'Inflate, Or Die!'... or is it 'Inflate... And Die?'

Gold started selling off the moment that trading opened in the Far East on Friday morning with the low gold/high dollar mark occurring a few minutes before 2:00 p.m. in afternoon trading in Hong Kong. The gold price recovered a bit as the dollar fell... but around 8:20 a.m. in New York trading a huge dollar seller showed up... and all hell broke loose... with gold [and silver] spiking to the upside. Gold's absolute high price of the day [suspiciously at precisely $1,140.00 spot] came at 9:00 a.m... and it's impossible to tell whether all this buying and selling in gold and the dollar was related to the jobs report... or market intervention to cap gold and support the dollar. Friday's open interest changes should tell us a lot when they become available around lunchtime in New York on Monday.

Anyway, when some semblance of order returned in gold, an interim low occurred at the London close... before gold began working its way higher and closed almost on its high of the day.

Silver's price chart is similar to gold's. After selling off about 20 cents in Far East trading... with it's absolute low of the day occurring at gold's Far East low around 2:00 p.m. in Hong Kong... silver didn't do much until the fireworks began on the Comex in New York yesterday morning. From that point, the trading pattern in silver was basically the same as gold's. Silver's high of the day was $18.53 spot.

As I mentioned above, the wild gyrations in the world's reserve currency played a major roll in a lot of markets yesterday. The jobs numbers were horrible, of course, and that was probably a major factor.

The precious metals shares took it all in stride... with the HUI up 1.24% on the day. The junior mining shares [especially the junior silver producers] turned in solid performances.

Thursday's changes in open interest were not what I wanted to see... as gold o.i. rose another 5,540 contracts... and silver o.i. rose 1,913 contracts. Because of my schedule on Friday, I don't have volume figures available for Thursday, as the CME had already updated to Friday's preliminary numbers by the time I got home last night. But Friday's preliminary volume numbers [usually pretty accurate] shows that a very large 243,000 gold contracts were traded, along with about 37,300 contracts traded for silver. It's too bad that the preliminary open interest numbers weren't as accurate... and as I said above, we'll have to wait until late morning on Monday when the final numbers are posted at the CME website.

Yesterday's COT report was a yawner. The bullion banks' short position in both silver and gold was virtually unchanged from Monday's report. The Bank Participation Report was also issued yesterday. Normally, because there were only one or two U.S. bullion banks short massive quantities of silver and gold, JPMorgan stood out like a sore thumb. But starting in December [if you read the explanatory notes for the report], you'll see that they no longer list the number of banks if they are less than 4. This was designed to protect JPMorgan, but this change came too late.

In a nutshell, less than four U.S. banks are short 37,871 Comex silver contracts... and long only 579 contracts. These positions [net] represent 29.7% of the total silver open interest on the Comex... virtually all of it held by JPMorgan. All non-U.S. banks together are short 2,076 silver contracts and long 2,250 Comex contracts. This works out to a net long position of 174 Comex contracts... or 0.1% of the Comex open interest in silver. This should tell you all you need to know about who controls the silver price.

In gold, four U.S. banks are short 129,943 Comex gold contracts and long 2,391 Comex contracts. These positions [net] represent 25.1% of total Comex open interest in gold... with JPMorgan being by far the biggest short of the bunch. By contrast, there are 15 non-U.S. banks that hold 31,540 Comex short positions and 9,696 long positions on the Comex. This represents, net, 4.3% of total Comex open interest. And it would be my bet that of these 15 non-U.S. banks, the vast majority of the 31,540 Comex short positions in gold are held by only two or three of those banks. January's Bank Participation Report is linked here... and the silver and gold numbers are about two thirds of the way down the page.

Silver analyst Ted Butler has his usual Friday interview with Eric King over at King World News. Both the COT and Bank Participation Report are discussed... and I urge to stop reading right here and listen to what he has to say. The link is here.

The CME Delivery Report on Friday showed that there were no contracts in either gold or silver that were put up for delivery on Tuesday. It's my bet that most of January's deliveries in both metals have already been made [unless a surprise buyer shows up on out of the blue], so I will no longer report delivery numbers until the February delivery month in gold begins at the end of this month.

Over at the GLD ETF on Friday, they reported another decline in gold. This time 127,381 ounces of the metal were withdrawn. No changes were reported in SLV. The U.S. Mint had another update... they reported another 14,000 one-ounce gold eagles sold... along with another 130,500 silver eagles. Month-to-date... 20,000 one ounce gold eagles and 261,500 silver eagles have been reported sold. The Comex-approved depositories showed that 236,274 ounces were added to their collective inventories.

Today's first story is from Friday's edition of The Wall Street Journal. In an op-ed piece by Judy Shelton... with the innocuous headline of "Chairman Bernanke's Monetary Apologia: Discounting the role Fed policy played in the crisis won't help avert the next one"... she suggests that the time has come for a gold-backed Treasury note. It's an interesting read... and the link is here.

It appears that Arnold Schwarzenegger's budget woes are back in the news. This is a story from today's Los Angeles Times which bears the headline "Governor warns of deep fiscal crisis as he unveils California budget plan". I thank reader Joseph Weiler for sending it along... and the link is here.

In commentary posted on Friday, Julian Phillips, editor of Gold Forecaster, declared that gold price suppression has been fully proved, formally endorses GATA's work, and predicts that central bank gold buying, surreptitious as it may try to be, will destroy the price suppression scheme. The story... entitled "Is the Gold Price really Managed or Suppressed?"... is posted over at goldseek.com... and is linked here.

In a column that appeared in Friday's edition of Forbes.com comes an interview with Texas Congressman, Ron Paul. The title reads "Ron Paul's Golden Rule". It's well worth spending some time on... and the link is here.

Al Korelin over at Korelin Economics had a fairly long interview with goldmoney.com's James Turk on Thursday, January 7th. The conversation is, of course, all about gold... and is well worth your time. The link is here.

The next story is another interview from King World News. Eric King spends a long time talking to Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc. Rickards tell Eric King that manipulation of the gold price is obvious. Rickards' bio is so extensive that it's impossible to present it all here. Gold is one of the many topics discussed in this wide-ranging interview which is a must listen in my opinion... and the link is here. Rickards' bio is at this link as well.

Eric King was a busy guy this past week. Here's another interview that's worth your time. In it, GATA Chairman Bill Murphy, board member Adrian Douglas, and secretary treasurer, Chris Powell talk about GATA's lawsuit against the Federal Reserve and gold's prospects for the new year. The interview is about a half hour long... and the link is here.

Here is this weekend's final story. As I mentioned earlier this week, I was saving this particular piece for the weekend... mainly because of its length. GATA's secretary treasurer, Chris Powell does the intro... "GATA's longtime friend, Robert K. Landis, partner in Golden Sextant Advisors LLC... with another longtime friend of GATA, Reginald H. Howe, brilliantly skewers Harvard Professor Niall Ferguson's popular new economic history, "The Ascent of Money." Headlining his review "The Ascent of Hooey," Landis condemns Ferguson for rationalizing the vast expansion of state power that was made possible by the murder of the gold standard. What Landis calls Ferguson's "Harvard Theory of Money" actually celebrates not money... but infinite credit and infinite power in the hands of an elite even more smug and arrogant than Harvard alumni. Landis' review can be found at the Golden Sextant Internet site." This is a must read from one end to the other... and the link is here.

Today's 'blast from the past' is courtesy of a reader who wishes to remain anonymous. It's a black and white clip from an early Johnny Carson show with Frank, Sammy, and Dean. This is real entertainment. Thanks for the memories, guys!. Turn up your speakers and click here.

Well, the first week of the year was pretty good, all things considered. Although the major and intermediate gold producers put in a reasonable performance this week... I'm particularly happy with the performance of the junior companies... both producers and those of the exploration variety. As many commentators have already said, this is the year for the junior companies.... and I heartily endorse that sentiment.

As I mentioned yesterday, I made enough money in one day in my small position in one major gold producer to pay for an entire years subscription to Casey's Gold & Resource Report. But it's the juniors that will most likely do the heavy lifting this year... and I made enough money in my junior portfolio in just a few days last week to pay for Casey Research's flagship publication International Speculator ten times over! I own a lot of the companies that are featured in this publication. I urge you, dear reader, to make the investment in your future by subscribing. It's totally risk-free as well... 90-days, no obligation. If you're not happy, your money will be refunded. How can you go wrong with an offer like that?

So, what does next week bring? Good question. As I've said before, there is nothing I see out there that would make me change my mind about my "all in" position in the precious metals market. Banks and governments only have one choice... and that's "Inflate, or die!" Any move to withdraw liquidity from the market [by increasing interest rates] would kill the equity marks stone cold dead in a heartbeat. This is a lose-lose situation [of their own making] that they're facing. On one side of the fence is death by [hyper?] inflation... and on the other is death by deflation. Banks and governments have always erred on the inflationary side... except for former Fed governor Paul Volker who raised rates and killed the economy back in the early 1980s, and save the dollar in the process... but this isn't the 1980s... and that option, although it still exists, is pretty slim.

The last nine years in a row have been 'up' years for gold in U.S. dollar terms... and, considering the current situation, I don't see any reason why it shouldn't be 10 years in a row when 2010 goes into the history books.

I apologize for the lateness of this report, as I had a big social commitment yesterday evening, which I had to attend... as wives are funny about that sort of thing. So I didn't get in until really last night... and I was in no mood [or condition] to write anything.

Enjoy the rest of your weekend... and I'll see you on Tuesday morning.