CFTC to Examine Trading in Precious Metals Market

Well, that little rally in both gold and silver that occurred on the dollar's smallish nose dive in late Hong Kong trading Tuesday afternoon [that I was speaking of in my closing commentary yesterday] proved to be the global high of the day... around $1,120 spot. From there [except for few small bumps] it was all down hill once again to the low of the day which was $1,098.50 spot... which occurred at 12:45 p.m. in New York trading. From there the gold price rallied about five bucks into the close.

Silver's path was almost the same, although more 'volatile'... with the high price of the day [around $16.42 spot] coming at the same time as gold's... a few minutes before the London open. But the low of the day, although occurring during the New York trading session, was around 10:25 a.m... about two hours and change before gold's bottom. Kitco reported the low price tick at $15.76 spot.

The dollars was a huge factor [or, for some, a smokescreen] in yesterday's price action. The lion's share of the dollar rally occurred between 4:00 a.m. and 7:00 a.m. New York time... and tapered off quite a bit after that... although you wouldn't quite believe it by looking at the price patterns in all the precious metals after 7:00 a.m. Since yesterday was options expiry on the Comex, it wouldn't surprise me in the slightest if this dollar rally was manufactured to get as many call options to expire out of the money as possible... and it worked like a charm.

The precious metals stocks didn't exactly need any guidance from the equity markets... although it certainly didn't help things. The HUI pretty much reflected what the bullion prices were doing... almost tick for tick. The HUI closed down an ugly 3.61%

Monday's decline in gold and silver prices resulted in a drop in open interest in both metals. Gold dropped a respectable 6,912 contracts on extremely light volume... 148,336 contracts. Silver's o.i. was down 656 contracts on decent volume of 58,109 contracts. And, because of the big price drops on Tuesday, I am expecting [unless switching, roll-overs and spread trades mask them] another decent decline in open interest for both metals in the CME's report later this a.m. Tuesday was the cut-off for Friday's Commitment of Traders report... and whatever the CME reports this morning, will show up in that report. I must admit that I'm really interested in what Friday's COT will have to say.

The CME's Daily Delivery report showed that only 21 gold and 10 silver contracts were put up for delivery on Thursday. There's only one day left for delivery into the February contract... and that's Friday... then March deliveries begin the following Monday. After reporting a small increase on Monday, the GLD ETF showed a small decline of 29,381 ounces on Tuesday. There were no reported changed in SLV... or from the U.S. Mint. Over at the Comex-approved depositories, they reported another increase in their silver inventories... this time it was 458,863 troy ounces. And, for the second day in a row, there was a lot of in/out movements... you can check out the activity by clicking here.

The European Central Bank's weekly statement of condition indicated no change in either "gold or gold receivables" for the past week. This is the same as the previous week's report. Simply put, the ECB echelon of central banks appears to have withdrawn from the market -- net, no gold has been sold this year. I thank the usual New York gold commentator for that little tidbit.

My first story today is definitely precious metals related. It's the long-awaited public meeting to examine whether position limits are needed for gold, silver and copper futures markets. The CFTC announced yesterday that the meeting will be held on March 25th. Needless to say, position limits and exemptions for silver are front and center here. Not only do position limits have to be lowered... but the bullion banks exemptions have to be eliminated... as they neither produce nor consume any of these metals. And any new rules must be enforced... because the current rules are not enforced at all... and worse, are being flagrantly violated. As Ted Butler says, "it's a crime in progress". The story... which is a must read... is headlined "U.S. CFTC to examine trading in metals markets"... and is contained in this GATA release linked here.

The only other gold story I have is courtesy of the usual New York gold commentator. It's a piece from the English language newspaper... chinadaily.com. The headline reads "China unlikely to buy gold from IMF". There's a wonderful photo... and the link to the story is here.

And this story just showed up at Kitco at 5:41 a.m. this morning... more than 4 hours after I wrote the previous paragraph. It's a Reuters piece bearing the headline "RBI seen as potential buyer for IMF gold"... and the link is here.

The next two stories are Greece related... and I urge you to read them both... as the implications of both stories are huge. The first piece appeared in Monday's edition of The Wall Street Journal and is headlined "London Firm Was Created to Route Cash". The first paragraph speaks volumes... "Greece's fiscal woes, the exposure of the European financial system to them, and the role played by Wall Street in hiding the problems, all converge in a fifth-floor office near London's Liverpool Street station where a company called Titlos PLC was created in early 2009." Because the WSJ story requires a subscription... the complete story is contained in this GATA release... and the link is here.

The next story on Greece also deserves your undivided attention. It's a piece from zerohedge.com with the headline "Greeks Scramble to Pull Out 8 billion Euros from Local Banks as Greece Responds With Money Control Measures". And, dear reader, it won't be long before currency controls are imposed in most countries. Are you ready? I thank Craig McCarty for this must read story... and the link is here.

Here's a Reuters item about Britain that was posted in yesterday's edition of The New York Times. Bank of England governor Mervyn King says that they may have to restart their asset-buying program if the economic outlook worsens. Well, dear reader, I can absolutely guarantee you that economic conditions in England will worsen... so it's only a matter of time before the Bank of England turns the printing presses back on. And it's a safe bet that they printing presses in the United States will never be turned off. The headline reads "More Asset-Buying Possible if Outlook Worsens - Bank". I thank California reader Joseph Weiler for sending me the story... and the link is here.

While I'm on the subject of how bad things are in Great Britain... here's a surprising commentary that turned up at Bloomberg of all places. The story shows just how bad things are in the U.K. right now... and why they're about to get worse... much worse. The headline reads "Deathbed of Keynesian Economics Will Be in U.K.: Mathew Lynn". This scenario is what's in store for virtually all of the Western economies... and probably sooner rather than later. I thank Florida reader Donna Badach for bringing it to my attention... and now to yours. The link is here.

The next story is another one from The New York Times and bears the not-so-shocking headline "At F.D.I.C., Bracing for a Wave of Failures". The number of troubled banks has soared to 702. The FDIC says that 2010 will be the peak year for bank failures. Well, dear reader, they are sugar coating this. I'd say that three or four times this number of banks are in trouble and that the peak for bank failures is still years away. Sugar coating is not the right description either... they are flat-out lying! The story is worth the read... and I thank Russian reader Alex Lvov for sending it along... and the link is here.

My story in the Catbird seat today is one that was sent to me by Australian reader, Wesley Legrand. It's a report written by Egon von Greyerz who runs a investment firm out of Switzerland someplace. This is a special essay that he wrote for Bill Bonner's website, The Daily Reckoning... and it's posted at the beforeitsnews.com website. It summarizes everything that I [and others] have been saying about the current state of the world's economy for the last couple of months. There are two good charts... plus he has a lot to say about gold at the end. The story is entitled "The Sovereign Debt Disaster"... and the link to this must read piece is here.

Well, I'm looking at the price action in both Hong Kong and early Wednesday morning trading in London... and I sure don't like what I see so far. The bullion banks seem to be on the prowl again. I mentioned in my closing commentary yesterday that I felt that the banks were attempting to paint the gold and silver charts by driving the price below the 50-day moving average in gold... and below the 200-day moving average in silver. Well, their Tuesday efforts going into options expiry succeeded on both counts... with a gold price low spike of below $1,100... and below $16.00 in silver. Both metals closed below these key moving averages. Here's the 6-month gold graph once again.

It appears that we may [it's too soon to say for sure yet] be seeing the bullion banks attempting one final blow-out to the downside. As Ted Butler said, in order to get more technical fund long liquidation in either metal, we're going to have to post new lows for this move... which [as I mentioned yesterday] was around $1,045 in gold and about $14.65 in silver. Can they do it? Yep, they can pretty much do as they bloody well please, as the CFTC isn't going to do anything to stop them.

I can't help but think that, if this is their plan, it has something to do with the position limits and trading exemptions issue coming up in the CFTC's meeting on March 25th. I'm only guessing here, but the CFTC has probably told JPMorgan et al that they have 'x' amount of time to cover as many shorts as possible before the rules get changed. If that's the case... it could get ugly... and we'll find out in short order when the Comex opens. Yesterday [at the end of trading] was the cut-off for this Friday's COT report... so whatever damage they want to do... they can do it, and their activities won't show up until the following Friday. As you already know, dear reader, they pull this stunt all the time.

And don't forget that my comments in the last two paragraphs are pure speculation on my part. I'm just trying to fit the puzzle pieces together with the information that I currently have at hand. I reserve the right to totally wrong about this.

So far this morning [6:05 a.m. Eastern time] trading volume in gold is already a very chunky 44,298 contracts for April... and in silver, volume for March is a hefty 10,157 contracts, plus you can add on another 7,192 contracts that have traded in May... as the roll-over into the next silver delivery month continues. Ted Butler [who was up at 5:55 a.m. Eastern time when I wrote this] said that if you take out all the spread trades in silver... the actual volume is very light.

The CME's website shows that preliminary volume numbers for Tuesday's trading activity in gold were 169,479 contracts. This is larger than Monday's volume by about 20,000 contracts... but in the grand scheme of things, it still isn't a big number. Silver's volume yesterday was a rather substantial 70,570 contracts. A number this size should be no surprise because of options expiry yesterday and first day notice for delivery into the March contract coming up tomorrow.

While on the subject of silver, the open interest in the March contract continues to decline. The preliminary report shows that March o.i. has fallen another 7,587 contracts to 24,307 contracts. And, without doubt, this o.i. number will show another big drop when the CME posts their final numbers for Tuesday's trading later this morning.

It could be an interesting day when trading begins in the precious metals on the Comex.

See you on Thursday.