A Surprise Gold Rally

Starting at 3:00 p.m. in Hong Kong's Friday afternoon, the top was in for the gold price. From there it declined all through London and the first half of the trading day in New York. But around 1 p.m., the whole situation changed, as gold struggled to gain back some its losses, which it did quite nicely... and well into electronic trading after the floor closed, a bit of a rarity. Anyway, by the time the smoke cleared, gold was only down a $1.10 [spot price] from Thursday's close. For a Friday afternoon... and month end... this type of price action was surprising to say the least.

Silver's peak price was around 2:00 p.m. in Hong Trading; before it, too, started the long slide in price. This price decline accelerated once the London p.m. gold fix was in for the day. But, shortly before 1:00 p.m. New York time... and in total sync with gold's price recovery... silver headed higher as well. However, it's price recovery wasn't anywhere near as impressive as gold's... and silver finished down 35 cents [spot price] for the day.

Share prices, which were in the tank early... on the gold and silver price action... were exacerbated by the fall in the general equity markets in New York. But, in the end, they recovered about half their loses for the day... which is more than can be said for the Dow.

Open interest changes for Thursday's big up day in both gold and silver were rather surprising. Gold open interest rose... but only 1,164 contracts. Total gold o.i. is now 496,886 contracts. Silver o.i. rose a smallish 342 contracts, which is hardly worth mentioning. On such a big price rise in both metals, I was expecting bigger numbers than that.

The Commitment of Traders report [for position held at the close of trading on Tuesday, November 27th] was released at its usual time yesterday. It showed that there was a decrease in the bullion bank's net short position in both metals. In silver, the bullion banks decreased their net short position by 1,642 contracts... which is a decline of 8.2 million ounces. They are still net short 64,362 contracts, or 321.8 million ounces. That's still an obscene amount.

In gold, the bullion banks decreased their net short position by 14,014 contracts... 1.4 million ounces. Their net short position is still a grotesque 283,479 contracts... or 28.3 million ounces of gold. Here's a three-year graph of the gold COT report courtesy of Nick Laird over at sharelynx.com.

Considering that the price decline in both metals really didn't get started until Monday, this COT report doesn't include some of the data from Monday, and virtually all of the data from Tuesday, so the report that we see next week should show further long liquidation by the technical funds... and further short covering by the bullion banks.

Eric King, of King World News had his regular Friday interview with silver analyst, Ted Butler. Ted has a lot to say about the current Commitment of Traders report... and, more importantly, the sudden appearance of 4.3 million ounces of silver in the SLV on Thursday. This is a must listen interview... and the link is here.

The usual New York gold commentator had one report yesterday, which I received about 11:25 a.m. Eastern time... and I've heard nothing from him since... "India was an importer all day Friday. The rupee firmed, closing at $1=R46.96. This was despite a soft performance by the stock market."

"The TOCOM stopped buying... and the general public shaved 0.3 tonnes from its long position."

"After peaking up $2.10 around 2AM MY time, gold has been under steady pressure. The US$ index started to rally about 7AM NY time, but a divergence between US$ and Euro gold only set in about 10AM. Estimated volume at 10AM was a moderately heavy 55,282 lots."

"NY sentiment is clearly still bearish: very likely a serious mistake."

I noted in the King Report on Friday morning that "John Williams warns... one-time stimulus or inventory items represented 92% of the reported quarterly growth of 3.5%. The nature of the stimulus-related gains was that they tended to steal business activity from the future. The months ahead are the future. Accordingly, fourth-quarter quarterly GDP change likely will turn negative, again."

"John notes that Annual GDP declined 2.3% while his alternative GDP measure is down 5.7%."

"Now for the really bad news in the GDP: Current-dollar personal income decreased $15.5 billion (0.5%) in the third quarter, in contrast to an increase of $19.1 billion (0.6%) in the second. Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second. Disposable personal income decreased $20.4 billion (0.7%) in the third quarter, in contrast to an increase of $138.2 billion (5.2%) in the second. Real disposable personal income decreased 3.4%, in contrast to an increase of 3.8%."

John Williams [shadowstats.com] is absolutely correct, as the headline numbers are grossly understating the real situation... and it's obvious that the market isn't buying the spin either.

Bill King's commentary also included the following... "The Census Bureau report on residential vacancies and home ownership shows that 18,843,000 homes were vacant for Q3/09 vs. 18,448,000 in Q3/08... an 11.1% national vacancy rate. The enormous overhang of houses, plus the hidden inventory [and there's lots of that! - Ed], must be worked off over many years. The link to the U.S. Census Bureau News pdf file on this issue is linked here.

Today's first story from The Telegraph was posted in the King Report. It's a piece by Ambrose Evans-Pritchard and is headlined "Central Banks chill asset rally"... "The liquidity tide is turning. Authorities across large parts of the world have either begun to tighten the spigot or are taking steps to wean their economies off emergency stimulus. This is a treacherous moment for markets." The story is well worth the read... and the link is here.

The next item is another interview by Eric King. This one is with Congressman Ron Paul... and the link to that interview is here.

And in Forbes magazine on Thursday, came another piece by Congressman Ron Paul. The headline of this article reads "Be Prepared for the Worst". Paul says that "A false recovery is under way"... and the only solution is the printing press, which will lead to hyperinflation, a devalued dollar, and a lower standard of living for Americans. I thank Casey Research's Jeff Clark for sending it along... and the link is here.

Here's another offering by James Turk over at goldmoney.com. In it, he talks about the current bear market rally and how it compares to the bear market rallies following the 1929 stock market crash. There is an excellent graph as well... and the link is here.

And lastly, is this op-ed piece from The Wall Street Journal by Peggy Noonan. The title of the essay is "We're Governed by Callous Children". She starts out by saying... "The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. America is becoming disheartened... and this condition is reaching critical mass." The story [stolen from the King Report] is a must read and the link is here.

Private enterprise creates; government destroys. That is the great economic lesson of our time... and all times. - Llewellyn H. Rockwell, Jr.

Today's 'blast from the past' comes from one of my daily readers... Ron Schacht. I know the song very well, but had no idea of the story of how it came to be. Singer/songwriter, Don McLean [of American Pie fame] wrote “Vincent,” also known as “Starry, Starry Night,” in the fall of 1970, while he was working for the Berkshire School District. He was living in the Sedgwick House, a beautiful Federal-style house in Stockbridge, Massachusetts. The Sedgwick family included Edie Sedgwick, a colorful figure whom Andy Warhol had filmed in the 1960s. McLean wrote “Vincent” in his apartment full of antiques. The inspiration came to him one morning while he was sitting on the veranda looking at a book about Vincent Van Gogh. As he studied a print of Van Gogh’s painting “Starry Night”... shown below. He realized that a song could be written about the artist through the painting... which is exactly what he proceeded to do, and the result is linked here.

As I mentioned in my commentary about the Commitment of Traders... and Ted Butler talked about in his radio interview with Eric King... nothing has changed in either the silver or gold markets. The grotesque short positions held by the bullion banks are still there... and the situation is still unresolved.

But, as Ted Butler pointed out, if the situation resolves to the downside... it will become the buying point of the century. I have no idea how long this situation will take to resolve itself... but if it does resolve to the down-side, my guess is that this will happen in conjunction with options expiry for the December contract on November 23rd. I have a bit of spare cash laying around, and regardless of the price [or the price action] on that date... I will be putting it to work then.

As I [and many other commentators] have stated, an historic rise in the price of both metals is most likely at hand... especially in silver... if you listened carefully to what Ted Butler had to say in the interview above. It has also been mentioned by certain persons at the CFTC, that some sort of decision regarding position limits will be made around that time period. I don't know if there's anything to that... but it's just another data point for you to consider.

But, between now and then, I would highly recommend that you consider investing in a subscription to Casey Research's flagship publication Casey's International Speculator. It's a premium publication... but the subscription price will seem like pocket change when things really get going to the upside... and the well-researched small junior gold and silver mining stocks covered by this report, will contribute significantly to your net worth... and mine too, come to thing of it. Also included in this monthly publication is a free subscription to Casey's Gold and Resource Report. Don't forget that your satisfaction is 100% guaranteed. Never has the time been better to make such an investment. I urge you to give this serious consideration.

That's it for another week. Have a safe Hallowe'en... and don't let the goblins get you!

See you on Tuesday.