Flashpoint in The Falklands

For the third day in a row a rally materialized at the usual time in Hong Kong. I should point out that the rally was not caused by traders in the local market... this would be the U.S. bullion banks [or their proxies] trading on the Globex trading platform.

The price rose until 9:00 a.m. sharp in London, where it got smacked... and the price basically did nothing until about 8:45 a.m. in New York... about four and a half hours later. Then the rally began anew, with the high of the day occurring somewhere between 12:30 and 1:00 p.m. From that high, it got sold off right into the close at 5:15 p.m. Eastern time. The low price tick was in Sydney trading... and shortly before Hong Kong opened. The price was around $1,098 spot. The New York high was reported as $1,126.70 spot.

Silver's price path was somewhat similar for part of the day. The low was in Far East trading [around $16.73 spot] and it's hard to tell whether it occurred in Sydney or Hong Kong... not that it matters. The rally in silver began shortly after 2:00 p.m. in Hong Kong... and by a few minutes before noon in New York, silver had tacked on a respectable 33 cents. But then a really serious buyer made an appearance... and within half an hour silver had tacked on another 44 cents and had reached its high of the day of $16.52 spot. From there, either the buyer disappeared, or the price spike got capped. In any event, silver gave back 23 cents of its gains... and closed at $16.29 spot at 5:15 p.m.

The dollar played a rather large part in the movements of both gold and silver yesterday. The rallies in both metals began about the same time as the top was in for the dollar... and at the same time as the big rally began in silver shortly before noon in New York [and to a much lesser extent in gold]... the dollar really took a tumble as the precious metals surged to their respective highs of the day. The dollar continued to decline for the rest of the day and finished on its low... but someone thought it best that the metals get sold off regardless of that fact.

Once again I was underwhelmed by the performance of the precious metals shares... especially the silver stocks. Despite an extremely strong day in both metals, the HUI was down 0.97%.

Open interest for Thursday's trading [if it was all reported] showed an increase in gold of 4,351 contracts. Volume was reported as 202,477 contracts. In silver, volume was reported as 54,860 contracts... and open interest declined a respectable 1,525 contracts. As I said yesterday, that big drop in price at the end of Thursday's trading on the interest rate news may not be in these numbers... and Monday's numbers should [hopefully] tell us more.

There isn't a lot to talk about in yesterday's Commitment of Traders report. Silver open interest only rose a smallish 426 contracts. The Commercial short position in silver is 73,779 contracts. The '4 or less' bullion banks hold 50,100 of those short contracts... and the '8 or less' bullion banks are short 58,600 contracts. So, if you subtract these 58,600 contracts from the total Commercial net short position, you've got about 15,100 contracts left held short. There are 36 traders in the Commercial short category... and if you subtract the '8 or less' traders... you're down to 28 traders. Divide 28 into 15,100... and each of these traders hold [on average] an insignificant 539 contracts.

Then, to top it all off... it's Ted Butler's opinion [and now mine as well] that the vast majority of those remaining 15,100 contracts I spoke of in the previous paragraph are market neutral spread trades... so, basically, these other 28 traders don't matter... and it should be obvious that these '8 or less' traders run the silver show entirely... and JPMorgan is the biggest short of all. The link to the full-colour COT graph for silver is here.

In gold, the bullion banks went short a further 6,451 contracts... which isn't a lot. The net short position [the difference between the Commercial long position and the Commercial short position] is 22.0 million ounces of gold. The '4 or less' and '8 or less' traders are not short gold to anywhere near the extent that they are in silver. As of this report, the '4 or less' bullion banks are short 17.1 million ounces of gold... and the '8 or less' traders are short 21.0 million ounces... which represents 95.5% of the net short position. In silver, the Commercial net short position is 191.1 million ounces. The '8 or less' bullion banks traders are short 153% of that amount... or 292.3 million ounces. The full-colour COT graph for gold is here.

As per usual, Eric King over at King World News did his weekly interview with silver analyst Ted Butler. Ted feels that we're "locked and loaded" for an upside move. So I urge you to stop reading at this point and listen to what he has to say. The link is here.

The CME's Daily Delivery Notice showed that 40 gold and zero silver contracts are up for delivery on Tuesday. There was a small drop in the GLD ETF yesterday... 58,765 ounces. There were no reported changes in SLV. The U.S. Mint reported another 8,000 one-ounce gold eagles were sold yesterday... but they didn't report any silver eagle sales... again. The Comex-approved warehouses showed that a smallish 37,603 ounces of silver were added to their inventories on Thursday.

Well, the Central Bank of Russia updated their website for January yesterday. They only increased their gold holdings by 100,000 ounces in January. But, that's the first time they've added any gold in that month since January of 2007. It will be of great interest to see if they can improve on what they did during 2009... which was a record year.

Today's first story is gold related and is courtesy of Russian reader Alex Lvov. It's a cnbc.com piece [along with a video] bearing the headline "Gold Production Has Peaked: CEO". I believe Barrick's CEO plus others have been saying the same thing for the last 6 months... but one more voice saying it doesn't hurt... and the link is here.

Casey Research's own Bud Conrad sent me my first story of the day. On Thursday, some angry citizen flew his plane into a building housing the IRS. Yesterday in Ohio, the headline read "Frustrated Owner Bulldozes Home Ahead of Foreclosure". The owner says his action was meant to send a message to all banks. I would say he succeeded. It was quite a fancy chicken shack... and about two paragraphs into the article is a "View Slideshow" feature that gives you some idea of what his home looks/looked like. The link is here.

Here's another story from one of the fine folks at Casey Research. This one is courtesy of Shannara Johnson. This story was posted yesterday and then updated early this morning as the situation becomes more tense. It's a story from London's Daily Mail and the headline reads "Flashpoint in The Falklands: Argentine anger as British oil rig moves in today and MoD beefs up our forces"... "Hostilities between the UK and Argentina will reach boiling point today with the arrival of a British oil rig off the Falkland Islands." Great shades of 1982! This is definitely worth your attention... and the link is here.

We all hear that China's economy is not only booming... but it's overheating as well. However, despite all the happy talk, there are millions of fresh college graduates looking for work... and there just isn't any. Beijing is nervous... and rightfully so. Social unrest [for any reason] is not something that China needs at the moment. This story is also worth the read. The headline states "Young, educated and jobless in China". The story is from the Los Angeles Times... and I think Joseph Weiler for sending it along... and the link is here.

Since it's the weekend, I've got a couple of longer pieces for you. The first is another big rant by Rolling Stone magazine writer, Matt Taibbi. Matt has already gone down in history as coining the phrase "Giant Vampire Squid" in reference to Goldman Sachs... and you see that description everywhere now. His latest commentary was posted on Thursday and is obviously making the rounds. The title reads: "Wall Street's Bailout Hustle"... "Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash." Needless to say I feel that this essay is a must read... and the link is here. And I must warn you before you start to read, that his trademark 'pithy prose' will shock some of you.

And lastly comes this very 'tongue in cheek' piece from over at theonion.com. As Casey Research's Doug Hornig said... "it's a delicious piece of satire. Or is it?" The 'headline' reads "U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion". The link is here.

Today's 'blast from the past' goes back to 1965. It was one of my favorites way back then. And it's another one of these videos that's old enough that it's in black and white. Just about everyone should know this piece, so turn up your speakers and then click here.

Well, it was a very interesting week just past. There were two big jolts that hit the precious metals world and it appears, at least on the surface, to have had no effect at all. During the last three days of the week when things looked the blackest, both gold and silver showed signs of breaking out to the upside during the New York trading session, only to run into the usual not-for-profit sellers. With options expiry for the March contract on Tuesday, one has to wonder how long they can keep a lid on this.

As Ted Butler stated in his interview, everything seems to be "locked and loaded" for a major up-side move. The only fly in the ointment is whether or not JPMorgan et al are going to go short this rally when it really gets going to the upside. Time will tell... and not too much time either.

I also note that the usual New York gold commentator mentioned that The Gartman Letter went long one more 'unit' of gold yesterday... this one against the yen... bringing his position in gold to 4 'units'. I can't remember Dennis being this aggressive in gold this close to the bottom. What does he know that we don't? Whatever it is, I hope he's right.

The CME has posted preliminary volume figures for Friday's trading. Gold traded a rather smallish 181,736 contracts... and silver's volume was reported as 48,565 contracts. These aren't big numbers considering the huge volume that was traded in the Far East and London yesterday. A fair amount of this volume is now roll-overs and switches as we approach options expiry on Tuesday... so if you take that volume out... Friday was relatively quiet. I'd like to think that part of the rally we saw yesterday was short covering but, like I said yesterday, we won't get a hint of it until the open interest numbers for Friday [which will include parts of Thursday's trading as well] are posted on Monday morning. And, of course, we won't know for sure until next Friday's Commitment of Traders report.

As I mentioned yesterday, the U.S. Treasury has another pile of paper it has to auction off this coming week... and it will be interesting to see how gold responds... or is allowed to respond.

I await the Far East opening on Sunday evening with some interest.

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