European Union in Crisis Mode

Well, the small rally I spoke of in early London trading before I hit the send button yesterday morning, really turned into something. Once the London a.m. gold fix was in at 10:30 a.m. in London, gold took off for the moon and the stars. But the moment it got north of the magic $1,250 spot price... it got immediately hammered into submission. Then, once the [early] London p.m. fix was in at 2:45 p.m. local time [9:45 a.m. in New York], JPMorgan et al, began to sell...then pulled their bids. The low of the day [$1,217.00 spot] came minutes after the London close... which was minutes after 11:00 a.m. Eastern time. But a big buyer [short covering?] showed up and gold rocketed back, regaining half its loses in an hour, before finally settling into an uneasy close... but only down $1.20 from its Thursday close. However, that was more than $20 below its London high... and heaven only knows how high the price would have risen if 'da boyz' hadn't shown up.

Silver's price action was far more subdued in both Far East and London trading. Silver's high [around $16.70 spot] occurred at precisely the London daily silver fix... which is 12:00 noon local time. From there, silver traded sideways until shortly after 9:00 a.m. in New York when the selling pressure began anew... and once the London p.m. gold fix was in, 'da boyz' pulled their bids on silver as well. Silver's low [$18.96 spot] also occurred at the same time as gold's low... minutes after London closed for the weekend. Silver recovered nicely from there and only closed down 9 cents on the day.

Well, dear reader, if CFTC chairman Gary Gensler is looking for blatant market management in both gold and silver... I do believe that I found some on Friday. This was a full frontal assault by the bullion banks... and I'm sure they didn't do as well as they hoped... as more than willing buyers showed up to 'buy the dip'. Volume was enormous... but that won't be published on the CME's website for many hours yet, as it's late on Friday evening as I write this particular paragraph.

The dollar was up 106 basis points on Friday. But, once again, that was irrelevant to the precious metals... as yesterday's price action in both silver and gold and absolutely nothing to do with the dollar action. It was either market action... or bullion bank activity... that set the precious metals prices yesterday.

But the precious metals shares were a sight to behold! At first, the shares were falling along with gold and the plunging U.S. equity markets. But once gold and silver bottomed out minutes after 11:00 a.m. Eastern time... the gold and silver equities turned on a dime... regardless of the carnage on the Dow. The HUI actually finished in positive territory on the day... up 0.72%.

Thursday's open interest in gold was up a huge 10,952 contracts on big volume of 203,648 contracts... with lots of roll-overs. Total gold open interest now sits at 599,058 contracts which, I believe, is a new record high. Silver's open interest rose a very chunky 3,997 contracts. Volume was also a big 48,497 contracts... and about 15% of the amount was roll-overs. Silver's total open interest is nowhere near a record... but it is getting up there at 127,046 contracts.

Friday's CME Delivery Report showed that 165 gold and 89 silver contracts were posted for delivery on Tuesday... and the issuers and stoppers may be of interest to some... and the link is here. The GLD added another 146,782 ounces of gold... and the SLV showed no change. The U.S. Mint reported selling another 5,000 24-k gold buffaloes and a very small 25,000 silver eagles. The Comex-approved warehouses showed that they received 785,223 troy ounces of silver on Thursday.

The Commitment of Traders report showed that the bullion banks reduced their net short position by 2,870 contracts in silver. The net Commercial short position in silver as of this report, sits at 262.6 million ounces. The '4 or less' bullion banks all by themselves are short 233.1 million ounces of that... and the '8 or less' bullion banks are short 319.6 million ounces. The '8 or less' traders [which includes the '4 or less' traders] are short 122% of the Commercial net short position.

According to the COT report, there were exactly 40 traders in the Commercial category that held all these short positions. Now, if you take out the '8 or less' traders... we're down to 32 traders. Let's see how many short contracts they might have to play with if they were divided evenly. The total Commercial short position was reported as 83,215 contracts. The '8 or less' traders are short 63,910 of that total contracts all by themselves. So, subtracting one number from the other, that leaves 19,305 short contracts divided up between 32 traders. Grade 3 arithmetic shows that each of the 32 traders left in the Commercial short category hold 603 contracts each.

And, in case you were wondering, the eight bullion banks hold [63,910/83,215 x 100 =] 76.8% of the entire Commercial short position. If that's not concentration... I don't know what is.

In gold, the bullion banks increased their net short position by 'only' 11,058 contracts. Ted Butler told me he was expecting something around a 35,000 contract deterioration... which was obviously not the case... thank heavens. Anyway... 11,058 contracts was bad enough... and the total Commercial net short position in gold is now 28.26 million ounces. The '4 or less' bullion banks are short 21.4 million ounces of that... and the '8 or less' bullion banks are short 27.1 million ounces, which represents 95.8% of the entire Commercial net short position.

The link to yesterday's COT report is here.

As per usual, Eric King over at King World News has his weekly Friday interview with silver analyst Ted Butler. So I urge you to click here and see what he has to say this week.

In the above interview, Ted referred to the outpouring of comments to the U.S. Commodity Futures Trading Commission reiterating support for establishing position limits in silver futures trading. Butler's commentary is headlined "An Impressive Result"... and it's only a handful of paragraphs... and it's posted over at silverseek.com... and the link is here.

I have a bunch of stories and two more great King World News interviews for you today. The interviews are with Eric Sprott and John Hathaway. These will be posted further down.

With all the bad news budgets in California, Illinois and New York City... here's a state that is facing bankruptcy as well... New Jersey. The state's new governor... Chris Christie... certainly wasted no time once he got sworn in. If you haven't read what he's been up to... this is certainly the time to do it. The story [which isn't overly long] is posted a thehill.com and bears the headline "N.J. governor sets tone for U.S.". It was sent to me by Florida reader P.S... and the link is here.

The first of two stories from Ambrose Evans-Pritchard at The Telegraph in London yesterday bears the headline "Morgan Stanley fears German exit from EMU"... Morgan Stanley has warned that the Greek debt crisis is setting off a chain of events that may prompt German withdrawal from the eurozone, with grim implications for investors caught off-guard. The link to this must read article is here.

Here's another story on this issue posted over at Bloomberg that's courtesy of reader Brad Robertson. The headline reads "Euro Breakup Talk Increases as Germany Loses Proxy". It's a longish read... but in light of the dire situation that grows more desperate by the day... it's worth your time and the link is here.

The second Ambrose Evans-Pritchard offering is headlined "Europe's fiscal Fascism brings British withdrawal ever closer". E-P absolutely trashes the European Union and its leaders. I haven't seen Ambrose this vitriolic in ages. It's a long piece, at least for him, but he has lots to say... and he says it well. It's a must read... and the link is here.

Posted over at the English language edition of the German website spiegel.de... comes this special report headlined "EU in Crisis: A Nightmare for the European Dream". It's not an overly long piece... and it, too, deserves your attention. I thank reader Roy Stephens for sending it along... and the link is here.

Here's a wonderful graph thoughtfully provided by Susan McCarthy over at Richard Nachbar Rare Coins. It's a chart showing the S&P500 plotted against the gold price from January 4, 1971 until yesterday... May 14, 2010. They say that a picture is worth a 1,000 words... well, this one's worth more than that.

Here's a GATA release from yesterday that bears the headline "Doubts about gold ETFs broadcast today on two major networks". As you know, dear reader, I'm no fan of either GLD or SLV. They may actually have all the gold and silver they say they do... BUT first of all, there's no way to prove it, as there are never any public audits... and the two custodians, JPMorgan and HSBC USA, are the two biggest gold and silver shorts on the Comex. If that isn't conflict of interest in spades, I don't know what is... and it's never disclosed to all the GLD and SLV unit holders, either. These things alone should have you running to all the ultra-transparent bullion funds that actually do have the physical metal... and can prove they have it. The link to the story is here.

Here's a gold story from California courtesy of Florida reader Donna Badach. It's posted at the bakersfield.com website and is headlined "Gold buyers see more people cashing in jewelry, coins". Times are getting tough... and there's too much month left at the end of the money... so more and more people are selling their jewelry just to make monthly ends meet. It's not an overly long story... and the link is here.

The next gold-related story is from the latimes.com website. J. Kyle Bass, a Dallas hedge fund manager who made a fortune betting against mortgage-backed securities in 2007, has been warning clients for the last year that the next catastrophe could be a global hyperinflation rooted in governments' unprecedented money creation. In a letter to clients he said "We increased our holdings of gold on Monday morning,” although he didn’t spell out how he owns the metal, or how much he owns. It's not a long article... and the graph speaks volumes. I thank reader U.D. for bringing it to my attention... and now to yours. The headline reads "Perfect setup for a gold rally: Wall Street 'flash crash' meets rising mistrust of paper currencies"... and the link is here.

And, as promised, here are the two King World News interviews. The first one is with Eric Sprott who is Chairman, Chief Executive Officer & Portfolio Manager at Sprott Asset Management in Toronto. Eric Sprott and I had a long talk on the phone on Wednesday... and it was educational. I'm sure you'll find this interview to be similar. It's a must listen... and the link is here.

And lastly comes this interview with John Hathaway, Senior Managing Director & Portfolio Manager, Tocqueville Funds. It's about gold from one end of the interview to the other... and the link is here.

It's hard to believe that today's 'blast from the past' is 28 years old already... but it is. Who doesn't know this band... and this song? So turn up your speakers and then click Casey's Gold and Resource Report... or Casey Research's flagship publication, the International Speculatoris a solid investment in your future wealth. Please click the links to check them out. As usual, our 90-day guarantee is in place.

Friday's preliminary volume figures have now been posted at the CME's website. They showed gold's volume as a very large 279,380 contracts... of which about 75,000 were roll-overs or spread-related. In silver, volume was a huge 50,761 contracts... and about 20% of that was roll-overs. May's open interest in silver sits at 337 contracts still to deliver. Open interest for Friday's changes won't be posted on the CME's website until late Monday morning Eastern time.

That's it for another week. See you on Tuesday.