World-Wide Gold Hedge Book Down to 11.5 Million Ounces

As has been the case for the last little while, all the increases in the gold price come during the Far East trading session. By 2:00 p.m. in Hong Kong yesterday, gold was up around $20... and basically vacillated around the $1,210 price range for the rest of the trading day in London and New York... before closing around its high of $1,215 at 5:15 p.m. yesterday afternoon.

It's impossible to tell whether this trading was being done by traders in the local market, or whether it was the New York bullion banks trading on the Globex... but the volume figures would indicate the latter. And there are rumours out there that a short position is being covered... and the open interest changes are starting to infer that... and I'll have more on that further down.

Silver followed a similar path, but spent the entire 24-hour period yesterday meandering between $19.20 and $19.40... closing in New York at $19.21 spot.

The gold and silver stocks were mostly up yesterday, but certainly didn't finish on their highs.

I mentioned yesterday that I was more than apprehensive about what Tuesday's open interest numbers were going to show because of the big run-up in the gold price that occurred in the Far East earlier in the trading day. This fear turned out to be totally unfounded because, for once, the open interest data for gold showed a reasonable amount of short covering, as gold open interest fell 4,902 contracts. Some of that decline in open interest was due to deliveries, and that number has to be subtracted to obtain the true open interest decline... the same for silver. Volume [as I mentioned yesterday] was under 200,000 contracts at 189,337... with total open interest declining to 521,433 contracts. Silver's had a spectacular rise in price on Tuesday, but the open interest numbers only show an increase of a very small 383 contracts [minus deliveries] on volume of 39,358 contracts... so I would suspect that there was short covering there as well. Total silver open interest now stands at 131,899 contracts.

It's entirely possible that not all the trading that was done on Tuesday was reported on Tuesday... but what was reported, will be in tomorrow's Commitment of Traders report for sure. It will be interesting to see what Wednesday's final open interest numbers are like when they become available on the CME website later this morning, as anything that was left out [deliberate or otherwise] will certainly be included in Wednesday's open interest numbers... too late for the COT... and the new Bank Participation Report. And it wouldn't be the first time that the bullion banks didn't report big changes in a timely manner... but we'll just have to wait and see.

Deliveries into the December contract for both gold and silver yesterday are as follows: The CME Delivery Report showed that only 300 gold and 238 silver contracts were put up for delivery on Friday. So far in December, 4,874 gold and 1,660 silver contracts have been delivered. The preliminary December open interest numbers were just published moment ago on the CME's website... and they show that gold open interest has declined another 845 contracts to 9,420 contracts... so a little over 50% of the current open interest has already been delivered. Silver's open interest in December also declined by about 10%... 229 contracts, with December o.i. now down to 2,118 contracts standing for delivery... so roughly 80% of this amount has already been delivered. At the moment, December futures contracts are showing declines, but they can also go up as well, as buyers of physical can show up at any time during the December delivery month to ask for the metal... or a Registered Warehouse Receipt. The CME's Delivery Report for yesterday is linked here.

There was a small increase in GLD yesterday... up 19,605 ounces. The silver ETF, SLV, showed a small decline of 112,023 ounces... which is probably a fee payment, as the SLV is still owed several tens of millions of ounces. The U.S. Mint showed no sales of either gold or silver eagles again yesterday. If history is a guide, the mint will not post any December updates until later in the month... and when they do update, the changes will be in the millions of ounces [for silver eagles] spread out over a couple of days. Why they do this only in December is a mystery. Maybe they'll do it differently this year, but if they do, it will be for the very first time. But they did report selling 5,000 24K gold buffaloes... and over at the Comex-approved warehouses, silver stocks fell by a miniscule 3,094 ounces.

While I'm on the subject of the U.S. Mint and gold and silver eagles sales, here are two nifty graphs that were sent to me yesterday by Richard Nachbar's fearless assistant, Susan McCarthy... for which I thank her. They show total yearly gold and silver eagles sales from their inception back in 1986... to the end of November 2009. Both are impressive graphs... with the silver eagles graph being particularly spectacular.

I thank Richard, a rare coin dealer in upstate New York, for providing the above graphs. His website... coinexpert.com... can be found by clicking here.

Today's first gold-related story is a Reuters piece that I found posted at mineweb.com. The headline reads "Global gold dehedging rose to 3.18 million ounces in Q3 - SocGen/GFMS". At the end of the third quarter, the total global hedge book stood at 11.5 million ounces... with 75% of that belonging to two 'dark princes' of the gold world... Barrick and AngloGold Ashanti. With Barrick's latest announcement, another big chunk has been taken off that 11.5 million ounce number. And as I said yesterday, if AngloGold Ashanti follows Barrick down the same path [and I expect they will... sooner rather than later], the total global hedge book will implode to well under 5 million ounces... and that will be the end of hedging. The link to the story is here.

The next story is an Ambrose Evans-Pritchard offering from The Telegraph in London. The headline reads "China wary of gold 'bubble' danger after quietly doubling its reserves". As you know, dear reader, gold is hardly in a bubble. But this story is a must read from one end to the other... as this China-related story is only part of what Ambrose talks about... and the link is here.

Here's another piece out of The Telegraph that's courtesy of the King Report. It appears that "American International Group (AIG) has cut its debt to the US taxpayer by $25bn (£15bn) by selling stakes in two of its subsidiaries to the Federal Reserve Bank of New York." Doesn't that just give you a warm fuzzy feeling all over? I wonder how much AIG overstated the value of these companies when they did the deal? My guess would be by quite a bit. The story is only a handful of short paragraphs... and the link is here.

And lastly is this item from Bloomberg that was making the rounds yesterday. It appears "that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank." The author of this piece, Alice Shroeder, carves Goldman's Sachs' CEO, Lloyd Blankfein, a new one in this deliciously written exposé which, if you haven't figure it out already, is well worth your time. The headline reads "Arming Goldman With Pistols Against Public"... and the link is here.

Just as matter of interest, my good friend Wistar Holt sent me a copy of Tiger Woods' Christmas card photo for 2009... which I though I would share with you before it showed up on the front page of the National Enquirer.

I put this 3-year gold chart up yesterday... and here it is again. This graph just screams of being overbought... and some sort of correction [such as occurred in Nov/Dec of 2007 in gold's last big bull run] should be expected... and welcomed... before we power higher, as it's still my opinion that this leg up still has quite a ways to go yet. The correction, when it comes... should be of the short, sharp and ugly variety that will scare the bejesus out of everyone... and have the bears waxing philosophical on the end of the bull market in gold. This will be the same b.s. that I've been hearing ever since gold broke through $300 way back when.

I note, as I put the finishing touches on this column, that neither gold nor silver did much in Far East trading this Thursday... and aren't doing much now that London is open for the day, either. Normally I'd report the volume figures, but the CME is having trouble with their data presentation on the appropriate web page, but I'm guessing that it's pretty pedestrian considering the price action.

However, CFTC chairman Gary Gensler's position limits issue in silver and gold is yet to be unveiled... and the astronomically large short positions held by the bullion banks in these two metals is yet to resolved... so anything could happen at any time.

I hope your Thursday goes well... and I'll see you on Friday.