Barrick Gold Pays Out Its Hedge Book!

Well, it was an interesting day yesterday. The last graph in my Tuesday commentary showing the Far East and early London trading action, was just about all that happened in the gold market, because from that point, gold basically traded sideways for the next six hours... and only began to rise a bit once the London p.m. gold fix was in.

And even that 'rise' wasn't much, as once the price poked its head above the $1,200 mark, it got sold below that point and drifted about $4 lower by the close of electronic trading in New York at 5:15 p.m. Eastern time.

However, silver was the star of the day. From it's peak after the London open, the price drifted a bit lower going into the Comex open in New York. But, from there... and until London closed... the silver price tacked on about 20 cents during that two and a half hour period. Then, at the close of London trading at 4:00 p.m. local time [11:00 a.m. in New York], silver rose a quick 40 cents before it, too, ran into a brick wall the same moment that gold broke the $1,200 mark. Coincidence? Not bloody likely! From that point silver drifted slightly lower into the New York close.

All in all, it was a great day...and the shares were on fire. But even though gold is now $1,200 the ounce, the HUI has still not reached it's previous high of around 520 that it set at the March 2008 high. Yesterday it closed at 500.55... up 5.45%.

Monday's open interest numbers are somewhat back to normal now that options expiry and first notice day for December delivery are now in the history books. Gold open interest fell 2,389 contracts on greatly reduced volume of 199,699 contracts. Total open interest is at 526,335 contracts. In silver, open interest fell 1,671 contracts... and volume was a far more sedate 31,798 contracts. Total silver open interest now sits at 131,516 contracts.

Later this morning the final open interest numbers for Tuesday's trading will show up on the CME website... and as I said in my closing comments of Monday's column, the bullion banks did not back down one inch during the price run-up yesterday, so the open interest numbers should be ugly to the upside when they're reported later this morning.

The CME also reported the rapidly declining open interest that's left standing for delivery in December. Gold open interest for December fell another 5,385 contracts on Monday, leaving only 12,041 contracts to be delivered...and 4,574 of those gold contracts have already been delivered. December open interest in silver fell another 1,183 contracts to a very small 2,815 contracts left for December delivery... and 1,422 of those [half] have already been delivered. Can we still have a default? Yep, but [as I said yesterday] the chances are getting smaller by the day... but they're still not zero.

Four hours after writing the above paragraph, Tuesday's open interest for December delivery have now been posted at the CME website... and both metals show further declines. In gold, December open interest is down another 1,307 contracts to 10,734... and in silver, December open interest is now down to a smallish 2,411 contracts... a drop of 404 contracts from Monday's report above.

The CME Delivery Report for Tuesday showed that 567 gold and 139 silver contracts will be delivered tomorrow. The breakdown of issuers and stoppers from the CME report is linked here.

Yesterday, there was a small addition to the GLD... only 19,605 ounces... and there were no reported changes in the SLV. And as an aside to that, it was reported that the official short-sale tally in SLV shares increased to more than 13 million shares, up from under 8 million shares two weeks earlier. Where is the silver that backs these short sales? The answer is: "It doesn't exist." But I digress!

The U.S. Mint had nothing to say for itself... and the Comex-approved depositories ended November with a whimper, as a smallish 58,701 ounces were withdrawn. As of the end of November, the Comex-approved warehouses showed a silver inventory level of 111,540,179 troy ounces.

The big, and just about the only story in the gold world yesterday, was the news that the Darth Vader of gold companies, Barrick Gold, after 20 years of screwing its shareholders in particular... and the entire gold industry in general... has finally and at last [?] paid out the balance of its hedge book. To tell you the truth, you can never be sure if these guys are telling you the truth or not. I don't trust them as far as I can throw them. If AngloGold Ashanti does the same thing in the next little while, the world's gold hedge book will fall to only a few million ounces... which is basically nothing at all. Hedging is dead, dead, dead!!! Anyway, Barrick's stock price was up a bunch yesterday, so the market certainly liked the news. Here's the Reuters story about it headlined "Barrick closes hedge book early, stock soars"... and the link is here.

And now, dear reader, as I've mentioned before about Barrick and AngloGold Ashanti, the reason that they are both in such a hurry to close their hedge books is because the gold price is heading north... big time... and they already know that. JPMorgan is Barrick's bullion bank... and JPMorgan [as the biggest gold and silver short on the planet] would know well in advance that the price management scheme is about to end and would certainly want Barrick out of harm's way before it did.

Today's first story is another one about the "Debacle in Dubai". It's a damning indictment of "a monument to vanity and greed". It's a story from last Friday's dailymail.co.uk out of London... and the link to the story headlined "Brash, flash and built on a mind-boggling scale, it was a monument to vanity and greed... now Dubai is sinking under £48 billion in debts". I thank Wesley Legrand for sending me this story and the link is here.

Not that it matters all that much, but in a story sent to me by Florida reader, Donna Badach, I see that North Korea [in a surprise move] devalued their currency at an exchange rate between old and new notes of 100 to 1. The yahoo.com news story headlines "North Korea revalues money, causing black market chaos"... and is linked here.

Here's a piece from The Telegraph out of London. It was sent to me by Craig McCarty and bears the headline "Morgan Stanley fears U.K. sovereign debt crisis in 2010"... "Britain risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full-blown debt crisis over the coming months, according to a client note by Morgan Stanley." The story is very much worth the read, as other countries besides Britain will be on that list soon enough... and the link is here.

And things are looking too spiffy over in Germany, either. Here's another piece from The Telegraph that's headlined "Angela Merkel alarmed by worsening credit crisis"... "The German government is rushing through a fresh package of measures to shore up ailing banks and prevent a second wave of the debt crisis suffocating large parts of manufacturing industry."... and the link is here.

Here's a story that's about 18 months old. The reason I'm including it here is because I'm not sure how many of you have actually seen this... so I thought I'd slide it in here. The text is nice... but the photos are even better. Plus it will take less than 60 seconds of your time... and I thank reader Dave Mancini for sending it along... and the link is here.

Lastly is this must read essay that just appeared in the latest edition of Newsweek. It's written by Niall Ferguson... and anything he writes is well worth the read. The headline states "An Empire at Risk: We won the cold war and weathered 9/11. But now economic weakness is endangering our global power." Once again I thank reader Donna Badach for bringing this terrific article to my attention, and now to yours... and the link is here.

A new billboard off of Interstate 70 in Missouri provides a short “citizens guide to REVOLUTION of a corrupt government” and issues a call to “PREPARE FOR WAR.”

History strongly supports the proposition that major financial crises are followed by major fiscal crises. - Niall Ferguson, Newsweek, 28 November 2009

As Ted Butler [kindly] pointed out to me in our daily phone conversation yesterday... the last Commitment of Traders report showed that the '4 or less' bullion banks are short 21.5 million ounces of gold... not the 17 million that I stated... and the '8 or less' bullion banks hold 31.9 million ounces net short. This means that more than the entire net short position of 30.5 million ounces reported in the COT is held by just 8 traders... all bullion banks... and all lead by JPMorgan. Ted also mentioned that the new Bank Participation Report should be released on Friday... and that will definitely tell us just how many more millions of ounces that JPMorgan went short during the prior month. Hopefully yesterday's increase in open interest will be included... because, most certainly, JPMorgan was a big player on the short side on Tuesday... which is the cut-off for Friday's COT report and Bank Participation Report.

I note that there was another nice rise in precious metals prices in the Far East during their trading day today. The gold price went vertical the moment that London opened, but some not-for-profit seller was there to squash that flat. As of 4:20 a.m. Eastern time, gold futures volume [February contract] is already a substantial 48,688 contracts... and silver's volume is 5,701 contracts for the March contract. It could be another interesting day in New York.

But, in closing, I must point out as I did yesterday, that nothing is resolved. The bullion banks were going short against all longs, and show no signs of running for cover. Preliminary volume in Tuesday's gold trading has been posted at the CME website and shows that it was under 190,000 contracts... subject to revision later this morning, of course. Silver's volume was around 39,000 contracts. The open interest numbers are a bit of a surprise, but these preliminary numbers for o.i. cannot be counted on for accuracy, so I won't quote them here.

That's it for another day... and I'm off to bed. See you tomorrow.