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gwr1

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Ed Steer this morning

posted on Dec 28, 2010 09:58AM

We Will Have an Upside Explosion in Gold: Richard Russell

Ted Butler tells CFTC Commissioner Bart Chilton not to bring a knife to a gunfight. GLD ETF has a 117,000 ounce withdrawal. Demanding the Mark Back: Opposition to the Euro Grows in Germany. GATA's lawsuit for Fed's gold documents slogs on.

¤ GOLD AND SILVER: A 2-Day Report

Not much happened on December 24th... which should be no surprise to anyone. But that can't be said of the 23rd. What happened on that day was right out of JPMorgan's playbook. Engineer a sell-off in both gold and silver... then cover/go long like mad themselves... even though volume was very skinny in both metals.

It's obvious that they're leaving no stone [no matter how small] unturned in their quest to cover their short position in silver. Gold appears to be just a sideshow for them. It's already obvious that they're heading for the exits in silver... but they don't want to appear even more conspicuous about it than they already are, by just going after silver all by itself. You will note that the lows of the day in both metals came at 10:00 a.m. Eastern time... which is the London p.m. gold fix. We've seen this sort of price action many times before... have we not?

Although gold finished down on Thursday... the shares managed a small gain. I'm always encouraged to see that sort of activity... as those are strong hands buying.

The dollar had quite a trading range on Thursday... but was never a factor in the gold and silver price action.

And now for Monday's action. You'll note that both gold and silver got smacked pretty good right at the beginning of Far East trading on Monday morning. True, there was a minor gap up in the world's reserve currency at the same moment... but the down moves in both metals were out of all proportion to the dollar move. Anyway, it wasn't long before both metals had recouped their losses... and gold basically traded unchanged on the day. Volume was very light... and there was nothing in the trading pattern in New York to suggest that the bullion banks were lurking about.

The silver chart looks almost identical to its golden cousin... except the price was more 'volatile'.

Here's the dollar chart for Monday. You can see the 20 basis point price spike at 5:00 p.m. Sunday night in New York that caused the big instantaneous drops in both gold and silver prices right at the opening of trading in the Far East . If I had to bet ten bucks, I'd say that Monday morning's opening scenario in the dollar and the precious metals was deliberate. The reason I say that is very simple. The dollar fell off a 35 basis point cliff shortly after Far East trading began early this [Tuesday] morning... and I see little in the gold and silver charts [posted just above this paragraph] that indicates that this event ever happened. Why wouldn't there be an instantaneous and corresponding rise in both gold and silver prices at the same moment? Just asking.

The nadir for gold stocks came at gold's low at 12:45 p.m. Eastern time yesterday... and then cut their losses by the end of the trading session... with the HUI only down 0.72%. I wouldn't read a thing into yesterday's share price action.

I'm combining Thursday's and Monday's CME Delivery Report into one. In gold... 189 gold contracts were issued/delivered [all on Monday... and 184 were delivered by JPMorgan from their customer account]. The big stopper [receiver] was Deutsche Bank in their proprietary [house] trading account.

In silver... 164 contracts were posted for delivery on Wednesday. 157 contracts were issued by JPMorgan... and all were from their customer account. Of those 157 contracts... 133 were stopped/received by the Bank of Nova Scotia in their proprietary [house] account. The link to Monday's action is here.

On Monday, the GLD ETF reported a small withdrawal of 117,202 ounces... and there were no reported changes in SLV... and there haven't been any since December 17th.

The U.S. Mint has had nothing to say since December 23rd... but I'm expecting one more big sales report from them between now and the end of this week.

There was a small silver withdrawal from the Comex-approved depositories on December 23rd... but it was only a few thousand ounces... and there was no report from them on Monday because of the weather conditions in the New York area. The CME advised "that these reports will resume [today] at their normally scheduled time."

Because of the holiday-shortened trading week last week, the CFTC's Commitment of Traders report [for positions held at the close of trading on Tuesday, December 21st] didn't get published until Monday afternoon. Both Ted and I were pleasantly surprised with what the numbers showed. The Commercial net short position in silver was down 1,079 contracts... and is now sitting at 235.3 million ounces. The '4 or less' bullion banks are short 198.4 million ounces of silver... and the '8 or less' bullion banks are short 273.6 million ounces of the stuff. Historically speaking, these are really low numbers... especially considering the high total open interest... and powerful rallies have been know to start when the COT is in the bullish configuration that it is now.

The same can be said for gold. The bullion banks reduced their net short position by 2,381 contracts during the prior reporting week... and the Commercial net short position is now down to 25.2 million ounces. The '4 or less' bullion banks are net short 10.9 million ounces... and the '8 or less' bullion banks are short 27.1 million ounces of gold.

One has to wonder how high the silver and gold prices will go when JPMorgan et al begin to cover their short positions in earnest. I would say that we'll find out the answer to that in the next 30 days.

Silver analyst Ted Butler had another commentary for his clients over the weekend... and I'll steal a paragraph from it. "While I understand Commissioner Chilton's reluctance to be openly adversarial to the CME over the issue of [silver] position limits, the CFTC's attempts to work co-operatively with the CME have yielded nothing to date. The CME has been working overtime to undermine position limits. That must be stopped. My advice to Chilton is not to bring a knife to a gunfight. It is time to lower the hammer on these SOB's. And this continuing worry... that trading will migrate to other exchanges if legitimate silver position limits are established... is pure nonsense. Let the short silver crooks go wherever they want to go; no one will follow them. Legitimate traders want to operate on legitimate exchanges and in legitimate markets. The only thing the regulators must do is to insure that the crooks dealing on foreign markets can't link their crooked trades back to our markets. If JPMorgan wants to hold crooked silver OTC positions with the Chinese or anyone else, let them. Just don't let them transfer or link anything back to the Comex."

Sponsor Advertisement

Vancouver, B.C., December 10, 2010 - VMS Ventures Inc. (TSX-V:VMS) (“VMS”) is pleased to announce that joint venture partner HudBay Minerals Inc. (TSX:HBM, NYSE:HBM) has informed the Company that the first step out drill hole undertaken by the joint venture has been successful in intersecting massive sulphide mineralization approximately 214 meters down plunge from the deepest intersection previously drilled into the deposit.

Neil Richardson, VMS’ Chief Operating Officer states: “The success of the step out drill hole represents a major step forward in the advancement of our knowledge of the deposit and indicates that it may be significantly larger than previously thought. Drilling on the deposit prior to this step out hole intersected mineralization from within 50 meters of surface to a depth of approximately 450 meters from surface. The step out hole announced today takes the known extent of mineralization down to approximately 530 meters from surface and approximately 190 meters horizontally to the west of drill hole RD-08-71, where mineralization was previously known to exist.”

Drill hole RLD-015 intersected 10.09 meters of massive sulphide in the Zone 10 horizon, which assayed 0.67 g/t Au, 5.20 g/t Ag, 2.39% Cu and 0.23% Zn. This massive sulphide mineralization indicates the zone remains open down plunge and up plunge toward the main deposit. The exploration drill will continue delineating this zone up-plunge towards known mineralization.

Please visit our website to read the full release and learn more about VMS Ventures.

¤ Critical Reads

Alabama Town's Failed Pension Is a Warning

I have a lot of stories accumulated over the last five days. I hope you can find the time to go through them all. The first is courtesy of reader Phil Barlett... and is out of the December 22nd edition of The New York Times. The headline reads "Alabama Town's Failed Pension Is a Warning". This is a longish story, but well worth your time, as I see most pension plans ending exactly as this one did. The link is here.

Welcome To The Golden Minerals HUB On AGORACOM

Ed Steer this morning

We Will Have an Upside Explosion in Gold: Richard Russell

¤ GOLD AND SILVER: A 2-Day Report

¤ Critical Reads

¤ The Funnies

¤ The Wrap