Malaysia: The Gold Dinar and Silver Dirham

Nothing much happened in Far East trading on Monday... but shortly before 10:00 a.m. in London [which was gold's high price of the day around $1,194 spot] downward pressure on the gold price began. Once New York opened, the selling pressure intensified... and moments before London closed for the day, the bottom was in at $1,176.70 spot. From that low, gold drifted higher into the close of electronic trading at 5:15 p.m. Eastern time... gaining back almost $8 from its low. Volume was pretty decent.

Silver's price path was very similar... with low of the day occurring at the same time as gold's... moments before the London close at $17.48 spot.

Both metals set new low prices for this move down on Monday... and, with out doubt, more leveraged long positions held by the technical funds and small traders were sold... all of which were gobbled up by grateful bullion banks. Silver broke below, and closed below, its 200-day moving average for the first time since late February. The big difference on this move down is that silver's 200-day moving average is now at $17.61 vs. $16.01 back then.

It will be interesting to see how much more JPMorgan et al can beat down the silver price if the object of the exercise is to get gold below its 200-day moving average... still over $40 away. The last time that gold closed below its 200-day moving average was mid-January 2009. Can they do it this time? It is the 'summer doldrums', of course... which 'da boyz' officially started for us in New York on July 1st... so they may spend the rest of the summer painting this chart whatever way they want to the down-side.

But, don't forget, once they can't get any more tech funds or small traders to sell to them... the bottom will be in.

Here's the US$ chart for Monday... and Monday trading in the Far East starts at 6:00 p.m. Eastern time on Sunday night in New York. You can see from this graph that the world's reserve currency fell 45 basis points in less than an hour early on Monday morning... and there's not a trace of that to be found in gold's price action in either late Hong Kong, or early London trading.

So, why do I keep posting the dollar chart if there is no longer any co-relation, you may ask. Habit, I suppose... but some day I expect that relationship to resurface.

The shares reacted as one would expect... but after 2:30 p.m. the price action picked up quite a bit... and the HUI finished well of its low of the day... down only 1.68% by the time the dust had settled. For the most part, the junior mining shares did not fare as well.

Monday's CME Delivery Report showed that 4 gold and 14 silver contracts were posted for delivery on Wednesday morning. The activity is not worth looking at. I also noticed that there was a slight increase in the number of silver contracts that are now standing for July delivery. It's now up 31 to 738 contracts. The issuers have exactly 8 working days [including today] left to deliver those contracts. Why they haven't delivered already is a real mystery... and like Ted and I talk about every day... maybe they just don't have the silver on the Comex to deliver.

But, you may say, there's about 112 million ounces showing on the Comex right now... that should be more than enough to cover 738 contracts... which is 3.7 million ounces of silver. True, but here's the problem. Every ounce of that 112 million ounce silver pile is owned by someone... and they either aren't interested in selling [Eligible category]... or if they are interested in selling [Registered category]... it's not at the current spot price. So, in order to deliver those 738 contracts, the Comex either has to bring in silver to meet that demand... or bid the price up enough to generate some selling interest of those holding it on the Comex. The day that happens is one that all silver affectionadoes have been waiting a very long time for.

But will it happen? Don't know. This could end with either a whimper or a bang... and, within the next eight days, we're going to find out.

Since I'm on the subject, here's what the Comex-approved depositories had to say about Friday's action in their Monday report. There was a lot of in-and-out activity on Friday... and by the time the smoke cleared, the silver inventories had risen by 176,938 troy ounces. The activity is worth looking at... and the link is here.

This report also shows how many ounces of silver are in each of the two categories... Registered [not for sale]... and Eligible [currently for sale... at a price only known to the Comex]. There's also an Adjustments column. This allows switches back and forth from one category to another... which can probably be done with a combination of phone calls, faxes, or e-mails. It only takes a few minutes and a few computer keystrokes for a registered owner to change their silver from one category to another.

The U.S. Mint had a report yesterday. They reported selling another 11,500 ounces of gold into the gold eagle program... 1,000 24-K gold buffaloes... and another 287,500 silver eagles as well.

Month-to-date... 81,000 ounces of gold have disappeared in the gold eagle program... 17,000 into the 24-K gold buffaloes... and 1,935,500 silver eagles. And, as of yesterday's sales report, the U.S. Mint has punched out 20,104,000 silver eagles year-to-date.

Reporting for the week that was... the Zürcher Kantonalbank in Switzerland stated that another 33,669 ounces of gold were added to their stash... and in silver, it was another 527,610 ounces that were added. As of last Friday the ZKB gold ETF held 5.6 million ounces... and their silver ETF held 72.3 million ounces. As a point of reference, Central Fund of Canada holds 1.5 million ounces of gold and 75.2 million ounces of silver. I thank Carl Loeb once again for providing all the ZKB numbers.

And finally, there were no reported changes in either GLD or SLV on Monday.

Today is the 20th of July... and the 20th of the month is the day that The Central Bank of the Russian Federation updates its website with the latest month's data. In this case it's June. In May they added a whopping 1.1 million ounces of gold to their holdings. What will they report today? I don't know yet, but it will be in my commentary tomorrow.

One last thing before I get into my stories for today... Nick Laird from sharelynx.com sent me the following chart. I ran it less than a month ago, but it's worth looking at in the light of the pounding that gold took on July 1st and July 16th... plus yesterday's action. It's the gold price's percent deviation from its 200-day moving average. Except for the hammering it took during 2008... the gold price hasn't spend much time [or too many percentage points] below its 200-day moving average since the middle of 2002.

My first story today is courtesy of reader Megan Herlaar. It was a story posted in Saturday's edition of Canada's... The Globe and Mail newspaper. It's sad and disgusting and, as a Canadian, I'm a bit ashamed to post it. I won't bother describing it in my own words, as GATA secretary treasurer Chris Powell does it so much better. The headline to the GATA dispatch reads "Scotiabank gives long abuse to cancer victim trying to reclaim her silver". You can't make this stuff up. This is a must read from one end to the other... and the link is here.

As you are aware, dear reader, the Bank of Nova Scotia [which is Gaelic for 'New Scotland'], through its wholly-owned metals division Scotia Mocatta... is most likely one of the '8 or less' traders that controls both the silver and gold market. This poor lady with cancer had major problems getting her silver during a quiet time in the market. Can you imagine, dear reader, if one tried to redeem paper silver into real metal during a time of financial crisis... how it might go? That's why physical metal in hand is the best.

The next gold-related story is from Nepal of all places... and is courtesy of reader Scott Pluschau. It's posted at nepalnews.com... and bears the headline "Gold Import Doubles". It appears that gold imports have increased from 6.5 tonnes in 08/09 to 14.0 tonnes in 09/10. It appears that these huge imports of gold has triggered massive capital flight, which has forced the central bank to put a cap on gold imports. This sounds like the same problem that Vietnam has. It's a short story... and the link is here.

GoldMoney founder and Freemarket Gold & Money Report editor James Turk has gotten out his silver chart and writes that silver's accumulation pattern is nearly complete and the metal should soar once it breaks $20 per ounce. Turk's commentary is headlined "Waiting for Silver's Upside Breakout" and you can find the very short story [with an excellent graph] linked here.

Here's a gold-related story courtesy of reader Danny Cheung that was posted in yesterday's edition of thestreet.com. Carlos Slim, the world's richest man, according to Forbes list of billionaires, is looking to make money while precious metals shine. Slim's Grupo Carso SAB's mining arm Grupo Frisco is mulling opening more mines this year in order to benefit from rising gold prices that stood at record highs last month. The headline reads "Carlos Slim Betting on Gold"... and the link is here.

Goldman Sachs was in the news a lot over the weekend... and I've got three stories about that. The first story is an interview with the legendary Bill Black over at therealnews.com that was sent to me by reader Ken Metcalfe. Bill says that the SEC fine against Goldman is no deterrence, it will all happen again. The interview runs about 14 minutes and is headlined "Goldman 'Too Big To Prosecute'"... and the link to this very worthwhile interview is here.

The next one is from reader Roy Stephens. It's a story from the Saturday edition of The Telegraph in London... and the headline reads "Goldman Sachs sets aside $9bn for pay as revenues drop". The first paragraph reads as follows... "Goldman Sachs is set to pay as much as 45pc of its 2010 revenues to its staff in a move that is likely to reignite political anger with the investment bank just days after it settled a high-profile fraud case with American regulators." The link to the whole story is here.

Lastly is this G.S. story posted in the Sunday edition of The Guardian in London... and is courtesy of reader Craig McCarty. Shocked by past deals with Italy and Greece, governments are excluding the Wall Street bank from sovereign bond sales. The headline reads "Europe freezes out Goldman Sachs"... and the link is here.

Here's another story courtesy of reader Roy Stephens. This one was filed in Sunday's edition of The Telegraph and is headlined "Markets braced for turmoil after IMF and EU withdraw £17bn Hungary financing deal". About a month ago, I ran a story that someone in the Hungarian government had stated that their financial situation was very similar to Greece's. Obviously that's the case... and the link to the story is here.

Ambrose Evans-Pritchard also had a piece on Hungary that he posted late last night. Here's his take on the situation 24 hours after the previous story was filed. The headline reads "Hungary's IMF revolt augurs ill for Greece". The collapse of Hungary's talks with the International Monetary Fund and the EU is a chilly reminder that sovereign debt crises do not end with a rescue package and a click of the fingers. As austerity drags on year after year, democracies react. Obviously Hungary told the IMF and the EU to shove it. I thank the ever-watchful Roy Stephens for sending me this story in the wee hours of this morning... and the link to this must read story is here.

From Hungary to Spain. Here's a story from Washington state reader S.A. from today's edition of The Wall Street Journal. The headline reads "Spanish Banks Hit Bad-Debt Milestone". Because the story is subscription protected... only the first couple of paragraphs of the article are posted... but that's enough to get the flavour of it... and the link is here.

My second-last story of the day has to do with the Islamic gold dinar... and the silver dirham. This is a story that has been floating around for more than ten years... and it has resurfaced in this longish article that appeared in the Saturday edition of The Guardian out of London. Judging by the photo of the journalist that wrote this piece, he was probably still in high school when this issue first came up over a decade ago.

Anyhow, the gold dinar and silver dirham story appears to have some legs this time. Here's a paragraph that gives you a feel for the article... "The idea was first mooted by Malaysia's former prime minister, Mahathir Mohamad, in the aftermath of the 1997 Asian financial crisis. He argued that the coins would never hang their possessor out to dry in the same way that paper money had. As precious metals with intrinsic value, gold and silver are more resistant to market fluctuations and devaluation compared to the US dollar – an argument he took to the Organization of the Islamic Conference as a tool to battle western hegemony."

Well, this tool is about to be put to work in a big way... and if it catches on... and it just might, I'll leave it up to you, dear reader, to figure out where this could lead. The headline reads "Can Malaysia's Islamic gold dinar thwart capitalism?"... and I thank reader Jon Woodbury for sending it along... and the link to this must read article is here.

Lastly today, is an interview that Eric King just sent me. It's with Eric Sprott, CEO and Senior Portfolio Manger at Sprott Asset Management in Toronto. I know Eric quite well, and there are no flies on this guy. This is a must listen... and the link is here.

Well, it was another day off the calendar for the bullion banks... as they took both gold and silver down to new lows for this move. And, as I mentioned earlier, they could spend [as Ted Butler is wont to say] the next month 'slicing the salami' lower each week until they feel they've covered as many of their short positions as possible.

But nothing has changed in the economic, financial and monetary world. The above list of stories shows that disaster is not too far below the surface in any, or all, of these areas... with each of them joined at the hip with the other. But, when [notice I didn't say 'if'] one goes... they'll all go together. Yesterday and the weekend were just another three days sliding down the slippery slope.

So far in Far East trading earlier today, volume was very light in both metals... and hasn't change much since London opened. The prices of both metals weren't doing much, either.

As is always the case, what happens with silver and gold prices will be determined by 'da boyz' when the Comex opens in a bit... and we'll soon find out what they have in store for us today.

See you on Wednesday.