Silver at $40 Will Be Best Metals Performer in 2011

The gold price didn't do a heck of a lot in early trading in the Far East on Thursday. But starting around 1:00 p.m. Hong Kong time, gold spent the next four hours gaining a whole five bucks... and gold's high price of the day was printed about 9:00 a.m. in London around $1,386 spot.

From that high, the gold price began a slow decline that gathered steam starting around 11:30 a.m. local time in London. Over the next couple of hours, the gold price declined ten bucks... and then really fell out of bed to the tune of twelve dollars between 9:40 a.m... and the London p.m. gold fix, which came minutes after 10:00 a.m. in New York. This was gold's low of the day, which was $1,360.40 spot. This price decline in New York punctured gold's 50-day moving average with some authority.

By lunchtime two hours later, gold had gained back about eight dollars, before trading sideways into the close of electronic trading at 5:15 p.m. Eastern.

Here's the New York spot gold price chart on its own. One has to wonder what not-for-profit seller would dump a position in such a manner.... and I doubt that someone was going short at that particular juncture. I would guess that it was one of the bullion banks pulling their bids... forcing whatever sellers there were, to sell into a price vacuum. There was also a violent 35 basis point dollar rally around this time, but it didn't exactly coincide with this drop in the gold price. More on that further down.

The silver price graph looked pretty much like the gold price chart. The big difference was that silver closed in slightly positive territory... while gold was down about ten bucks on the day. Silver's high price [like gold's] was also set in London at 9:00 a.m... around $29.20 spot... with the low also coming at the London p.m. gold fix minutes after 3:00 p.m. in London... minutes after 10:00 a.m. in New York. The low price print of the day was $28.32 spot.

Silver's 50-day moving average currently sits at $26.19 spot... a long way down from yesterday's closing price of $28.88 spot... and the current Far East price in Friday morning trading as I write this paragraph.

The world's reserve currency didn't do much of anything yesterday... declining about ten basis points between the Thursday open in the Far East and about 9:50 a.m. in New York. Then, in the space of fourty minutes, the dollar jumped up about 30 basis points... and has been in a gentle decline since then... closing down about 25 basis points on the day.

As I mentioned earlier, the big drop in the gold price just before the London p.m. gold fix... and this dollar rally... didn't exactly coincide. I would say that there wasn't any co-relation between the dollar and the gold price yesterday, unless it happened by accident.

The gold stocks bottomed minutes after gold hit its low of the day. Then the shares struggled for the rest of the New York trading session... but did finish off their lows. The HUI finished down 1.66%. The silver shares, despite the strong close of the metal itself, were decidedly mixed on the day.

The CME's Delivery Report on Thursday showed that 33 gold and 28 silver contracts were posted for delivery on Monday. The 'action'... such as it was... is linked here.

The GLD ETF was down again yesterday. This time it was 78,100 ounces. The SLV ETF had no report.

While I'm talking about these two ETFs, Ted Butler pointed out that there was a big drop in the SLV short position as reported by the good folks over at shortsqueeze.com. The current short position [as of about ten days ago] now sits at 12.1 million ounces. That's down 32.5% from what it was in the reporting period before that. In the GLD ETF... the short position there is 2.0 million ounces of gold... up 2.9% from the prior reporting period. The link to the SLV stats are here.

There was no sales report from the U.S. Mint on Thursday.

But there was a big silver withdrawal from the Comex-approved depositories on Wednesday... the biggest draw-down I've seen in a while... 1,782,039 ounces. All the withdrawals were from either Brink's, Inc. or HSBC USA. The link to the action is here.

¤ Critical Reads

U.S. Commodity Regulator Delays Speculation Caps Plan

Well, the CFTC's meeting on Thursday ended suddenly with the main issues not really resolved. I listened to a Bloomberg interview with CFTC Chairman Gary Gensler... and I got the distinct impression that the meeting was ended because the silver position limit issue had reached an impasse. A rock had come up against a very hard place... and no one was blinking. So Gensler ended the meeting rather than put it to a vote. He was careful to point out on a couple of occasions during the press scrum that followed, that although the meeting was over... this issue was still very much on the table.

Ted Butler made it absolutely clear to me yesterday that the bone of contention was 100% the silver position limits issue... and I agree totally. He also said that whatever stories that showed up in the main-stream media on this issue, would not reflect the titanic forces that ran head-on into each other at this historic meeting yesterday. But, as Ted said, they now both know exactly where each other stands.

Gensler, who is nobody's fool, tried to do all of this above board and attempt to reach a consensus... but, when push became shove, the 'fine folks' at the CME and JPMorgan/HSBC circled the wagons. Both Gensler and CFTC Commissioner Bart Chilton tried to put as positive a spin on it as they could... but the fight is now on.

The linked Bloomberg story is headlined "U.S. Commodity Regulator Delays Speculation Caps Plan". After you've read the story, you can click on the video tab and listen to what both CFTC Chairman Gary Gensler and Commissioner Bart Chilton had to say. This story is worth spending some time on... and the link is here. I thank Florida reader Donna Badach for digging this up.

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OCC Derivatives Graph

While on the subject of JPMorgan and HSBC USA... here's a nifty graph that Nick Laird over at sharelynx.com sent me. It shows that U.S. Banks control $145.1 billion of gold and precious metals derivatives as reported by the OCC's [Office of the Comptroller of the Currency] latest derivatives report. Basically JPMorgan and HSBC are the derivatives market in precious metals in the U.S.A. Their respective Comex futures short positions in both silver and gold reflect their derivatives positions almost exactly.

Click here to enlarge.

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Bernanke's Problem

The next story I have for you today is courtesy of Australian reader Wesley Legrand. It's a short piece by Alasdair Macleod that's headlined "Bernanke's Problem"... and is posted over at financeandeconomics.org. Normally I wouldn't give a piece like this more than a passing glance, but this one is different. It's right on the money... and extremely well written. I totally agree with the author's conclusions. It's worth a read... and the link is here.

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Eurozone debt crisis spreads to Belgium on rising political risk

Over the last year or so, I've been mentioning Belgium more and more frequently. In the last couple of weeks, the country's problems have really come to the fore... and are getting a lot of ink over in Europe. I have two stories on that. The first is from reader Roy Stephens... and it's an Ambrose Evans-Pritchard offering out of Wednesday's edition of The Telegraph. If you don't know much about the history [and politics] of Belgium.. this [and the following] story are very much worth your time. This first story is headlined "Eurozone debt crisis spreads to Belgium on rising political risk"... and the link is here.

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Interview with Flemish Separatist De Wever: 'Belgium Has No Future'

The second story on Belgium is also from reader Roy Stephens. This one was posted yesterday on the German website spiegel.de. Six months after the general election, Belgium still has no new government. Flemish nationalist Bart De Wever, head of the country's largest party, wants to split Belgium into two states. In an interview that has caused a scandal in his country, he told SPIEGEL why the nation has "no future". The headline reads Interview with Flemish Separatist De Wever: 'Belgium Has No Future'.The map and graph are wonderful... and I suggest that you put this on your must read list. The link is here.

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Saving the Common Currency: German Obstructionism Heightens Euro Fears

Here's another spiegel.de offering from reader Roy Stephens. This one is headlined "Saving the Common Currency: German Obstructionism Heightens Euro Fears". All eyes are on Brussels as European leaders gather to discuss ways to solve the ongoing euro crisis. So far, though, German Chancellor Angela Merkel has proven unwilling to consider measures that may require additional German funds. Others in the EU are getting anxious. The link to the story is here.

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Silver at $40 Will Be Best Metals Performer in 2011

My remaining stories are all precious metals related in one form or another. The first is a silver story from Bloomberg that's courtesy of reader Scott Pluschau. I love the headline, which reads "Silver at $40 Will Be Best Metals Performer in 2011". The question that's crossing my mind right now is... how much higher than $40 will silver be at the end of next year? The link is here.

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Gold or stocks: What to hold during the Great Correction

The next article is from The Christian Science Monitor of all places... and it's a repost of a gold article by Bill Bonner over at dailyreckoning.com. The headline reads "Gold or stocks: What to hold during the Great Correction". I thank reader Kevan Crozier for providing the story... and the link is here.

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Nepal's precious metals traders say silver shortage is worst

The following news story out of Nepal showed up as a GATA release yesterday. Chris Powell's headline reads "Nepal's precious metals traders say silver shortage is worst". It's a very short piece... and well worth your time... and the link is here.

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Gold to reach $1,800 - probably in Q1/2011 - James Turk

Thanks to the 'Charleston Voice' I have the following piece from mineweb.com. The headline reads "Gold to reach $1,800 - probably in Q1/2011 - James Turk"... and the link is here.

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An hour with Jim Rickards and the once and future money

Lastly, is this GATA release that contains your big must watch/listen of the day. Market intelligence analyst James G. Rickards of research firm Omnis Inc. made a long presentation to the "Rethinking the Future International Security Environment" conference held Dec. 7th in Washington by the Applied Physics Laboratory of Johns Hopkins University. Rickards told the Johns Hopkins conference that he considers gold to be the secret economic weapon of the U.S. government, and he noted that devaluing currencies against gold in times of economic distress has been done frequently throughout history. He also said he expects the United States to avert the dollar's collapse by returning it to a gold standard or even to avert the collapse of currencies worldwide by sponsoring a new gold-backed international currency.

Chris Powell's preamble to this extensive video is a must read as well. Powell's headline to 'all of the above' reads "An hour with Jim Rickards and the once and future money"... and the link is here.

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The truth is that inflation is already out of control, and the Fed is on the run. It cannot stop the US economy from sliding into the second dip, because zero interest rates do not generate the real savings required for economic regeneration. The Fed cannot stop the banks going bust, because enough of them are bust already to bring down the others; but it can delay recognition of the fact by pressing the button marked “Print”, and keeping it pressed for as long as it takes. And that is what will surely happen.- Alasdair Macleod, 08 December 2010

Yesterday's price pattern in both gold and silver is one that we've seen many times in the past. Nick Laird even has a graph depicting this price action over the years. This graph contains four years of data... from March 2006 through March 2010... which is approximately 1,000 trading days. When you average it all out, Nick's "Intraday Average Gold Price Movements" graph looks like this. Note the London p.m. gold fix at 10:00 a.m. New York time.

Thursday's volume in gold was quite high... and, based on the preliminary open interest number that's posted at the CME's website, it would be my bet that gold o.i. will show a rather large decline when the final numbers are posted later this morning. With the penetration of gold's 50-day moving average, a lot of technical funds pitched their longs yesterday.

Silver's volume was pretty decent as well, but since none of the major moving averages were taken out, I'm not expecting much in the way of changes in open interest... especially when one considers the fact that silver actually closed in positive territory.

The final open interest changes for Wednesday's trading day showed that gold open interest fell 1,595 contracts... and silver's o.i. was up 187 contracts. These numbers will be in next Friday's Commitment of Traders report... if there is a report on December 24th.

While on the subject of the COT report... the latest one will be out today... and will be posted at the CFTC's website at 3:30 p.m. Eastern time, sharp. Both Ted and I are expecting a huge improvement in the bullion banks' short position in silver... as all of December 7th's decline will be in this report. As you may remember, it should have been in last Friday's report, but 'day boyz' made sure that it wasn't. The link is here.

The dollar continued to decline in Far East trading earlier this morning, but has stabilized over the last few hours... and both silver and gold are up a bit... but treading water now that London is open for trading this Friday. Volume in both metals is pretty light as of 4:48 a.m. Eastern time.

True to form, the mostly positive action in the Far East and early London trading on Thursday was overshadowed by the New York bullion banks... including their London trading offices. Will today be a repeat performance of yesterday? Only JPMorgan knows that for sure.

Have a good weekend.... and I'll see you here tomorrow.