Is There Gold In Fort Knox?

As I mentioned in my closing comments in yesterday's column, gold peaked around $1,142 spot in the Far East at precisely 9:00 a.m. in early Wednesday morning trading... which was 8:00 p.m. in New York Tuesday evening. Despite the hefty rise in the U.S. dollar, gold was only down about $12 from that high when the Comex opened for trading a little over twelve hours later.

Then the roof caved in as the U.S. bullion banks... marching orders in hand... pulled their bids. Gold was down another $8 by 10:00 a.m. Eastern time.. which is the London p.m. gold fix. Once that was done for the day, the selling got really serious. Gold dropped another $16 to its low of the day... $1,105.70 spot... which occurred shortly after London closed for the day at 11:00 a.m. in New York.

Silver was no different. Between its Hong Kong high [around $18.85 spot] and the Comex open 12 hours or so later... silver declined about 30 cents. But by the time that JPMorgan et al were through with it shortly after 11:00 a.m. in New York yesterday morning... silver had declined about $1.18 in total. It's lows of the day was $17.77 spot.

Both metals closed the New York session a little above their lows of the day. Gold was down 2.31%, silver was down 4.74%, platinum was only down 1.28%... and palladium was actually up 0.43%! So, if this was a dollar-related decline, it certainly was very selective! Of course, dear reader, the dollar's rise had little to do with it, as the hammering that both gold and silver got in New York was aided and abetted by JPMorgan et al. And this crime-in-progress was sooooooo obvious! But it's not like they care who seems them anymore... including Gary Gensler at the CFTC.

Here's the 3-day US$ chart. The dollar 'rally' began around 4 a.m. on Tuesday morning... and between that time and the Comex open yesterday morning at 8:15 a.m. Eastern time... the dollar gained roughly 123 basis points. During that period, gold was down less that $10 and silver down about 25 cents. In other words, this massive increase in the value of the U.S. dollar was having little effect on the price of gold and silver... and a cursory examination of the above gold and silver charts confirms that. The entire dollar advance was about 143 basis points from top to bottom... 86% of which was already done before the Comex opened yesterday morning. The JPMorgan-led gold and silver pounding occurred on the last 14% of the dollar rally. Any questions.

Of course the precious metals shares got slaughtered but, like everything else, they didn't finish on their lows of the day. The HUI closed down 4.61%.

Neither gold nor silver were up very much on Tuesday [don't forget about that dollar rally!], but it was enough to cause some noticeable increases in open interest in both metals. Gold o.i. rose a chunky 7,230 contracts. Volume was a very substantial 240,497 contracts, with total open interest now up to 528,924 contracts. Silver's o.i. rose 1,722 contracts on pretty big volume as well... 42,104 contracts. Silver's total open interest is now 131,385 contracts.

Volume was very heavy on Thursday's manufactured declines in both gold and silver, so one would suspect that we'll see some rather substantial drops in open interest in both metals. Of course both Ted and I have been wrong about that before... but here's hoping.

The CME Delivery Report showed that only 2 gold and 97 silver contracts are up for delivery on Friday. There were no reported changes in either GLD or SLV yesterday... but over at the U.S. Mint they've obviously been sitting in the bushes, as they finally reported some really big sales numbers. One-ounce gold eagle sales rose from 20,000 to 69,000... and silver eagles rose from a paltry 367,500 to 2,847,500 in one fell swoop! The Comex-approved depositories reported that 702,061 troy ounces of silver were withdrawn on Tuesday.

Well, if the Central Bank of the Russian Federation is nothing else, at least it's punctual. As expected, they updated their website to include December's numbers on the 20th of the month following... just as always. These numbers also include an update of their foreign reserves webpage. It indicates that the total amount of gold held by the RCB is now 20.5 million ounces for the year 2009... that's up 800,000 ounces from November's figure. All of that amount would be gold purchased from the Russian agency, Gokhram... which was consummated in early December.

The graphs below [courtesy of Richard Nachbar] shows just how much gold Russia's central bank has been adding to its reserves. December's increase was the biggest one-month increase... ever. Can/will they keep it up?

Today's first precious metals story mostly refers to platinum... but does mention gold. This is a story from January 19th... so it obviously doesn't include anything that happened during the bloodbath that we got yesterday. The headline reads "Platinum Jumps to 17-Month High on Investment Demand: Gold Gains"... and the link is here.

The next story is courtesy of the King Report It's a piece from The Telegraph in London. Edmund Conway, their economics editor, is the author. The Bank of England has warned that "families must steel themselves for years of hardship... and watch their standard of living fall over the next two years"... says governor Mervyn King. The headline reads "Families face years of pain"... and the link is here. I would suspect that most families in Europe, the U.S.... and other Western countries... are in the same boat.

Here's an Ambrose Evans-Pritchard offering from way back on January 12th that was sent to me yesterday by reader Steve Talsness. It appears that "Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless it acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders." The story is linked here.

The next item showed up over at zerohedge.com yesterday. In a story from Dow Jones, it appears that Senate Democrats are going to attempt to increase the federal borrowing limit by $1.9 trillion... which, they say, should last for the balance of 2010. I thank Craig McCarty for sending it along... and the link is here.

And lastly comes this moneywatch.com article headlined "Is There Gold in Fort Knox?" The story denigrates just about everyone who believes that the gold standard is a "barbarous relic"... including Congressman Ron Paul and the Gold Anti-Trust Action Committee, Inc... of which this humble scribe is a director. But, in the end, the author has to bow to Alan Greenspan's comments on the subject. It's well worth the read... and the link is here.

As Ted Butler said in commentary to his private subscribers yesterday... "There was nothing accidental about this move down in silver and gold". And as I, dear reader, have stated many times before [and earlier in this commentary], it's the concentrated short sellers that engineered this whole thing... mainly JPMorgan. There's no way of knowing how long this price decline will last, either. It will be over when 'da boyz' have covered as many shorts as they possibly can. That's why Butler has been screaming about position limits [and phony trading exemptions] in silver for more than 25 years. Maybe something will be decided when the CFTC has its meeting about this very thing in early March.

But, for the moment, JPMorgan et al are giving the 'driver's salute' to everyone... including CFTC chairman Gary Gensler. This a crime-in-progress in every sense of the word... and all we can do is sit and stew... while the police watch the goings-on with their hands in their pockets.

I note that both metals tried to rally a bit in Far East trading earlier today... but it appears that a dollar 'rally' started shortly after 3:00 p.m. in Hong Kong trading [2:00 a.m. in New York]... and both metals gave back what little gains they'd made since Thursday. morning's open.

Volume so far [at 5:07 a.m. Eastern time] is already a monstrous 40,728 gold [and an equally monstrous 7,231 silver] contracts traded. These are the largest volumes I have ever seen in gold and silver for this time of day.

The CME has its preliminary numbers up for Thursday's trading. Gold volume was a very heavy 276,998 contracts... and silver volume was reported at 61,515 contracts... an equally impressive number. And, without a doubt, both volume numbers will have been revised upwards by the time that the final numbers are posted on their website later this morning. As I mentioned earlier, both Ted Butler and myself are expecting to see big declines in open interest, and we'll find out soon enough if that's the case or not.

And, as I fire this off to Vermont, I see that the little dollar rally... and the start of the sell-off of the precious metals that occurred shortly after 3:00 p.m. in Hong Kong... has now continued into the London open. The decline has also accelerated to the down-side now that the Hong Kong market has closed. Gold and silver prices are below their respective lows of yesterday... and well below their 50-day moving averages... so it looks like the U.S. bullion banks are serious this time. It could be an interesting trading day in New York.

Keep up the faith and I'll see you tomorrow.