JPMorgan et al Reduce Their Gold Short Position Substantially

The tiny rally in gold that began at 3:00 p.m. Friday in Hong Kong [2:00 a.m. in New York] lasted for only a couple of hours, as once it broke through $1,200 spot... a not-for-profit seller was only too happy to sell it down to below that number... and by lunchtime in London, the rally had pretty much petered out. However, just before New York opened, gold caught another bid and was back over $1,200 in a jiffy... only to be hammered back below $1,200 spot the moment that the bullion banks in New York swung around to their trading desks at the Comex open. Then, once the London p.m. gold fix was in shortly before 10:00 a.m. Eastern time, the dealers pulled their bids... and that was basically that for the rest of the New York trading day. The high and low prices for gold on Friday were both set in New York... with the high posted at $1,203.90 spot... and the low at $1,183.90 spot.

Silver's chart was a sort of mini-version of the gold chart... and, for a change, was the less 'volatile' of the two metals. However, silver managed to stay over $18.00 spot for the entire trading day... and the high and low prices [such as they were] were reported as $18.05 and $18.28 spot respectively.

The world's reserve currency was all over the proverbial map yesterday... down 50 basis points, then up 75 basis points, then down another 50 basis points. Just like a roller coaster....wheee! And good luck finding any co-relation between it and the gold price once again.

Considering how badly JPMorgan et al treated the gold price yesterday, I was very encouraged by the fact that the HUI finished up on the day... if only by 0.44%... as I consider that quite an accomplishment. Here's the HUI chart for the week that was... and it's a keeper.

Friday's Daily Delivery Report from the CME showed that 27 gold and 27 silver contracts were posted for delivery on Tuesday. The link to that activity is here. Neither the GLD or SLV ETFs had anything to say for themselves yesterday. But, once again, the U.S. Mint sold a pile of precious metals. This time they reported selling a whopping 19,500 ounces of gold into their gold eagle program... and another 356,500 ounces of silver were stamped into silver eagles as well. But there were no reported sales in the 24-K gold eagles. Month-to-date... 117,500 ounces of gold have disappeared in the gold eagle program... 20,000 ounces into the 24-K gold buffaloes... and 2,292,000 silver eagles to top it off. I hope you bought your share, dear reader... and if you didn't, you should make amends for that as soon as possible.

And lastly, the Comex-approved depositories showed that 570,971 troy ounces of silver were withdrawn from their collective inventories on Thursday... and the link to that action is here.

Well, Friday's Commitment of Traders report was a stunner. I was in shock... and even Ted was amazed. In silver, JPMorgan et al reduced their net short position by another substantial amount. This time it was 3,254 contracts. The Commercial net short position [where the '8 or less' traders do their dirty work, is down to 239.8 million ounces. The '4 or less' traders are short 239.2 million ounces of that... which is basically the entire net short position! The '8 or less' traders are short 306.1 million ounces. To put it another way... 8 bullion banks, led by JPMorgan, hold 76.6% of the entire gross Commercial short position [79,864 contracts] between them... and the remaining 26 traders in the Commercial category hold 24.4% between them, which is less than 1% each! Any questions? The full-colour COT report is linked here... and it's worth a look.

But the real shocker was in gold, where 'da boyz' reduced their net short position by another whopping amount for the second week in a row. This week it fell by 32,684 contracts! The total Commercial net short position in gold is now down to 21.6 million ounces... a number we haven't seen in many a moon, dear reader. The '4 or less' bullion banks are short 22.3 million ounces... which is a bit over 100% of the Commercial net short position. The '8 or less' traders are short 28.6 million ounces of gold. Here's the link to the full-colour gold COT report... and it's worth your time as well.

If you haven't figured out what this COT is saying... it basically shows that if the '8 or less' traders in silver and gold were not holding these grotesque short positions, the rest of traders in the Commercial category of each metal would be net long... just like the traders in the other two categories already are... and if these bullion banks covered their short positions, or withdrew from the market, then the prices of both metals would explode to the outer edges of the known universe.

And that's what this position limits issue with the CFTC is all about... establishing credible position limits, eliminating phony hedge exemptions... and enforcing them. That will end the price manipulation in both silver and gold forever. By the way, I want to thank all my readers that were kind enough to send a letter in to the CFTC... as they were absolutely swamped by e-mails over the last couple of days. I think they got the message!

Silver analyst Ted Butler had his usual Friday interview with Eric King over at King World News. I don't receive the interview until many hours after I've written my take on the COT report... so I'm always interested in seeing what Ted has to say... and so should you. The link is here. I spoke with Ted briefly yesterday... and we exchanged basic information... and we had to cut it short as both of us had other fish to fry... so I'm just as interested as you to listen to what he has to say.

My first story today was posted late Friday night over at finance.yahoo.com... and was sent to me by reader Scott Pluschau. The FDIC closed another seven banks yesterday evening... and the headline of this piece reads "U.S. Bank Failures in 2010 Surpass 100". The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter, from 702 three months earlier, even as the industry as a whole had its best quarter in two years. This isn't a particularly long read... and it's worth running through. The link is here.

I got several stories about the results of the Europe-wide banking stress test yesterday. The first person through the door was Washington state reader S.A. It's a story posted at blogs.wsj.com... and the headline reads "The Seven Banks That Failed"... and the link is here.

Of course it's my opinion that all that these banks are doing is rearranging the deck chairs... and that every bank involved is basically insolvent regardless of what these 'stress tests' show.

And I'm obviously not the only person with that opinion. Here's a story filed late last night in The Telegraph from London that basically says the same thing. The headline reads "Bank stress tests 'too little, too late' says City". I thank reader Roy Stephens for sharing it with us... and the link is here.

The next story is my first gold-related piece of this column. It's a GATA release headlined "CFTC's Chilton explains hope for freer, more transparent gold, silver markets". Rather than me writing a preamble to it, you can just read what Chris Powell has to say about it the GATA release linked here.

The next precious metals-related story is courtesy of reader Scott Pluschau. It appeared late yesterday evening posted over at marketwatch.com... and is headlined "Bullion buyers bank on gold coins". The reporter tried to be as condescending as possible in this article... and it shows in a few spots... along with the usual negative comments from the Tokyo Rose of the gold world... Jon Nadler over at Kitco. But, regardless of that, this 2-page article is a must read... and the link is here.

Here's my last gold-related story of the day... and, it too, ended up as a GATA release late last night. Chris Powell says that Addison Wiggin over at dailyreckoning.com has warned investors against exchange-traded funds trading in gold because they may not really control the metal they claim to have. Wiggin's commentary is headlined "Golden Shell Games"... and the link to this story, which is also a must read, is here.

As you already know, dear reader... I wouldn't own most ETFs [or any pool account] if you gave me one for free... and that especially applies to GLD and SLV.

My last story is your big read of the day. It showed up in the Monday edition of The Washington Post... and I must admit that I was surprised to see this sort of essay appear in the pages of an establishment newspaper. If you think that 'big brother' is watching you, dear reader... you're probably right about that. And if you didn't think so before you read this article, you probably will long before your finished. The headline reads "TOP SECRET AMERICA: A hidden world, growing beyond control". This is another must read story... and I thank reader U.D. for providing it earlier this week... and the link is here.

Gold is quietly becoming a reservable asset and honestly in 10 or 15 years it will be the US dollar, gold and Renminbi, which will be the major reservable assets. Take that as you wish. - Dennis Gartman... in an interview at mineweb.com on July 21, 2010

Today's 'blast from the past' is 40 years young. Where has the time gone? I'll be amazed if you don't know this British pop hit from 1970, dear reader... so turn up your speakers and click here.

Well, we can certainly put 'the week that was' solidly in the win column. Now that I've had a chance to listen to Ted's interview, I'm even more bullish now than I was before. I suppose that the bullion banks could still go after gold's 200-day moving average... but that would be quite a chore. I'm still 'all in'... and am quite happy to wait this thing out to the end. It's obvious that the CFTC has to establish position limits within 180 day... and regardless of any down-side pressure on the market, the price of both silver and gold will resolve themselves to the upside when that day arrives.

As I mentioned yesterday, there's still time to get on board this train before it leaves the station. If you still haven't taken the plunge and purchased your fill of precious metals stocks, a good place to start would be either Casey's Gold and Resource Report... or Casey Research's flagship publication... the International Speculator. It costs nothing to check them out... and CR's money-back guarantee is always in place. Resident geologist, Louis James has a new article posted at the above I.S. link, and you should check it out, as it's free.

The CFTC has a mandate to impose position limits within 180 days... but I would be awfully surprised [as would Ted] if the bullion banks didn't move sooner than that to close out their short positions... and once they do, we'll see daily price moves that will take your breath away.

Enjoy the rest of your weekend... and I'll see you here on Tuesday morning.