The True Value of Gold

Gold traded in a $5 price band in Far East and half of London trading on Friday. Then, when the Comex opened, gold traded in a $10 price band. Options expiry passed with barely a whimper. Gold's New York high was $1,243.40 spot. Volume was light. Nothing to see here, folks.

Silver didn't do much on Friday either... although there was a brief spike once the London p.m. gold fix was in at 10:00 a.m. New York time. But silver's attempt to break out was firmly and thoroughly squashed by the time that Comex trading ended at 1:30 p.m. At the spike high, silver hit $19.37 spot. Volume was very light as well.

Just like Thursday, the world's reserve currency hung around the 82.9 cent level before rolling over a bit into the close. Here's the 3-day dollar chart that shows how range-bound the currency has been during the last two trading days.

The precious metal shares hit their low at the London p.m. gold fix, which was minutes after 10:00 a.m. Eastern time. From there the HUI rallied... and then began rolling over, before catching a quiet bid along with the rest of the equity markets going into the close of trading. By the time the dust had settled, the HUI had finished up 1.56%... and closed on its absolute high tick of the day. We'll take it! The 5-day HUI chart is below. It finished up about 20 points on the week... and is up 13.2% year-to-date.

Friday's CME Delivery Report showed only 30 gold contracts were posted for delivery on Tuesday. There will be one more report from the CME before August goes off the board. There was a smallish increase in the GLD ETF yesterday. They indicated receiving 19,548 ounces of gold. There was no report from SLV... and over at the Comex-approved depositories, they reported receiving a smallish 237,199 troy ounces of silver on Thursday.

Friday's Commitment of Traders report showed that silver's net short position decreased by 2,892 contracts... or 14.5 million ounces. The total Commercial net short position is now down to 254.3 million ounces. The '4 or less' bullion banks are short 227.9 million ounces... and the '8 or less' traders are short 303.6 million ounces. Ted told me that a lot of the decrease was due to the fact that the 'raptors'... all the traders except the '8 or less'... increased their long positions, which has the same affect in the COT report as if the '8 or less' traders were covering short positions. Purchasing a long position has the same effect in the COT data as covering a short does.

In gold, the Commercial net short position increased by 14,730 contracts, or 1.47 million ounces... with the total Commercial net short position now up to 26.4 million ounces. The '4 or less' bullion banks are short 19.9 million ounces... and the '8 or less' traders [which includes the '4 or less' traders] are short 26.5 million ounces. So the entire Commercial net short position in gold [26.4 million ounces] is held by the '8 or less' traders. As bad as that sounds, in silver the '8 or less' traders hold 119% of the entire Commercial net short position.

The reason that gold deteriorated was that the 'raptors' sold about 13,500 long positions during the week that was... which has the effect of increasing the net short position... exactly the opposite of what happened in silver. Ted says that the 'raptors' are now market neutral in gold.

Ted said that none of Tuesday's big upside action in either gold or silver [most likely short covering by JPMorgan] was in this report. That was certainly no surprise to me, as that's what I was expecting. So, unless something goes 'bump' in the night on either Monday or Tuesday of next week, the COT report next Friday [September 3rd] should show a true picture of what all the bullion banks have been up to. But, because of the Labour Day weekend, the report may actually be released on Monday, September 6th.

At this point in my Friday report, I would normally insert Ted Butler's weekly interview. But I found out yesterday that Ted would no longer be doing his weekly interviews on King World News. Ted had mentioned to me over the last few months that he was concerned that his subscribers were being short-changed by him giving specific analysis for free which his subscribers were paying good money for. That is certainly true... but the real loss is to you, dear reader.

I considered Ted's interview to be the cornerstone of my entire Saturday commentary... and he'll be sorely missed by all... especially me.

Fortunately, my loss is minimal, as I get to talk with Ted on a daily basis... plus I have access to his private missives to his paid subscribers. I will pass along the odd salient paragraph or two that he will allow me to print in the public domain, but I already know that I will be severely restricted in that area.

But, if you're one of those that hangs on Ted's every word, you can subscribe to his service. Normally Ted has a couple of commentaries per week... and, in my opinion, they're well worth the money... as I consider Ted to be the top silver analyst on the planet... and you can check out his subscription service by clicking here.

Here's Ted Butler's graph [courtesy of Nick Laird at sharelynx.com] that shows the number of days of world production that it would take the '4 or less' and '8 or less' traders to cover their short positions if they had to make physical delivery. In most commodities that trade on the Comex, the banks have little or no exposure at all... but in the precious metals, it's all bullion banks. It's another way of describing the short positions of the bullion banks in silver and gold [and probably platinum and palladium as well]... it's just that it's done by days of world production held short, rather than millions of ounces held short. It doesn't change a lot from week to week, but it will the moment that JPMorgan et al decide to cover their short positions in earnest.

My first story today is courtesy of reader U.D. It's about commercial real estate... and the increasing number of commercial real estate holders that are just mailing the keys back to the bank, as the properties aren't worth the mortgages that are written against them. This has been going on in residential real estate for a few years now... and has only graduated to the commercial sector just recently. Expect it to get worse, dear reader... much worse. Of the $1.4 trillion of commercial-real-estate debt coming due by the end of 2014, roughly 52% is attached to properties that are underwater, according to debt-analysis company Trepp LLC. One can only imagine what this commercial real estate will be worth by 2014... but it will be much, much less than it's worth today. The story is from the Wednesday edition of The Wall Street Journal... and the headline reads "Commercial Property Owners Choose to Default". The link to this must read story is here. I found this page slow to load.

Here's an article courtesy of reader Scott Pluschau. This short story is posted over at the executivegov.com website... and is headlined "Mullen: National Debt is a Security Threat". Admiral Mike Mullen is chairman of the Joint Chiefs of Staff... and all the fancy military hardware at his disposal is no defense against a runaway national debt. It's a handful of very short paragraph... and is a must read... as Admiral Mullen hits the nail squarely on the head. The link is here.

The next item today is an interview with James Turk, the founder of GoldMoney.com. It's with Eric King over at King World News. It's all about silver... and how bullish things look. It certainly worth your time... and the link is here.

Here's a story from this morning's edition of the Financial Times out of London. The headline reads "The True Value of Gold". The Gold Anti-Trust Action Committee figures prominently in this story. I knew our chairman, Bill Murphy, had met with the reporter who did this piece... way back in May of this year... and we're all amazed that it finally made into print. It's a fairly long read, which is unusual for the FT... but it's a must read from one end to the other... and the link to the GATA release, which posts the story in the clear, is here.

The next gold-related story comes from Casey Research's own David Galland... but it was reader U.D. that pointed it out to me. It was published earlier this week... and some of you may have seen it already. But, it you haven't, here it is. David is pounding the table to buy gold and silver... and their shares. I'm glad to see him as the spear-carrier, as I get tired of doing it myself, so I'm always happy when I get someone else to beat on you about this. Yesterday or Thursday it was Casey Research's Jeff Clark doing the same thing. This piece is headlined "Uncle Scam"... and the link to this very worthwhile article is here.

Lastly is a piece that I've been saving since Wednesday. It was sent to me by reader Roy Stephens. It's an editorial commentary from the Swiss website thedailybell.com... and is headlined "Is It an Elite Depression?" This is an article about "the powers that be". Over at GATA we call it "all the money...and all the power in the world". William Jennings Bryan called it them the "money trusts".

This essay jumps right into this issue in its opening paragraph which reads as follows... "In analyzing the memes of the Anglo-American power elite and its seemingly berserker attempts at creating global governance, we face the conundrum of whether what is going on is part of a larger plan or the crumbling of a plan. This is not just a question for the Daily Bell... but for readers, feed-backers and others who see the Western world from the standpoint of elite control of financial, military and sociopolitical mechanisms."

For those of us that have a streak of paranoia running through our characters... this is a must read. The conclusions reached are amazing... and comforting. Let's just hope they're true... and the link is here.

This week's 'blast from the past' is from one of the giants of the music scene in Canada back in the 1970s. His hits were certainly big enough that just about everyone everywhere should know this song. So turn up your speakers... and then click here.

The week in both precious metals ended very quietly... but the precious metal shares were the star performer, as they continued to power ever higher. The gold, silver and HUI charts show that we are slowly but surely heading into 'overbought' territory... but I don't consider the situation to be extreme by any stretch of the imagination. Sure, we could get a sell-off [led by gold]... but it's my opinion that any down-side price action would quickly relieve the overbought condition... especially in silver which, as we know, is the center of the bullion banks' universe at the moment.

As Ted pointed out to me yesterday, the only way that JPMorgan, the big silver short, can cover any more of their short positions is by buying them back... as there are very few technical funds left to cough up their leveraged long positions... except maybe for those that were put on during the last few days... and there weren't many of them.

That's why I wasn't a happy camper about Tuesday's big price move to the upside, because both Ted and I thought that the big rally that occurred after the price broke through its 200-day moving average to the down-side, was the '4 or less' traders [led by JPMorgan] covering shorts... driving up the silver [and gold] price as they did so. I was hoping that this action would be in yesterday's COT report, but it wasn't... so we're left hanging until next Friday.

Everything is still set up for a big rally in silver, so we just have to sit here and twiddle our thumbs until 'da boyz' make their next move.

The HUI was up almost 5% on the week... and as I mentioned yesterday, there's still time to put your investment dollars to work. The first place I'd start would be with a subscription to either Casey's Gold and Resource Report... or Casey Research's flagship publication... the International Speculator. Please click on the links, as it costs nothing to check them out... and the subscriptions come complete with CR's usual money-back guarantee.

Enjoy what's left of your weekend... and I'll see you on Tuesday.