European Bank Risk Soars to Record High

Gold didn't do a lot for most of Friday... spending most of it's time within a few dollars of $1,200 spot. The big sell-off that I was anticipating with the release of the jobs report never materialized... and I'm certainly happy about that. There was a bit of a rally during the New York lunch hour that ended at 1:00 p.m. Eastern time... and gold basically traded sideways from that point until the close of trading at 5:15 p.m. Eastern time. Gold's low and high for the day both occurred during New York trading hours... and were $1,191.70 and $1,215.20 spot. Gold had it's highest weekly close in history this past week.

Like gold, silver didn't do a lot until the New York lunch hour [12:15 p.m. to be precise]... and then away it ran to the upside. This rally also lasted until 1:00 p.m. Eastern... before either the buyer disappeared... or it was hammered flat by some not-for-profit seller. But from its New York low of $17.46 spot, to it's New York high of $18.69 spot, silver gained an impressive $1.23 cents... which is the biggest one-day gain I can remember silver having in a while. There was a rumour afoot that a hedge fund had to cover a 10 million ounce short position... but there was another reason for today's big jump in price that I'll get into further down in this column.

The dollar was all over the place yesterday... up, then down, then up... in 65 basis point swings both ways. The precious metals ignored all of that entirely... as they are now trading as currencies... and becoming more and more independent of what any paper money is doing. That's for the very simple reason that gold and silver are money... and more and more people are discovering that.

With the U.S. equity markets back in the tank yesterday... and gold finishing down 80 cents from Thursday's close... I was not entirely surprised that most gold stocks finished down on the day. What really surprised me was the absolutely terrible performance of the silver stocks... virtually all of them were down... and not by small amounts either. I don't know why that happened... or what it means, if anything. But, for the moment, I'm not going to read anything into it. The HUI closed down 1.38% at the end of trading on Friday.

The open interest numbers for Thursday's trading were rather amazing. Volume in gold was an absolutely gargantuan 298,487 contracts... less about 27,000 roll-overs. Open interest rose a fairly steep 9,546 contracts... but Ted Butler said that he was surprised that this number was as low as it was, considering gold's big price move and the volumes involved. Gold's total open interest is now a whopping 562,229 contracts... not a new high yet, but getting there. Silver's volume on Thursday was a very chunky 55,529 contracts as well... of which around 3,000 contracts were roll-overs into future months. There are now 657 silver contracts still open for May.... up 151 contracts from Wednesday. Open interest was up only 736 contracts on silver's smallish price gain. I wouldn't read much into these open interest numbers until next Friday's Commitment of Traders report. It would be lovely if the COMEX had to update their open interest changes every day... just like they do on the TOCOM. But that would make things more transparent... and that's not a good idea when you're running a criminal enterprise on this scale.

The CME's Daily Delivery notice showed that 100 god and 207 silver contracts were put up for delivery next Tuesday. Needless to say, JPMorgan and the Bank of Nova Scotia, were front and center in the silver deliveries... and the link to yesterday's issuers and stoppers report is here.

Both the silver and gold ETFs had reports again yesterday. GLD reported receiving another big chunk of gold... this time it was 87,147 troy ounces. And the SLV reported taking in another gargantuan shipment of silver... this time it was 2,450,530 troy ounces. As I've said before, SLV hadn't added an ounce of silver since February 26th... and I figured it was owed around 15 million ounces [more, after today]... and since there wasn't any available, the sponsor of SLV [Blackrock] had to wait, cap in hand, at the refinery door just like everyone else. Now its their turn to get some... and I expect to see many more days of additions before they stop. In the last three business day, SLV has taken in about 5.6 million ounces.

The U.S. Mint had a busy day yesterday as well. They reported that 7,000 one-ounce gold eagles... 8,000 24-karat gold buffaloes... and an additional 169,500 silver eagles were sold. Monthly total for these three items are as follows: 1-ounce gold eagles... 41,500, 24-karat gold buffaloes... 28,500 and 892,000 silver eagles. And it's only May 7th! The run to the precious metals has been quite something this week... and I have a Reuters story about that further down.

The Comex-approved depositories reported receiving a smallish 97,007 ounces of silver on Thursday.

The Commitment of Traders report [linked here] released yesterday for positions held at the end of trading on Tuesday, May 4th... showed a slight improvement in open interest for silver. The bullion banks reduced their net short position in silver by a smallish 1,033 contracts. The 'four or less' bullion banks are short 267 million ounces of silver... and the '8 or less' bullion banks are short 345 million ounces of silver. That works out to about 144 and 186 days of world silver production respectively. '8 or less' bullion banks are short over 6 months of world silver production... and the CFTC thinks that this is perfectly fine. Well it ain't.

In gold, the bullion banks increased their net short position by 6,064 contracts. The Commercial net short position [read Bullion Bank net short position] is now sitting at 27.16 million ounces held short... of which the '8 or less' bullion banks are short 25.15 million ounces of that... 92.6%.

It's obvious from this COT report that virtually none of last week's big sell-off in either gold or silver is in these numbers. The bullion banks did not report Tuesday's big down day 'in a timely manner'... and most of Tuesday's numbers won't show up until next week's COT report. This is typical when 'day boyz' are covering their tracks.

Eric King of King World News had his usual Friday afternoon interview with silver analyst Ted Butler... and I urge you to stop at this point and listen to what he has to say. The link is here.

I have a lot of gold and silver-related commentary for you today. The first two are regarding Friday's rally in gold and silver that began at 12:15 p.m. Eastern time... and ended 45 minutes later at 1:00 p.m. Nick Laird over at sharelynx.com sent me this story yesterday. It's from market-ticker.org... and I'll let Karl Denninger explain what might have happened. The heading reads "CFTC Warns, GOLD/SILVER Spikes?"... and the link to this must read story is here.

The CFTC's press release over at cftc.gov referred to in the prior article is headlined "CFTC’s Division of Market Oversight Issues Advisory Regarding Intraday Speculative Position Limits". This is also courtesy of Nick Laird... and the link is here.

As I mentioned earlier in this column, there was a Reuters story yesterday about the U.S. Mint and how well gold bullion coin sales were doing this past week. Here it is bearing the headline "US gold coin sales surge as investor flee risk". The links to the two graphs mentioned in this story are also worth your time... and the link is here.

And, according to the usual New York gold commentator... the boys over at UBS had a similar story on bullion sales in Europe. Of course any financial or monetary piece of paper over there is now highly suspect [just like it is here in North America]... and the gold [and silver] rush is on. Here are the UBS comments... "our Zurich and Geneva sales desk experienced exceptionally strong demand for small bars and coins. All size bars up to 1kg are wanted by retail investors. Buying has been evident all week, but demand yesterday was the greatest that we have experienced since 2008... Coin demand is so intense, that supply is struggling to match, even as premiums rise. Capacity constraints, greatly evident last year, are once again a feature. We saw particularly strong demand for Kruggerands, but all coins are being sought right now... Physical demand has been most obvious in Germany this week. Considering their primary role in the Greek bail-out, and the near borderless European debt problem, with few viable investment alternatives... Germany's investors have turned to gold." [So should you, dear reader... and silver, too!]

Well, the U.S. Treasury Department's Office of the Comptroller of the Currency (OCC) has just released the Q4/2009 bank derivatives report... and there was no good news in it. As I [and others] have pointed out many times in the past, five large U.S. commercial banks, led by JPMorgan of course, hold 97% of all U.S. bank derivatives. GATA board member Adrian Douglas gives an executive summary of what's in it... and you need to pay particular attention to the gold and other precious metals derivatives for Q3/09 compared to Q4/09. If you go to Table 9 on page 31 of the OCC's Q4/09 report, you will note the absence of HSBC USA in the top five banks holding significant precious metals derivatives... it's now in 6th place. That's because Wells Fargo moved up from #6 to #5 because its overall derivatives total is larger than HSBC's. Wells Fargo has no precious metals derivatives all. In the 'Other Commercial Banks' category in Table 33... the lion's share of the derivatives position showing there belongs to HSBC. As Table 33 also shows, Bank of America and Citibank have virtually disappeared as players in the precious metals derivatives game... at least as far as this report is concerned. It's virtually all JPM and HSBC. The GATA headline reads "In Treasury report, shocking evidence of silver price suppression"... and the link to the article is here.

That's it for gold and silver today. However, the rest of the stories I have are also worth your time. This first is courtesy of reader Scott Pluschau... and this comes from yesterday's edition of The Wall Street Journal. As you may remember from my precious stories on Illinois, they have enormous financial problems... just as bad, if not worse, than California. This rather longish story is headlined "Illinois Budget Woes Come to a Boil"... and the link is here.

Next is the first of two stories that are courtesy of Washington state reader S.A. This is a Bloomberg piece headlined "Greenspan Arrogance Set Up U.S. for Big Fall". This an interesting, but rather longish read. One of the reasons I included it today is because of the columnist... Roger Lowenstein. He's the author of the books When Genius Failed: The Rise and Fall of Long-Term Capital Management"... and The End of Wall Street. He's a great writer... and that fact alone makes this story worth your time... and the link is here.

This story arrived in my in-box at 6:22 a.m. Eastern time, just as I was about to hit the 'send' button on today's column. It's from reader Scott Pluschau who was up very early on the east coast this morning. It's an Associated Press piece posted over at google.com... which bears the headline "Venezuela annual inflation rate hits 30 percent"... and the link is here.

Here's the second contribution by reader S.A. It's also a Bloomberg story, and this one was filed from London yesterday. European credit risk rose for a sixth day on concern the Greek debt crisis is spiraling out of control and triggering concerns that banks may face losses on their sovereign bond holdings. The headline reads "Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis". This is a must read article... and the link is here.

Lastly, and the big read of the day/weekend, is this piece from the English language edition of the German website spiegel.de... and it's courtesy of reader Roy Stephens. The first paragraph pretty much lays out the tone of this essay. It reads as follows... "Greece is only the beginning. The world's leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it." [Amen to that!!!] The headline reads "The Mother of All Bubbles: Huge National Debts Could Push Euro Zone Into Bankruptcy". Needless to say, this an absolute must read from one end to the other... and the link is here.

What we can or cannot do, what we consider possible or impossible, is rarely a function of our true capability. It is more likely a function of our beliefs about who we are. - Tony Robbins

Well, today's 'blast from the past' will bring back a lot of memories for a lot of people. It's a terrific song... and it's only 23 years old. It's a power ballad that turns into a dramatic love song. It was also this group's biggest hit... so turn your speakers and click here.

Events are now spinning totally out of control. The slippery slope just keeps getting steeper... almost by the hour, as the financial contagion spreads further and further from its epicentre in Greece. The gold price in all currencies is reflecting that. Here, once again, is the $Gold/$Euro graph. If the pattern is starting to look a little parabolic to you, dear reader... then you would be right about that. The gold graphs for all currencies look similar. But the U.S. bullion banks [JPM and HSBC] continue to short everything in sight... both on the Comex and in the derivatives market.

But they aren't bigger than the market... and no matter how scary their short positions are, the danger still exists that they could get over run. It's my opinion that world events may be overwhelming them. Any dips will be well bought by the physical market... and I hope, dear reader, that you're getting your share.

The CME has posted their preliminary volume numbers for Friday's trading... and it was another monster day in volume in both gold and silver. Gold volume was reported as 310,291 contracts... but a huge chunk of that, about 55,000 contracts, was spreads and roll-overs. Silver's volume was a very large 62,194 contracts... of which around 6,600 were spread related or roll-overs. The open interest numbers for Friday's trading should be something to see when they're posted late on Monday morning.

If I had a hot tip of the week, it’s to seriously consider picking up a set of the CDs from Casey Research's Crisis & Opportunity Summit that took place last weekend... so you’ll get them hot off the proverbial press in a week or so. Think of the many excellent presentations as a survival kit for what’s next. Details on the blue-ribbon faculty, and the presentations, can be found by clicking here. It costs nothing to check it out, dear reader... and I strongly urge you to do exactly that.
Enjoy the rest of your weekend... and I'll see you right here on Tuesday morning.