"The Gold Bubble Myth"

Gold's high at half past lunchtime in Hong Kong in their afternoon [that I spoke of in my closing commentary in yesterday's report] proved to be the high price of the day on Tuesday... around $1,130 spot. Then, that big dollar 'rally' began, and the gold price headed south until the London a.m. gold fix was in at 10:30 a.m. in London... 5:30 a.m. New York time. From there, gold basically traded sideways until 8:45 a.m. in New York trading on the Comex... which turned out to be the low of the day... $1,110.40 spot. And, regardless of what the dollar was doing, gold began a $14 rally that ended 90 minutes later at 10:15 a.m. That rally got sold off until around lunchtime in New York... rose for an hour and then went sideways for the rest of the trading day. This was quite a performance in the face of the rise in the U.S. dollar. Gold only finished about four bucks below its Monday's close.

Silver's price movement was similar to gold's... with the only major difference being the time of the high price of the day... which was not in Hong Kong... but in New York. From it's low [$17.11 spot] in New York at 8:30 a.m. on Tuesday morning, silver rose 39 cents to it's high of the day [$17.50 spot] at exactly 2:00 p.m. in electronic trading. Silver gave up a dime going into the close and finished the day at $17.39... the same price that it closed on Monday.

It was a wonderful performance for both metals... considering what the dollar was doing... and the fact that the FOMC meeting was in progress. Here's the graph of the US$ from it's Hong Kong low at 12:30 p.m. Tuesday afternoon... right up until 11:00 p.m. last night.

However, the precious metals shares were not impressed... and I was somewhat surprised to see how badly they performed yesterday. Every rally attempt got sold hard... and, at least to me, it appeared that there was a not-for-profit seller in the market making sure that the shares had a poor showing. Well... they succeeded. There were at least nine rally attempts and nine corresponding sell-offs. Count them yourself.

The gold and silver action on Monday resulted in small increases in open interest in both metals. In gold, o.i. rose 999 contracts on extremely light volume of only 143,273 contracts. Total o.i. in gold now sits at 499,898 contracts. In silver, open interest rose 496 contracts, also on very light volume of only 23,271 contracts. Total open interest in silver is sitting at 122,356 contracts. Not much to see here, folks. All this data will be in Friday's Commitment of Traders report.

Yesterday's CME Daily Delivery Report showed that 221 gold and 56 silver contracts are up for delivery on December 17th... tomorrow. There were no changes reported by the ETFs... or by the U.S. Mint. The Comex-approved warehouses indicated that their combined silver inventories declined by another 418,564 ounces.

In a Reuters story filed from Frankfurt yesterday, "the European Central Bank announced that their 'gold and gold receivables' held by euro zone central banks rose by 1 million euros. Gold holdings rose because of a purchase by one euro zone central bank." It's as obvious to me, as it should be to you, dear reader, that the European Central Banks are no longer a factor in the physical gold market, as they haven't sold a meaningful amount of gold for well over six months.

Today's first story is silver related and is posted over at Jesse's Café Américan. It's a bit of a read, but worth it, in my opinion. It's titled "Is the Price of World Silver the Result of Legitimate Market Discovery?". I thank Ted Butler for bringing it to my attention... and the link is here.

The next item is from J.S. Kim, proprietor of the SmartKnowledgeU investment advisory service. In it, he cites GATA's work in his new essay, "An Unbelievable Opportunity in Gold," in which he argues that gold is subject to enormous disinformation in the West. You can find Kim's essay linked here.

This gold-related story is from the pages of the Globe and Mail in Toronto. It's written by Fabrice Taylor whose about as bright as they come... and understands the gold market completely. In the article, he has this comment... "To say that governments didn't at least try to manipulate gold prices is clearly naive. To say they didn't succeed is probably naive too. Today, they may not care any more, and at any rate they're losing the battle." The headline reads "The Gold Bubble Myth"... and the link is here.

The next story is such a poorly written hatchet job on gold, that I came very close to not including it. The Taylor piece above is superbly written... and this piece by Bloomberg's Claudia Carpenter I would not dignify by calling it responsible journalism at all. The only positive comment comes at the very end... and most gold bulls would have relegated this story to the trash bin long before they got even close to the end. The headline reads "Gold Buying by Central Banks May Send Signal to Sell"... and the link is here.

The Bloomberg story that follows is something that Craig McCarty sent me yesterday. "Former Fed chairman, Paul Volker, visited nine cities in five countries in the past eight weeks to warn that bankers and regulators “have not come anywhere close to responding with necessary vigor” to the worst economic crisis in 70 years. He told executives there that the changes they’ve proposed are “like a dimple.” It's a longish story.. and the headline reads "Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail"... and the link is here.

Today's last story comes from the website zerohedge.com. It's a pretty big read, but a 'must read' in my opinion. In it, "John Williams, who runs the popular counter-government data manipulation site shadowstats.com, has thrown down the gauntlet to deflationists, and in an extensive report concludes that the probability of a hyperinflationary episode in America over the next year has reached critical levels." This sounds an awful lot like what Doug Casey has been talking about for years. Williams does not mince words... "The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment." As I said, it's a 'must read'. I thank reader Donna Badach for bringing it to my attention... and the link is here.

The U.S. has no way of avoiding a financial Armageddon. - John Williams, shadowstats.com

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As I mentioned earlier, the FOMC meeting ends today, and we'll find out this afternoon what the geniuses at the Federal Reserve have in store for us. Needless to say, I'm not optimistic in the slightest. I'm still 'all in' as far as my precious metals investment portfolio goes... and nothing I see out there has changed my mind one iota. Here's the 6-month gold chart. Unless the bullion banks are sitting in the bushes waiting to pounce, the chart pattern looks like a bottom of some sort is being set up. Time will tell, of course.

I note in Far East trading this Wednesday morning that neither gold nor silver did much of anything... but there was some excitement just as the trading day was coming to an end in Hong Kong shortly before 5:00 p.m. local time. London had just opened for business in their Wednesday morning trading session, when both metals took a bit of a jump to the upside. Gold is currently up $10... and silver is up about 14 cents. The U.S. dollar is doing nothing. Volume in gold is already a pretty substantial 35,675 contracts... but silver volume is a miniscule 3,995 contracts. I've seen bigger volume than that at this time of morning [5:35 a.m. Eastern], so I'm not going to let myself get too excited about it... but it's fun [and reassuring] to watch. However, it's what the U.S. bullion banks do during New York trading that really matters, and we'll find out about that soon enough. It could be an interesting day on the Comex.

I hope your Wednesday goes well... and I'll see you here tomorrow.