What a Week it Was!!!

As you can tell from this past week's price activity, I picked a hell of a week to be away from my post.

The precious metals got hit hard about three hours before the FOMC issued their statement on Wednesday... and then again when the statement was released shortly after 2:00 p.m. But, from that low, the gold price put in a substantial rally starting with the Thursday morning open in London at 8:00 a.m. local time... 3:00 a.m. in New York.

The gold price then began a long decline that commenced the moment that trading began in the Far East on Friday morning... but shortly after 8:30 a.m. on Friday morning, a rally began that took gold within an eyelash of $1,400 spot a couple of times... but these attempts to break through that price were sold off. The high of the day [$1,399.40 spot] came at the close of floor trading on Friday afternoon.

Silver was the star this past week. After the big hit around 11:00 a.m. Eastern time on Wednesday, silver was off to the races... and basically followed the gold price, but showed more price 'volatility'. Silver, too, had its low price shortly after 8:30 a.m. on Friday... and was well on its way to breaking through the $27 spot price when an obvious not-for-profit seller showed up... just like in gold. From its Wednesday low to its Friday close, silver was up almost three bucks... 11.9%. That's a lot!

Starting shortly after lunch in New York on Wednesday, the dollar began a 125 basis point decline that ended around 11:00 a.m. on Wednesday morning Eastern time. Then, over the next 16 hours... right up until 3:00 a.m. Friday morning... the dollar gained a measly 20 basis points. But beginning at that 3:00 a.m. Friday morning, the dollar began a more substantial 75 basis point rally that ended at the close on Friday at 5:15 p.m. in New York. So, while both gold and silver were on a tear during that 54 hour period... the dollar had a net loss of only 30 basis points.

It's obvious that the price movements in both silver and gold over the last three days was not entirely dollar related. And it didn't appear to be short covering, as open interest was up in both gold and silver on Thursday. We won't really know what these increases in open interest mean until next Friday's Commitment of Traders report. Thursday's volume in both metals was gargantuan... as was Friday's.

The precious metals shares had a spectacular week... as the HUI gold index jumped 5.3%... up 27.9% on the year. It would have done better on Friday, but the moment that the gold price peaked minutes before 11:00 a.m... the shares got sold off at the same instant, 'losing' twelve points in just over an hour. Coincidence? Not likely.

However, the silver shares were on fire during the last three days of the week... and anyone who held a major portion of their stock portfolio in silver has seen gains far in excess of the HUI. That's why my investment portfolio is 60/40 silver to gold. It's my opinion [thanks to silver analyst Ted Butler] that silver will vastly outperform gold... and that was certainly the case this past week.

While we're on the subject of silver share performance... Nick Laird of sharelnyx.com fame sent me the updated "Silver Seven Sentiment Graph" for Friday. We're not back to our highs of a couple of years back... but we're well on the way. The chart goes back five years.

Here's another graph from Nick Laird. This time it's the 5-year "PM Mutual Fund Sentiment" chart, which shows 48 U.S. precious metals mutual funds that have been arithmetically averaged to produce what you see below. Now that we've broken to new highs, things could get really interesting from here on in.

Because I was gone for the entire week, I never had the opportunity to check to see what deliveries had been made for the first five business days of November. So far this month, the CME has reported 777 gold and 569 silver contracts have been posted for delivery. That's 77,700 ounces of gold and 2,845,000 ounces of silver. This is not a bad showing for a November, which is traditionally a non-delivery month for both metals. I would suspect that a lot of the silver deliveries may have been related to Sprott's new silver ETF... but that remains to be seen. Here's the link for Friday's... and the month-to-date data.

Over at the GLD [since October 28th] they reported a net decline of 42,909 troy ounces of gold during that period. I consider that somewhat surprising considering the price action... but I'm sure that much more gold is now owed GLD since the big run-up on Thursday... and they're just waiting for delivery.

In the SLV [since October 29th] they have reported a net increase of 1,729,304 ounces. And, without doubt, this ETF is now owed tens of millions of ounces more. One has to wonder where they are going to get it all from... considering the fact that they have to come up with many millions for Sprott as well.

Over at the Zürcher Kantonalbank in Switzerland [for the week ending October 29th], they reported a smallish decline in silver of 3,020 ounces... and their gold ETF was unchanged. I thank Carl Loeb for these numbers. I would suspect that these ETFs should show some increases for the week ending November 5th when the numbers become available early next week.

One would suspect that gold and silver bullion coin sales by the U.S. Mint would be off the charts considering the price action in both metals lately. Well, one would be wrong. For the first week of November, only 7,500 ounces of gold eagles... and 255,000 silver eagles have been reported sold by the mint. That's not a lot. Let's see what next week brings.

Lastly comes the action over at the Comex-approved depositories. Because they don't archive their daily activities, it's impossible to report on each day's action during last week. The only day that I do have data for is Thursday. On that day they showed a net decline of 1,002,114 ounces of silver. Because I was on the road yesterday, I never got a chance to talk to Ted Butler about what happened earlier in the week as far as receipts and withdrawals went. Ted expects that a chunk of the silver that Sprott ordered will be coming out of the Comex. I'll report more on that in my regular Tuesday column. The link to Thursday's Comex activity is here.

The Commitment of Trader report on Friday showed improvements in the bullion banks' short positions in both silver and gold... but they weren't really significant amounts. The key thing to note [as Ted Butler pointed out] is that the prices of both gold and silver rose during that reporting period... with silver up a dollar and change... and gold up about $15.

In silver, the bullion banks decreased their net short position by 1,818 contracts... which is 9.1 million ounces. This doesn't amount to much of a percentage reduction when you consider the fact that the '8 or less' bullion banks are short 315.6 million ounces of the stuff. It's a drop in the bucket.

In gold, the bullion banks decreased their net short position by a smallish 5,823 contracts, or 582,300 ounces. The '8 or less' bullion banks are still short 29.9 million ounces of gold.

In his weekly commentary to clients today, Ted mentioned that the raptors [the commercials... apart from the 8 largest traders] increased their long positions in both gold and silver. This is the first time that Ted has noted them buying as prices of both metals rose in price. Normally they are buyers on price declines. Do they smell blood?

But the standout was this comment from Ted Butler... "Even after an almost $9 rally from the end of August, the 8 largest commercial traders [bullion banks - Ed] on the Comex still hold a net short position almost identical to what they held back at the end of August when the price was $18. These 8 traders have open trading losses of $2.75 billion just in silver alone, with JPMorgan accounting for almost half of that position." In total, all the shorts in both silver and gold are showing a paper loss of around $13 billion. Can every short [from very small to very large] afford these margin calls?

Here's Ted's "Day of Production" graph updated as of Tuesday's COT... all courtesy of Nick Laird over at sharelynx.com. Not much has changed... and, despite the price increases in both metals during the past three days, there has been little in the way of short covering that I can detect. As I mentioned earlier, the next COT report should give us this information. One can only imagine how high the prices will go once the real short covering begins to happen in earnest.

¤ The Funnies

¤ The Wrap