The ECB group really does seem out of the market."

"Today [early Tuesday morning], gold is drifting down in US$, although trending up in Euros, reflecting the rally in the dollar -- a condition not often seen in NY hours. [That's an understatement! - Ed]. At 10AM estimated volume was a respectable 73,847 lots." Then he added this comment much later... "Tuesday's floor session saw two quite violent attacks on gold, one in mid-morning which established an intraday nadir in December gold of down $8.90, and one neatly into the floor close which almost matched it. This involved what ScotiaMocatta respectfully describes as 'good selling'. Euro gold was notably firmer than US$ gold today, reflecting the FX move to a recently unusual degree."

"The curious Russian announcement that the news leaking has caused a suspension of plans to sell gold was, of course, bittersweet for gold's friends. In effect, it confirmed that a sale was indeed planned. Given Russia's traditional deviousness in commodity dealing, the statement that the sales will not now take place is hardly bankable."

"On a gold friendlier note, local Vietnam gold stood at a $21.73 premium to world gold of $1,040.70 early on Wednesday morning. Reuters reports... The dong fell more than 2 percent in the past week to touch this year's low of 18,700 dong per dollar on the unofficial markets on Wednesday as gold traders sought more dollars to pay for imports. Currency dealers in Hanoi and Ho Chi Minh City said domestic gold prices had been about 5 percent higher than international prices over the past week... triggering cross-border gold smuggling to take advantage of the spread. [What a surprise! - Ed] 'The dong's fall is caused by a big sudden jump in dollar demand from gold smugglers to pay for gold purchases, mainly in Cambodia,' one trader in Ho Chi Minh City said."

"In recent years, Vietnam has been a world-class gold importer, but in Q1 this year, was a large exporter. This [premium] is a very healthy sign for the world gold price."

"On the LewRockwell.com website, an essay has been posted considering the value of gold if equated with the Fed's liabilities on various assumptions. An $11,090-$31,470 range is deduced." [The link is here. - Ed]

"Sentiment and the physical market are both forecasting the end of this downswing."

I have quite a few quality stories today, a number of them are pretty big reads, but they're all worth your time... if you have any. Today's first item is Reuters commentary on the postponement of Russian gold sales. The headline reads "Russia will not sell gold in 2009"... and the link is here.

The next story is also gold related. It's a piece posted over at mises.org. "India's obsession with gold is well known around the world. To most Western commentators, this obsession seems irrational, and Indian people seem like incurable gold bugs." The headline reads "Gold: India's Capital Asset Through History"... and I thank daily reader P.S. for sending it along. It's an absolute must read for anyone who wants to understand how deeply gold and wealth are ingrained into the Hindu culture... and the link is here.

The next story is about real estate... Option Adjustable Rate Mortgages... or Option ARM for short. This is a story by a real estate industry insider... Patrick Pulatie, CEO of Loan Fraud Investigations. I consider his commentary on Option ARM loans to be definitive. It's entitled "Will Option ARM Loans Still Implode?". I thank Aaron Krowne for sending this along. It's a bit of a read, but another must read, and it's in plain English to boot! The story is posted at iamfacingforeclosure.com and the link is here.

In a new essay, Zero Hedge's Dan Ivandjiiski, writing as the pseudonymous Tyler Durden, explains how "the Federal Reserve has now managed to singlehandedly take over the entire capital market" via its Primary Dealer Credit Facility, which essentially subsidizes the major New York investment houses to buy equities of all sorts. The Zero Hedge essay has a few typographical errors but may be the most essential financial reading of the month if not the whole year. But let me warn you in advance that it's a bit of a read... and some of it may be over your head... as it's certainly over mine in spots. But I don't think it's the parts that you won't understand that will scare the hell out of you! It's headlined "An Overview Of The Fed's Intervention In Equity Markets Via The Primary Dealer Credit Facility"... and the story is linked here.

Here's a story that you'll have no trouble with at all. It's a Bloomberg piece headlined "McDonald's Closes in Iceland After Krona Collapse". No doubt a lot of foreign companies similar to the Golden Arches Supper Club will find themselves in this position as currencies collapse in various countries. The link is here.

And lastly is Eric Sprott's and David Franklin's latest "Markets at a Glance" monthly commentary. This months piece, from Sprott Asset Management in Toronto, is entitled "Surreality Check Part Two... Dead government walking"..."The equity market performance in November 2007 masked the underlying problems plaguing the financial system at the time, and it’s blindingly apparent that it is doing the same again today. The government has assumed most of the financial system’s liabilities in a giant game of ‘kick the can’." This commentary is, of course, a must read as well... and the link to the pdf file is here.

In the 'we think we have problems' category, comes this October 23rd photo from the Big Island of Hawai'i. I was on the Big Island for the July 11, 1991 total eclipse of the sun, and large portions of the Kalapana subdivision were already pretty much buried under lava by then. In this photo [courtesy of Hawaiian Volcano Observatory], a lava flow crossed the former Kalapana access road around 1:45 p.m. Although this flow was not moving by the afternoon, the road continued to burn. The link to the HVO website is here.

There are no markets any more... only interventions. - Chris Powell, Gold Anti-Trust Action Committee

Well, the preliminary open interest numbers for Tuesday's trading are now posted at the CME website. Gold open interest shows a drop of 11,786 contracts, which is comforting... but probably a carryover from Monday's price decline. Volume was estimated around 166,000 contracts, and total o.i. has now dropped below 500,000 to an estimated 497,479 contracts. Silver open interest fell as well, but I'm underwhelmed by the number... down only an estimated 1,571 contracts. Volume was pretty big... about 58,000 contracts, and total o.i. is currently estimated at 132,843 contracts. The final numbers will be out later this morning, and I don't expect much in the way of adjustments, and I'll let you know tomorrow a.m. if there were any worth noting.

Considering the price drops in gold, and especially in silver over the last two days, these are not very big declines in open interest... which means that the bullion banks have barely scratched the surface in the process of covering their grotesque short positions in both metals. Is this the best they can do... or are they saving it for later? Good question... and one of the reasons that I'm still sitting on the fence. This open interest issue still has not been resolved... either up or down... and despite the price action of the last couple of days, the situation remains as it was.

As a 'for instance'... on its spike low during New York trading yesterday, the price of silver came awfully close to its 50-day moving average... all other averages [except the 200-day] were taken out with a vengeance on Tuesday... so I was expecting a huge drop in silver o.i. However, because these criminals running the bullion banks are able to get away with it, they probably withheld reporting a large chunk of Tuesday's data... so the possibility exists that Wednesday's open interest numbers for silver will finally reflect the reality of Tuesday's price action. We can only hope. Here's the 1-year silver chart.

I note, as I write this last paragraph, that gold and silver prices are heading lower... and it comes as no surprise that the decline started at the usual 4:00 p.m. Hong Kong/3:00 a.m. New York time. Volume in both metals is average for this time of morning. It could be another interesting day in New York trading once again.

See on Thursday.