CNBC's Rick Santelli Blurts It Out: Central Banks Suppress Gold

Both gold and silver popped the moment that trading began on Sunday evening in North American... which was 10 a.m. Monday morning in Sydney. By 11:00 a.m. in Hong Kong trading [about four hours later] gold was up about $14 the ounce. And that was just about all that happened for the rest of the trading day in the Far East and Europe. Then, starting at 8:30 a.m. in New York, gold began a bit of a rally which ended the moment that the London p.m. gold fix was in... a few minutes before 10:00 a.m. New York time... 3:00 p.m. in London. Then, it was a slow sell-off into the New York close at 5:15 p.m. Gold's high of the day, according to Kitco, was at the London p.m. fix... $1,174.60 spot.

After it's initial pop at the open of trading in Sydney, silver climbed slowly to its Far East high of around $18.90 shortly before 4:00 p.m. in Hong Kong's afternoon trading session... and about an hour before London opened on Monday morning. From that peak in Hong Kong, silver gave back about 15 cents through London trading. Then, the moment that the Comex opened, silver managed a rally [along with gold] that took it to it's North American high of the day at the London p.m. gold fix. And from there, it too, began the long, slow slide into the close of Comex trading and the New York close. Silver's New York high at the London gold fix was $18.95 spot.

The gold shares put in a really good day early in Monday morning trading, but as it became apparent that the highs were already in, the shares wilted and gave up more than half their gains... with the HUI up only 1.84% at the close of trading. It's obvious [at least to me] that traders are getting skittish out there... as the air is getting pretty rarified at these levels.

And the traders have a reason to be nervous. Here's the 3-year gold graph.... and there appears to be a lesson from past history that I'd like to point out.

The last time that the gold market was this overbought was back at the beginning of the big bull run that started in September of 2007... and look what happened then. There was a tiny sell-off that temporarily relieved the overbought position before the price powered higher... followed by a larger consolidation that started at the beginning of November and lasted till after Christmas... before powering higher to the absolute May 2008 top. From bottom to top, gold ran up about $370 before the bullion banks pulled the pin... or around 55%.

Since that peak 20 months ago, a massive inverted head-and-shoulders pattern had been building... that finally ended with the up-side breakout on August 29th... only days after September options expiry... and almost two years to the day after the last big run-up began in 2007. Is history repeating itself? When you look at the above 3-year gold chart, it's not hard to see the similarity. The pattern also looks similar to the first big run-up in gold that started in July '05 and ran until about May '06.

So, if we're about to have another big run-up in prices over the next six months, a sell-off to correct this overbought position is highly likely and totally necessary. The only question would be is; how severe... and how long? But expect it... and welcome it if/when it comes... unpleasant though it may be. And if you're looking for that long-awaited entry point, that may be it.

If I may be so bold, let's apply the gains of the last big run-up to this potential run-up. We would be looking at a peak gold price [in percentage terms] of $1,457 in this rally... using $940 as the start of the breakout... and that's only if history repeats itself exactly as last time. And it could turn out to be less than this... or maybe more, a lot more. You, dear reader, are already familiar with the reason why gold could go much higher than this... and that's the resolution of the concentrated short positions in silver and gold that CFTC chairman Gary Gensler is working on. The other positive for silver, is its hugely bullish supply/demand fundamentals... which will trump all else, sooner or later. Maybe that's why Gensler want to act on this issue before that event occurs. We'll see.

Open interest for Friday's big surprise up day was as follows. Gold open interest actually fell 3,329 contracts. Volume was another monstrous amount... this time it was 232,083 contracts. Total gold o.i. now stands at 535,380 contracts... which is about 60,000 below its all-time high. The drop in open interest was a pleasant surprise to me, as gold popped nicely to a new record high close in the New York afternoon on Friday. I ran this past Ted Butler, who immediately crushed my happy thoughts. He said that with all the switches and rollovers going into yesterday's options expiry and next Monday's first day notice, it was impossible to tell if there was real liquidation or not. Hopefully the next Commitment of Traders report will shed some light on this.

In silver, open interest went the other way... up 2,466 contracts. Volume was a monstrous 64,219 contracts... with total silver o.i. now at 143,674 contracts.

As you are more than aware, options expiry for December was yesterday. The volume numbers were in record-breaking territory... and it's pretty much a given that a large chunk [if not all] of that won't be in the next Commitment of Traders report... which will be issued on Monday of next week. As a kind reader [LoneStarHog] pointed out to me yesterday, there will be no COT report on Friday because of the Thanksgiving long weekend in the U.S. Based on that, it would be safe to say, that we won't get a clear picture of what happened until the following Friday... which is December 4th... and anything could happen [price wise] between now and then that might render even that report meaningless from an options expiry point of view.

The CME Daily Delivery Report only showed a handful of contracts delivered in both gold and silver combined. But over at the gold ETF... GLD, they reported receiving another 127,444 ounces into inventory yesterday. There were no reported changes at SLV. Carl Loeb was kind enough to provide last week's update to the gold and silver ETFs at Switzerland's Zürcher Kantonalbank... and they are as follows: Their gold ETF showed a rather surprising decline of 34,663 ounces... but they more than made up for it in their silver ETF which was up a whopping 1,016,953 troy ounces! That's the biggest one-week addition they've made since I've been reporting these numbers.

The U.S. Mint showed minor increases in all their gold coin mintings yesterday. Gold eagle production was up another 6,000... silver eagles up another 25,000... and 24K gold buffaloes up 500. The Comex-approved warehouses reported a smallish decline in silver inventories... as 16,340 ounces were withdrawn.

Before I get into the serious stories for the day, I thought I'd share this little snippet from Bill Bonner's The Daily Reckoning. I thank daily reader P.S. for sending this little jewel along...

Imagine You Were a Banker - A Bonner Scenario

Imagine you were a banker. And the US government comes to you for a loan.

"Do you have enough income to cover the payments," you ask.

"Well, no," comes the answer. "In fact, our revenue has fallen off a little. Because of the recession, you know. Like everyone else."

"How bad is it?"

"Uh...we spend nearly two dollars for every dollar of income."

"Oh...and you expect us to lend you money? What do you have for collateral? What is your net worth position?"

"We were hoping you wouldn't ask. The most recent tally of our obligations comes to $113 trillion."

"Well, don't you have assets?"

"We have some buildings in Washington...military bases around the world...things like that. But as a practical matter, you could never foreclose on them."

"Oh, I see..."

Not that I want to start off my huge list of stories on a depressing note, but it had to go somewhere. If this doesn't scare the hell out of you, I don't know what will. It's a piece posted at nypost.com and bears the headline "Jamie Dimon seen as good fit for Treasury Secretary". JPMorgan's CEO replacing little Timothy Geithner? That's supposed to be an improvement? That's sort of like changing one fox in the hen house for a different fox... or am I missing something here? As one commentator said: Well Goldman Sachs had their turn to STEAL Trillions by placing ex-company employees into Gov. positions, so why can't JP Morgan? I mean it makes perfect sense. The link to the story is here.

And, in the Thanksgiving spirit, here's a story posted over at jessescrossroadscafe.blogspot.com. It comes with quite a few wonderful graphs which you can click on to enlarge... and is certainly worth a few moment of your time. The title reads "U.S. Commercial Banks: the Turkeys Are Stuffed" and I thank reader 'u.doran' for sending it along. The link is here.

Next is a piece that appeared in the The Sunday Times out of London. The headline pretty much spells out the general tenor of this article, which reads "Obama's feeble dollar sparks a new gold rush". I thank reader Wesley Legrand for bringing it to my attention... and the link is here.

Here's another Sunday article out of London. This one is posted at the Financial Times. The headline reads "Bets Rise on Rich Country Bond Default". As I mentioned over six months ago, the cost of purchasing credit default swaps against the sovereign debt of nations has risen considerable... especially against countries of the so called 'industrialized world'. This story shows how much further down the slippery slope things have gone since then... and is very much worth the read. The link is here.

Here's another far more positive spin on the World Gold Council's gold report from GFMS than they dished up themselves in their own press release last week. The good folks over at tradearabia.com in Dubai have found some positives in that gold report. The headline says it all... "Gold Demand in Q3 up 15%". I won't bother posting the link, as I have a story from Sunday's vietnamnet.vn that's equally happy reading. In this story, they quote that the premium to world gold was $52.08 last Friday. So obviously the stories of gold imports by Vietnam's central bank are just talk at this point, because if sufficient gold was being imported, the premiums would have plunged by now. The headline reads "Gold price continues to rise sharply". I borrowed both these stories from Kitco... and the link to the last story is here.

As I've spoken of many times in this column... the last time being a handful of paragraphs ago... this position limits debacle in silver and gold still has to be resolved. CFTC's chairman, Gary Gensler, currently has the bit in his teeth... and we'll see what he does with it. Here's a usatoday story about him [and his identical twin brother!] that's a bit of a puff piece, but a must read in my opinion... as he paints himself into a 'man-of-action' corner. So if he doesn't follow through... his reputation won't be worth 10 cents. The headline reads "CFTC chief Gary Gensler is out to police financial Wild West"... and I thank Ted Butler for sending me this... and the link is here.

Well, as my headline at the top of today's commentary states... "CNBC's Santelli blurts it out: Central banks suppress gold". Here's the story/video itself, imbedded in a must read editorial commentary by GATA's secretary treasurer, Chris Powell. The link is here.

Gold Money's James Turk has posted another commentary over at his fgmr.com website. It's headlined "Welcome to Stage Two of Gold's Bull Market". Always short and to the point, this should take you less than two minutes to read... and the link is here.

And lastly, finally, is this excellent must read work by one of GATA's earliest supporters. Robert K. Landis, partner of Reginald H. Howe in Golden Sextant Advisors, gave the keynote speech at last week's FINews.ch gold conference in Zurich. Landis addressed the most basic [but seldom acknowledged] financial question... the question of what money is or should be, and how the choice inevitably leads humanity toward liberty or totalitarianism. I know Bob very well, and he has one of the sharpest minds of anyone I've ever met in my 61 years on this planet. It's a rare treat when he writes anything nowadays... as I think this is only the second time in two years that he's published anything in the public domain... so jump right in. His address was titled "Viva la Restoration"... and the link is here.

I'll try not to overstate how high I think the price will go in a true silver shortage, and how quickly it will occur, so that I don't sound too extreme. But the price move will give new meaning to the words 'high' and 'fast'. - Ted Butler, November 16, 2009

Normally, I would wait until my Saturday commentary to post the following, but since I won't have a Saturday commentary [because of the U.S. Thanksgiving long weekend] I'm posting this Saturday Night Live skit here this morning. It's a parody of Obama's news conference with China's President Hu... and it's a scream! I thank reader Eric Dowling for bringing it to my attention... and the link is here.

With December option expiry over with... what next? Well, we have first day notice for delivery into the December contract for both silver and gold coming up next Monday the 30th... and it will be of great interest as to how many contract holders stand for delivery... and in what amounts. As I pointed out near the beginning of today's commentary... a correction of some sort would not surprise me in the slightest, considering the over bought position that currently exists in gold. [Silver is not even close to being overbought.] But maybe it's really different this time, and only time will tell if we get one... and if one occurs... how low will the price go and how long will it last. Not too low and not too long, would be my guess.

I note that the CME has posted the volume figures for Monday's trading in both gold and silver. These numbers are so large that they have to be at [or close to] all-time record highs for both metals. In gold, volume was an astronomical 322,926 contracts... and in silver, volume was an equally astonishing 79,892 contracts. The CME also posted the changes in open interest, but as many commentators [including myself] have discovered, the preliminary changes in open interest are wildly different from the final numbers, so I won't mention them here. The true changes in o.i. won't be posted until later this morning.

I note in Far East trading earlier today that both gold and silver prices are fluctuating quite a bit. Volume in the front month for gold [which is now February] shows 17,465 contracts traded... and in silver [whose front month is now March] volume is shown at a pretty hefty 4,440 contracts traded as of 3:15 a.m. Eastern time... just as London is about to open for the day. Trading [in both price and volume] could be all over the place until things settle down... hopefully by early next week.

We certainly live in interesting [and historic] times... and nothing would surprise me in New York trading [or the balance of London trading] today.