Gold Standard Coming...Fed’s Hoenig Correct: Jim Rickards

The gold price didn't do a thing during Far East trading on Wednesday...and also opened quietly in London. However, starting around 10:00 a.m. local time, the gold price developed a slightly negative bias...and this trend continued until exactly 9:01 a.m. in New York. Then the bottom fell out of the price, with the low of the day [$1,362.90 spot] coming about fourty-five minutes later...which was probably an early London p.m. gold fix. From that low, gold gained back all of its New York losses by 12:45 p.m...and then basically traded sideways for the rest of the session. The high of the day was around $1,384 spot during early trading in the Far East.

Of course the real pounding came in the silver market. The silver price was on a slightly slippery slope right from the open in Far East trading...and the decline steepened a bit starting at the same time as gold...10:00 a.m. in London. Silver sold off a quick 20 cents starting at the same 9:01 a.m. New York time as gold...and then JPMorgan et al pulled their bids around 9:27 a.m. Eastern... and silver was down about 70 cents in ten minutes to its low of the day... which Kitco reported as $28.55 spot. Nothing free-market about that price decline. A bit over three hours later, just like gold, silver hit its New York high [$29.44 spot] before selling off a hair into the close at 5:15 p.m. Eastern time.

Volumes in both metals were very big again on Wednesday...but not quite as large as those on Tuesday...the first day that 'da boyz' really pulled the trigger.

The world's reserve currency gained about 20 basis points during the first twelve hours of trading on Wednesday...and then added another 65 basis points between 5:45 a.m. and about 9:30 a.m. Eastern time. None of this dollar action had a thing to do with the price declines in silver and gold in New York yesterday morning.

The share price action pretty much followed the gold price action. The stocks gapped down at the open...and the lows were in within the first half hour of trading yesterday morning. The HUI reached its high by around 11:30 a.m. even though the gold price moved higher during the next hour of trading..and then declined gently into the close...but well off its lows of the day, finishing down 1.28%.

Considering the pounding that the gold price has taken during the last couple of days, this sell-off in the shares has been very muted. However, the silver stocks...for the most part, and not surprisingly...have been hit pretty hard. But there were lots of stocks with green arrows yesterday, regardless of 'all of the above'.

The CME Daily Delivery report showed that 60 gold and 8 silver contracts were posted for delivery on Friday. All the action, such as it was, occurred between JPMorgan and the Bank of Nova Scotia...and the link to that, is here.

There were declines in both GLD and SLV yesterday. The GLD ETF showed a withdrawal of 121,869 ounces...and the SLV ETF had a smallish drawdown of 141,030 troy ounces.

The U.S. Mint had a sales report. They added another 5,000 ounces of gold eagles, along with 389,000 silver eagles to their January sales totals. So far in January, the mint has sold 14,000 ounces of gold eagles... and 2,085,000 silver eagles.

There was a lot of activity over at the Comex-approved depositories on Tuesday...and there was movement in all warehouses. However, the changes were all small...and by the time all was said and done, they had added 183,332 ounces of silver to their total inventories. The link to the 'action' is here.

¤ Critical Reads

World Food Prices Jump to Record on Sugar, Oilseeds

At the moment, I have thirteen stories for your reading pleasure...and that's after a merciless edit. You can pick and chose from these...as I've already cut it back from what I call the 'trivial many', to the 'vital few'.

The first is a Bloomberg offering courtesy of reader Scott Pluschau. The headline reads "World Food Prices Jump to Record on Sugar, Oilseeds". An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008. I consider this a harbinger of things to come... and the story is well worth your time. The link is here.

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Index of Commodity Prices by the Food and Agriculture Organization

Nick Laird of sharelynx.com fame then showed up out of the blue about eighteen hours after Scott sent me that story...with the very Index of Commodity Prices by the Food and Agriculture Organization that was mentioned in the above story...and here it is.

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Brazil pledges to stop US 'melting the dollar'

The next item is from yesterday's edition of The Telegraph...and I just stole it from a GATA release. It's a story posted from Sao Paulo...and it's headlined Brazil pledges to stop US 'melting the dollar'. The headline pretty much says it all... and the link to the whole story is here.

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Treasuries Gain Before Fed Buys; Yields Approach Two-Week Low

Well, Q.E. 2 is underway in earnest...and Brazil [plus other countries] will have their hands full...as this Bloomberg story [courtesy of reader Joseph Weiler] attests to. The headline reads "Treasuries Gain Before Fed Buys; Yields Approach Two-Week Low". Treasuries rose as the Federal Reserve prepared to buy long-term debt today after saying improvements in the economy fell short of what’s needed to scale back its bond-purchase program. The printing presses, or their electronic equivalent, are obviously running white hot. The link is here.

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World Bank taps offshore yuan bond market for first time

Here's Scott Pluschau's second offering to today's column. It's a Reuters piece posted over at the news.yahoo.com website. The headline reads "World Bank taps offshore yuan bond market for first time". The World Bank issued its first yuan-denominated bond, raising $76 million and trying to promote the use of the Chinese currency in international markets at a time when China's stake in the institution is about to increase. The link to the story is here.

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Halla Tomasdottir: A feminine response to Iceland's financial crash

Here's a very interesting 10-minute speech given by Icelandic businesswoman Halla Tomasdottir. Halla managed to take her company through the eye of the financial storm in Iceland by applying 5 traditionally "feminine" values to financial services. At TEDWomen.com, she talks about these values and the importance of balance. Halla, the co-founder of Audur Capital financial services, has been instrumental in rebuilding Iceland’s economy since its collapse in 2008. Her passion is releasing the incredible economic potential of women’s ways of doing business. This is wonderful [and fun] to listen to...and I urge you to give it the time it deserves. It's entitled "Halla Tomasdottir: A feminine response to Iceland's financial crash". I thank reader Roy Stephens for sharing it with us...and the link is here.

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Overheating East to falter before the bankrupt West recovers

Roy Stephens sent me the next story a couple of days ago...and, for whatever reason, I found it in my 'junk mail' folder...and rescued it. It's a couple of days old, but the year is still young. Here's Ambrose Evans-Pritchard over at The Telegraph talking about what might occur in 2011 on a global basis. The headline reads "Overheating East to falter before the bankrupt West recovers". From the overheating East to a troubled West, Ambrose Evans-Pritchard offers his predictions on the global economy next year. Ambrose crams a lot into this column...so try and keep up. The link to this very worthwhile read is here.

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2011: The Year When Money Starts to Die

The remaining six offerings today are all precious metals-related...and every one of them is worth your time. The first story is one that I lifted from a GATA release...along with Chris Powell's wonderful introduction. Economist and former banker Alasdair Macleod wrote yesterday that 2011 will be the year when money starts to die; as government bond prices and currency values fall and the precious metals break out from the government price suppression schemes. Macleod's commentary is headlined "2011: The Year When Money Starts to Die" and you can find it posted at the financeandeconomics.org website...and the link is here.

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The New Gold Rush

The next is an essay by Nick Barisheff...President and CEO of Bullion Management Group in Toronto. The article is headlined "The New Gold Rush". As confidence in global currencies wanes, the world's appetite for gold will increase. It's posted over at 24hgold.com...and the link is here.

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Marc Faber: Gold, Silver prices to soar in 2011

Nick Laird provides today's next reading material. It's a posting over at commodityonline.com from January 3rd. The headline reads "Marc Faber: Gold, Silver prices to soar in 2011". Global investing legend Marc Faber says exposure of investors to gold and silver compared to other commodities is very low. Therefore, price of gold and silver can go to higher levels in 2011 thanks to the low investor base for these precious metals. The link is here.

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Gold Over $2,000, Silver Above $50 in 2011

Interviewed yesterday by Eric King of King World News, Sprott Asset Management's chief investment strategist, John Embry, made eye-popping price predictions for gold and silver in 2011...but may have been more interesting for his remarks about the difficulty encountered by the Sprott Physical Silver Trust in getting hold of real metal. Excerpts from the interview are headlined "Gold Over $2,000, Silver Above $50 in 2011" and the link is here. I thank Chris Powell for the preamble.

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Fed's Hoenig says gold standard "legitimate" system

This next Reuters piece was a huge surprise to me when I read it. It was filed from Kansas City, Missouri yesterday...and bears the incredible headline "Fed's Hoenig says gold standard "legitimate" system". Thomas Hoenig has a keen grasp of the obvious...but the fact that he said it at all is amazing. A gold standard that forces countries to back their currency reserves with bullion is a "legitimate" monetary system, though it would not prevent financial crises, Kansas City Federal Reserve President Thomas Hoenig said on Wednesday. I'd say this is more than a trial balloon. This story is a must read...and the link is here.

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Jim Rickards - Gold Standard Coming, Fed’s Hoenig Correct

Hard on the heels of the above Reuters story, is this King World News blog featuring Jim Rickards. The headline is no surprise "Jim Rickards - Gold Standard Coming, Fed’s Hoenig Correct". Needless to say, this short blog demands your undivided attention...and the link is here.

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Those who make peaceful change impossible, make violent change inevitable.- John F. Kennedy

Even though it was another bad day for both precious metals, silver analyst Ted Butler feels that we are close to a bottom. In commentary to his private clients yesterday, Ted had this to say... "The key question is...what's next? For the most part, that depends on how much more long liquidation the commercials can induce. My guess is, not much more. We have had high volume and, most likely notable improvement in the market structure as a result of this intentional sell-off."

According to the CME's preliminary volume report, gold volume net of all roll-overs was north of 200,000 contracts once again...with silver volume well over 80,000 contracts net.

I was underwhelmed by the changes in open interest for Tuesday's big down day when the final numbers were reported by the CME yesterday morning, as it appeared that the bullion banks were covering their tracks very well, as there was nothing useful in the report. We'll have to wait for tomorrow's Commitment of Traders report to see if it clarifies things, but I'm not holding my breath.

Just looking at Wednesday's preliminary open interest numbers, it's my guess that the final numbers [when reported later this morning] won't give away any secrets, either. So I'm still of the opinion that we won't see the final clean-out totals until the COT on Friday, January 14th...as nothing that happened on Wednesday will show up until then.

Here's the 6-month gold chart. The 50-day moving average got penetrated with a vengeance yesterday...and the gold price closed slightly below it as well. Without doubt, a lot of technical funds got blown out of their long positions...and the bullion banks were covering [and going long] with glee...and covering their tracks by laying on spread positions.

Here's the 6-month silver chart. Silver's low yesterday came within 90 cents of hitting its 50-day moving average...and it remains to be seen whether JPMorgan et al will go after it. As Ted mentioned above, there aren't a lot of tech fund longs left to liquidate...and it may not be worth it for the bullion banks to go that low in price. But only time will tell if that's the case or not.

As I mentioned in this column yesterday, I was in the process of selling one of the three gold mutual funds that I own...and purchasing two silver companies that were recommended in the latest edition of Casey Research's International Speculator. Those transactions have now been completed.

Not much happened during Far East trading during their Thursday...and London trading has begun quietly as well. Volumes in both silver and gold are pretty decent, but not quite as heavy as this time on Wednesday morning.

As per usual, it's only what happens during Comex trading in New York that matters...and we'll find out soon enough if the New York bullion banks are through...or whether there is a bit more pain to go.

I hope your Thursday goes well...and I'll see you on Friday.