Japan Heads Down the Currency Debasement Highway

Both gold and silver blasted out of the chute the moment that Monday morning trading began on the Globex in the Far East. This buying spree ran into enormous selling almost immediately... and the rallies petered out about two hours later... shortly before 9:00 a.m. in Hong Kong trading. But once the London a.m. gold fix was in at 10:30 local time [5:30 in New York], the gold price began to trend slightly upwards again. This lasted until precisely 9:00 a.m. Eastern time when gold spiked through $1,160 spot... and an eager not-for-profit seller hammered it. From there, gold drifted gently lower and closed around $1,151 spot. The high spike at 9:00 a.m. was $1,162.40 spot. Heaven only knows how high the price would have gone if one of the N.Y. bullion banks hadn't stepped in.

As I mentioned in the above paragraph, the precision timing of these price reversals is awesome to watch. Here's the graph of the trading in New York. Note the 9:00 a.m. time.

Silver rose to around $18.80 by 11:00 a.m. in Hong Kong trading... and then slid gently into the London a.m. gold fix... and then rose gently until 9:00 a.m. in New York. Silver's decline from that point was somewhat more precipitous than gold's... and by the time New York trading was through at 5:15 p.m. Eastern, silver was up less than a dime. The 9:00 a.m. high was $18.93 spot.

The precious metals stocks, which were up about 3% at one point, gave back virtually all their gains by day's end... and came close to going negative at one point.

The Far East price action on Monday morning was accompanied by the usual high volume... at least for that time of day. By the time I went to bed around 3:00 a.m. Eastern time yesterday morning... gold had already traded 28,000 contracts and silver close to 4,000 contracts. It will be interesting to see if that price action was new longs being placed or short covering.

The reason I mention short covering at this point is because of the open interest changes for Friday. Gold had a big spike during New York trading... and when Friday's o.i. was reported yesterday morning... o.i. had fallen. The final volume in Friday's trading was reported at whopping 243,014 contracts... and open interest fell 6,226 contracts. It's hard to tell from these numbers whether it was short covering... or additional longs being placed and spreads being removed. This latter scenario would produce the same fall in open interest. Once again we have to wait until Friday's COT to get the real story. Total gold open interest is sitting at 513,344 contracts.

Silver's open interest rose on its Friday spike in price... but only a smallish 276 contracts. Volume wasn't overly heavy at 37,337 contracts traded. Open interest is really up there, though... 127,372 contracts.

The CME Delivery Report yesterday showed that 159 gold and 14 silver contracts are due for delivery tomorrow... January 13th. So far in January 2,625 gold and 149 silver contracts have been delivered. Not huge numbers considering it's a not a big delivery month, but reasonably impressive nevertheless. There were no changes reported at either the GLD or SLV ETFs yesterday. But there were changes at Switzerland's Zürcher Kantonalbank last week. Their gold ETF rose 59,200 ounces... the first increase in three weeks. But it was their silver ETF that was the shining star once again, as their silver stocks rose an impressive 975,390 troy ounces. As of Friday, January 9th... ZKB's gold stash was 4.75 million ounces and their silver pile contained 60.35 million ounces. Once again I thank Carl Loeb for those numbers. The U.S. Mint had nothing to say for itself yesterday, but over at the Comex-approved depositories... 402,615 ounces of silver were reported withdrawn.

Last week sometime I mentioned the fact that the commercial traders had a record short position in the U.S. dollar. This was something that Ted Butler had pointed out to me before Christmas, but didn't think about mentioning until then. Now everyone's talking about it. Reader John Skelton sent me a couple of graphs that Dan Norcini put up over at Jim Sinclair's jsmineset.com. Peter Degraff [pdegraff.com] provides the commentary.

"The red line follows the 'net short' position of commercial traders in the US dollar. The 'net short' position at the moment is more than 40,000 contracts. This is the largest 'net short' position for at least seven years. In late 2005 the chart shows us a net short position of 30,000. The US dollar [next chart], at about that time topped out at 92 and fell to 71. In late 2008 the net short position reached 35,000. The US dollar back then topped out at 88 and fell to 77.5."
"In order for the gold bears to be right, the US dollar is going to have to behave contrary to recent history."

"In order for the US dollar to stage a rally from here, the dollar bulls are going to have to do battle with the commercial traders who have a vested interest in holding the line, and are capable [as in the past], to cause the dollar to fall." [When it comes to the 'commercial traders, he could be talking about gold and silver as well - Ed].

And from Steve Saville's weekend newsletter... "There is an unusually large "commercial" net-short position in the Dollar Index futures market right now. Some analysts have cited this as an important dollar-bearish factor, and, by extension, an important gold-bullish factor, but the "commercials" also have an unusually large net-short position in gold futures. Is it reasonable to argue that the commercials are smart to be short the dollar and, at the same time, dumb to be short gold? Or is it more reasonable to take the Commitments of Traders (COT) data with the proverbial 'grain of salt'? We think the latter. The COT report is just one small piece of a very large puzzle."

I would agree with 'all of the above'. And I would also think that the resolution of this situation... US$, gold and silver... will be something to behold when it gets started.

A lot of stories over the weekend. The first is about real estate... Dubai real estate. It's a fairly long article, as the laws governing mortgages and real estate are slightly different than they are in North America. The headline reads "Dubai's First Foreclosure May Open Floodgates in Worst Market"... and the link is here.

Unless you were visiting another planet over the weekend, you've already heard that "Chavez Devalues Venezuela's Currency"... about 50% for most imports and transactions. If you lived there... and all your money was invested in physical gold and silver... this devaluation would have meant nothing to you. I thank Colorado reader Dr. Scott Diering for being the first one to send me the story... and the link is here.

In a New York Times article posted at yahoo.finance.com comes this article by Contrarian Investor's Jim Chanos. He's hugely bearish on China... and is looking for ways to short it. However, betting against China is not easy, because foreigners are restricted from investing in stocks listed inside China. Jim Rogers vehemently disagrees... "I find it interesting that people who couldn't spell China 10 years ago are now experts on [it]," he said. The headline reads "Contrarian Investor Sees Economic Crash in China". I thank California reader Joseph Weiler for sending it along... and the link is here.

The following Bloomberg story was sent to me by Craig McCarty. McCarty comments that "Japan is being urged [at the behest of PIMCO's Paul McCulley] to accelerate its already massive money printing activities in order to prevent deflation. With Alan Greenspan and others as consultants to PIMCO, it's as if PIMCO has become like Goldman Sachs... an unofficial part of the Fed/Treasury." More currency debasement, so expect the Yen price of gold to skyrocket. The headline reads "Pimco Says BOJ May Sell Yen, Buy Debt to Spur Economy"... and the link is here.

The next story is from yesterday's King Report and is a must read piece from The Telegraph in London. Ambrose Evan's Pritchard titles it "America slides deeper into depression as Wall Street revels". As Ambrose points out, all the signs of an imminent deflationary collapse are present... which is nothing that I, and others, haven't pointed out many times over the last couple of years. However, dear reader, the 'powers that be' in the good old USA will run the printing presses into the ground [or their electronic equivalent] and sacrifice the U.S. dollar in order to prevent a deflationary implosion. Inflation, and lots of it if necessary, is what we'll get... if they can pull it off. The link to the story is here.

The next story from The Wall Street Journal is, without a doubt, another harbinger of things to come. All that 'liquidity' sloshing around the world is finding a home in a whole raft of commodities. "Inflation expectations are creeping up," said Spyros Andreopoulos, global economist at Morgan Stanley in London. The headline reads "Commodity-Cost Jump Threatens to Stifle Rebound"... and the link is here.

I carry a fair number of interviews from Eric King over at King World New every week. Here's Eric on his own, discussing where he sees the markets headed... gold, silver, the mining shares, the US Dollar, the stock market, sentiment, insider selling, dividend yields... and how investors can profit in 2010. He also talks about the corporate media machine, the reasons for the founding of King World News and much more. The link is here.

And lastly today is commentary from silver analyst Ted Butler. Butler comments at length on this coming Thursday's meeting of the U.S. Commodity Futures Trading Commission, explaining why he thinks that the meeting's topic, position limits in energy futures, will bear heavily on the precious metals markets. Butler appeals for one more round of citizen activism in contacting the CFTC. Butler's commentary is headlined "A Milestone Meeting" and it's posted over at investmentrarities.com... and the link is here.

I urge you, kind reader, to find a few minutes to type a few lines, or a few paragraphs, to the people that Ted asks you to contact. It's not very often that 'we the people' get a chance to have a direct impact on something this important... but this is certainly one of those times. This is not just an American issue... it affects all the citizens of the world. And even though I was born in Canada... and live in Canada... my brief note in support of legitimate position limits for silver and gold will be at the top of my "to do" list when I get up this morning. I'm an investor too, ya know!

Question of the Day: Are Americans are getting stronger? Fifty years ago, it took two adults to carry ten dollars worth of groceries. Today, five-year-olds can do it. - Author Unknown

"A five year old can do it"... that's currency debasement. And that's pretty much what most of the stories in my commentary today are indicating is about to happen on a world-wide basis. That's why gold and silver are poised to rocket. And that's why I keep pushing you to subscribe to Casey Research's flagship publication International Speculator. The subscription price, although steep, also includes a subscription to Casey's Gold and Resource Report at no additional cost. Don't forget that your satisfaction is guaranteed, or your money refunded within 90 days. Please seriously consider this, as I doubt there is much time left to get on board the [hyper?] inflationary train that's about to leave the station at any moment... so protect yourself!

Every day that passes seems to bring an increasing amount of bad news that moves us further down the slippery slope. Virtually all the paper that the banks, insurance companies and general equity market mutual funds may be worth pennies on the dollar before this is through. For reasons given above, another paper instrument... fiat currency of any country... including your own, dear reader... may become devalued at any moment. All I can see saving anyone, including myself, is massive exposure to the precious metals market... which is the corner that I'm in. The future is ugly in all directions. I've done what I can... and now we just have to wait it out... and hope for the best.

In Far East trading today, both gold and silver were showing signs of life since their early-morning lows during the Sydney and Hong Kong trading session. Volume [at 3:51 a.m. Eastern] was already a very respectable 27,285 contracts in gold... and 3,600 in silver. I note that the CME has published the preliminary volume figures for Monday's trading. They show that about 197,000 gold and around 37,500 contracts in silver were traded. Without a doubt, both numbers will be revised upward when the final tally is posted later this morning.

Let's see what the New York-based bullion banks have in store for us today.

See you on Wednesday.