Newcrest and Lihir Finally Tie the Knot

Despite a rising dollar, gold didn't do a heck of a lot in Far East trading during their Monday trading session. But once London opened, gold caught a bit of a bid. Then, at 9:00 a.m. in New York, a serious buyer showed up and gold took off to its high of the day [$1,189.00 spot] an hour or so later at the London p.m. gold fix. Then, a resolute seller showed up and drove the price right back down within a dollar of its 9:00 a.m. low... and every subsequent rally attempt after that [regardless of size] was firmly reversed.

Silver had a somewhat more interesting time of it... selling off to its low of the day, around $18.50 spot, early in Hong Kong trading. But once it started trading in London, the silver price rallied right into the London silver fix around noon in London, before selling off a bit into the same 9:00 a.m. New York low as gold. Silver rose until the London p.m. gold fix was in... got sold off hard... and then recovered almost all those losses to close up about 1% over Friday's close. But it's obvious from a cursory glance at the chart that every attempt to rally sharply in afternoon Comex trading got hit hard. Silver's high of the day [$18.89 spot] was the spike minutes before the close of floor trading at 1:30 Eastern time yesterday.

The dollar had two big rallies yesterday... one early in the Hong Kong business day where it gained about 40 basis point. Then it sat at that price until about 10 a.m. in New York where it spiked up another 30 basis points in less than an hour... giving 'da boyz' the chance to sell gold off at the London gold fix... which they took full advantage of. The dollar fell a bit from there... and it's obvious from the silver and gold charts above, that they both wanted to rally... but ran into a not-for-profit seller. But, regardless of 'all of the above', the 70 basis point rally didn't make much difference to either precious metal, as they were pretty well bid all day long.

I must admit that I was astonished [and somewhat alarmed] about the share price action yesterday. With the precious metals and the Dow being so strong, I was confident when I brought up the HUI chart on my computer for the first time about 11:30 a.m. Eastern yesterday morning, that it would be well into positive territory. This was not the case... and I was not amused. In the past, this has been a precursor to a big down-day in gold and silver ahead. Will that happen this time? Beats me... but now I'm on full alert for that possibility. We shall see.

Gold's rally on Friday ran into pretty stiff resistance, as gold open interest rose a chunky 8,494 contracts on volume of 136,323 contracts... less about 8,500 roll-overs. Silver's o.i. was up only 310 contracts on a decent price move on Friday. I'm encouraged by this figure. Volume was 35,674 contracts.

Gold's total open interest is now up to an eye-watering 545,340 contracts. This is not a record high by any stretch of the imagination, but it's still way up there in the stratosphere. Silver's o.i. is in a similar situation at 124,216 contracts. Could we get a big bullion bank-orchestrated sell-off from here? You betcha... because the tech funds have been pouring into this market on the long side for a couple of months now... and JPMorgan et al, may decide that the time is right to pick all this low-hanging fruit and ring the cash register one more time. I'll have more on this in my closing comments.

The CME's Daily Delivery report for Monday showed that 54 gold and 137 silver contracts were posted for delivery on Wednesday. The biggest issuers and stoppers in silver were the Bank of Nova Scotia and JPMorgan. The pdf report is linked here. There were no reported changes in the alleged inventories over at either the GLD or SLV yesterday... and the U.S. Mint had no report, either. There was no report from the Swiss ETFs because of the May Day long weekend. But the Comex-approved depositories showed that a very large 1,237,111 troy ounces of silver were withdrawn from their inventories on Friday... with the biggest chunk coming out of Scotia Mocatta. As of the end of April, the Comex-approved warehouses held 114,941,477 troy ounces. The link to Friday's activity is here.

Both gold-related stories I have today are from Australia. The first one is an Associated Press story posted at yahoo.com. In what is obviously a tax grab of grotesque proportion, is this headline that reads "Australia looks at 40% tax on mining profit". The entire resource sector in Australia got sold off hard on the news yesterday morning... and some are saying that yesterday's poor showing in the precious metals stock here in North America were a direct result of that. Could be, I suppose. The link to the story is here.

While 'all of the above' was happening, I see that the deal has been done between Australia's two largest gold companies... with Newcrest Mining finally sweetening the pot enough to get Lihir Gold to say "I do." I thank Washington state reader S.A. for sending me the story. It's a Bloomberg piece filed from Sydney... and the headline reads "Newcrest to Buy Lihir After Raising Bid to A$9.5 Billion". The link is here.

As you know by now, dear reader, the EU and IMF bailed out Greece to the tune of $146 billion over the weekend... every dollar of which mysteriously appeared out of thin air... as all borrowed money does. Yes, there are strings attached... and we'll find out soon enough how serious the Greek government is about reform. I received quite a few stories about Greece over the weekend... but the one I've selected is a real eye-opener. I was shocked, actually... and I've been around! Cheating on your taxes is a way of life over there... as is bribery and corruption. I thank reader Roy Stephens for sending me this incredible story out of the Saturday edition of The New York Times. The headline reads "Greek Wealth Is Everywhere But Tax Forms". I didn't think that it was possible that any story about Greece is a "must read"... but this one certainly is... and the link is here.

It's a pretty good bet that the following story did not receive much [if any] coverage in North America. It's a story filed from Beijing and posted at the English language website of chinadaily.com. It appears that "China's deputy consul-general to Houston and his family were assaulted by US police while on their way back to China's consulate-general in Houston by car." The story, which is only a handful of small paragraphs, is headlined "China urges US to ensure inviolability of diplomatic staff". I thank Australian reader Wesley Legrand for sending it along... and the link is here.

Well, the FDIC closed another seven banks on Friday... and some of them were very expensive. They shut down three banks in Puerto Rico, two in Missouri, and one each in Michigan and Washington... bringing the number of U.S. bank failures this year to 64. The best coverage of what happened was sent out from Jim Sinclair's website... jsmineset.com... and bears the headline "Important Notes on Friday's Bank Failures". The preamble, written by one Mr. Richard B., is a must read... as is the American Press article linked at the end. This deserves your undivided attention... and the link is here.

And lastly is another offering from Australian reader, Wesley Legrand. Marc Faber is in the news again... this time in a Bloomberg piece filed from Singapore. Marc Faber, like our own Doug Casey... doesn't gild lilies, or suffer fools gladly... and calls it exactly the way he sees it. He's always blunt and to the point. Besides the story linked here... there's also a Bloomberg interview which you can listen to by clicking on the 'Video' tab right above the headline which reads "China May ‘Crash’ in Next 9 to 12 Months, Faber Says". The link is here.

Ships in the harbour are safe, but that's not what ships are built for. - William Shedd

As I mentioned much earlier in this commentary, the open interest numbers, although not at a record high... are certainly getting into nosebleed territory. Here's a 5-year gold chart generously provided by Nick Laird over at sharelynx.com... for which I thank him. It shows the gold price in blue, total gold open interest in red... and volume in green. I urge you to spend a brief moment looking this chart over.

Here's the identical chart in silver. Note that open interest has not risen as much in the last couple of years as the silver price has risen. The big silver shorts are trying to bail out of this thing... and the '4 or less' traders probably are the most obvious candidates that are M.I.A. as far as declining short positions go. But now they're stuck, as they've never been able to get back to their low short position that they had back on December 7, 2008.

Below is the 3-year gold chart. As you can see, we are heading into an overbought condition. The silver chart looks similar. Could be go higher from here? Absolutely... but I'd be less than honest if I wasn't on the lookout for a small sell-off to relieve the overbought condition. As I said earlier, the U.S. bullion banks will be tempted to trigger a sell-off of some type to ring the cash register on the more recent tech fund longs that have been placed in the last little while. But can they, or will they?

But even looking at this chart, the price is obviously moving from the lower left to the upper right... as Dennis Gartman is wont to say... so there are no worries about the long-term trend.

With the dollar catching a bit of a bid... up 39 basis points as I write this at 4:50 a.m. Eastern time... both metals are off a bit as London opens. Gold volume is very light at 14,000 contracts... and silver checks in around 2,700 contracts. Preliminary volume figures for Monday's trading in gold shows that volume was very light... under 90,000 when the roll-overs are removed. Silver volume was also very light... around 23,000 contracts. May open interest in silver is now down to only 1,215 contracts... so, unless something out of the ordinary happens, it appears that this will be another month in which deliveries in silver will go off without a hitch once again.

I await this morning's Comex open in New York with great interest.

See you tomorrow.