JPMorgan Gets Its Wish

The gold price was up a couple of bucks by 2:00 p.m. Hong Kong time in their Friday afternoon trading session before rolling over and heading south, in a pattern very similar to what happened on Wednesday and Thursday during that time of day. But this time there was no price recovery worthy of the name in New York. The high [$1,369.70 spot] during Comex trading was at the London p.m. gold fix at 10:00 a.m. Eastern...before the price dropped a percent...with the New York low [$1,354.30 spot] coming shortly before 11:30 a.m. From that low, the price recovered a bit going into the close at 4:15 p.m. Volume was almost as heavy as it was on Thursday.

But, as I had predicted, the real action was in silver once again. Along with gold, silver rose gently in early trading in the Far East yesterday...and, like gold, the top came around 2:00 p.m. Hong Kong time. I knew that 'da boyz' were gunning for silver's 50-day moving average...and they made it a reality in New York yesterday. Silver managed a bit of a rally at the New York open, but that ended in tears shortly before 11:00 a.m...as the silver price got smacked for 60 cents in the next 60 minutes of trading...reaching its nadir around lunchtime on the East coast. Although the silver price recovered a bit, it closed below it's 50-day moving average. Volume was very heavy.

The dollar had a bit of a rollercoaster ride on Friday. The price dipped briefly below 79 cents at 8:30 a.m. in London...then gained about 60 basis point by shortly after lunch...and then slid quietly lower going into the New York open...and continued that slide for the rest of the day...closing a hair above 79 cents...at 79.066.

Here's the 1-year graph of the world's reserve currency...and it's not a pretty sight.

What was even more remarkable is how the bullion banks managed to engineer such a huge sell-off in both gold and silver in the teeth of this week's dollar collapse.

The gold stocks gapped down at the open...and then bottomed half an hour after the gold price hit its low of the day...and right on the button of silver's low price tick instead. The shares finished off their lows, but just barely. Here's the 5-day HUI chart for the week that was...and it's not a pretty sight, either.

The CME Delivery Report showed that 113 gold and 28 silver contracts were posted for delivery on Tuesday. It was all JPMorgan and the Bank of Nova Scotia in gold...and JPMorgan and Prudential in silver. JPMorgan was the only issuer in both metals. Here's the link to the 'action'.

The GLD ETF took another hit yesterday, with 185,429 ounces of gold being withdrawn. And, for the third day in a row, there were no changes reported in SLV.

The U.S. Mint reported a big jump in gold eagle sales yesterday...19,500 ounces worth. There were no sales in silver eagles. For the month, there have been 63,000 ounces of gold eagles and 3,407,000 silver eagles sold.

Over at the Comex-approved depositories on Thursday, they reported a net withdrawal of 250,241 ounces of silver. The link to that activity is here.

Friday's Commitment of Traders report was just about everything that one could have hoped for. In silver, the bullion banks reduced their net short positions by 3,001 contracts, bringing the Commercial net short position down to 46,750 contracts, which is 233.8 million ounces. The '4 or less' bullion banks are short 201.8 million ounces...and the '8 or less' bullion banks are short 266.5 million ounces.

What's amazing about these numbers is that since we know [from last week's Bank Participation Report] that JPM's short position is around 100 million ounces, it's easy to see that the three traders left in the '4 or less' category, must be holding around 134 million ounces between the three of them. I would say that HSBC is one of the three...and that the other two big shorts would be U.S.-based bank holding companies. Because their 'bank holding companies'...they are not required to report their short positions to the CFTC in the monthly BPR.

But it's what's in the '8 or less' category that's real interesting. By straight subtraction, the four bullion banks left in the '8 or less' category must hold about 65 million ounces...16 million ounces apiece. A pittance compared to Morgan and the rest of the 'big 4'. I would guess that the four smaller bullion banks in the '8 or less' trader category would mostly be American-based bank holding companies as well.

Now, to gold...where the bullion banks covered a huge pile of short positions...29,518 contracts [2.95 million ounces worth] to be exact. The Commercial net short position has now dropped down to 22.5 million ounces. The '4 or less' bullion banks are short 18.9 million ounces...and the '8 or less' bullion banks are short 25.5 million ounces.

What applies to silver regarding bank holding companies, also applies equally to gold.

Since Friday's COT report was for positions held at the end of trading on Tuesday, January 11th...there has been, without doubt, more improvement in the bullion banks' short positions since then. But, because of the criminal way they cover what they're doing, we won't have a clue as to how much improvement there was until next Friday's report. So, once again, we wait.

Here's Ted Butler's "Days to Cover Short Positions" graph that's courtesy of Nick Laird over at sharelynx.com. The '4 or less' bullion banks are now down to 104 days...and the '8 or less' bullion banks are down to 137 days of world silver production to cover their short positions. These are big improvements from what they were about a year ago.

The CFTC/CME position limits meeting on Thursday was a bust of sorts. Here's silver analyst Ted Butler's take on it. "The CFTC meeting went pretty close to what I had handicapped on Wednesday. The proposal involves a formula based upon total open interest [10% of the first 25,000 contracts of open interest...and 2.5% of the remaining open interest]. In silver, this would amount to a position limit of around 5,300 contracts based upon current open interest. This is an economically stupid level for silver position limits and the staff should be ashamed for proposing it. It is three and a half times greater than the 1,500 contract level proposed by thousands of members of the public."

"The sad truth is that the [staff's] proposal was only passed because it is a measure without substance and is only tentative at best. Given the current composition of the Commission, no meaningful reform on position limits is possible anytime soon. Nothing with teeth could garner a majority vote."

[But] "there was one surprising and very encouraging development. There was palpable and genuine alarm and concern expressed by Commissioners O'Malia and Sommers, two staunch opponents of position limits, about the [CFTC's] staff looking into the details of JPMorgan's swap book which justifies its giant concentrated silver short position on the Comex. Heretofore, this function had been handled by the CME. Of course, neither silver nor JPMorgan was mentioned, but it was clear that any such inquiry was of great concern [to them]. As you may recall, this issue came up at the last hearing on December 16th...and it led to my speculation that JPM's swap book was [filled] mostly with Chinese counterparties. Whether interests from China are holding positions in the OTC market with JPM is of secondary importance. The real issue is that JPMorgan has to have some excuse for holding the concentrated silver short position and it appears that the CFTC surveillance staff is beginning the process of inquiry."

¤ Critical Reads

Banks Poised to Pay Dividends After 3-Year Gap

Today's first story is from Thursday's edition of The New York Times...and is courtesy of reader Phil Barlett. The headline reads "Banks Poised to Pay Dividends After 3-Year Gap". Since all the major U.S. banks are insolvent...and are only on their feet because of "Mark to Fantasy" accounting, plus all the TARP money they need...it's the U.S. taxpayer [through the pockets of Uncle Sam] that will be paying all these dividends. It gives you a warm feeling all over...doesn't it? The link is here.

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China Tops U.S. as Biggest Economy by Purchasing Power

The next two stories are about China...and both are courtesy of reader Scott Pluschau. The first is from Bloomberg...and is headlined "China Tops U.S. as Biggest Economy by Purchasing Power". China overtook the U.S. last year as the world’s biggest economy when measured in terms of purchasing power, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington. The link to the story is here.

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China Raises Bank Reserve Ratios to Fight Inflation

Scott's next offering is another Bloomberg piece. This one's headlined "China Raises Bank Reserve Ratios to Fight Inflation". China told banks to set aside more deposits as reserves for the fourth time in just over two months, stepping up efforts to rein in liquidity after foreign- exchange holdings rose by a record and lending exceeded targets. The Chinese are serious about inflation this time...especially food inflation...and I suggest you run through this. The link is here.

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Tunisia Leader Flees and Prime Minister Claims Power

Yesterday I mentioned that there had been food riots in both Algeria and Tunisia this past week. Well, it turned out to be worse than that in Tunisia. Here's a story about it in yesterday's edition of The New York Times...and it's courtesy of reader Roy Stephens. The headline reads "Tunisia Leader Flees and Prime Minister Claims Power". Tunisia's president, Zine el-Abidine Ben Ali, fled his country on Friday night, capitulating after a month of mounting protests calling for an end to his 23 years of authoritarian rule. The official Saudi Arabian news agency said he arrived in the country early Saturday. The fall of Mr. Ben Ali marked the first time that widespread street demonstrations had overthrown an Arab leader. The Arab world had begun debating whether Tunisia’s uprising could prove to be a model, threatening other autocratic rulers in the region. This story is definitely worth your time...and the link is here.

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BullionVault.com Runs Out Of Silver In Germany

The rest of my stories today are precious metals related in one form or another. The first one is from reader 'David in California'. It's a piece that's posted over at zerohedge.com...and has to do with the ongoing silver shortage at bullionvault.com. One of my readers from Scotland pointed this out to me last week...and I ran a paragraph on it. At the time, the Bullion Vault said they would have silver in their possession on January 11th. Well, this zerohedge.com piece updates that saying that the they now won't be getting any silver until Tuesday, January 18th...so they still don't have any silver to sell. The link to that short read, headlined "BullionVault.com Runs Out Of Silver In Germany", is here.

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Five reasons silver glitters more than gold

The next story is also silver related...and it's courtesy of reader Scott Pluschau. It's a piece posted over at marketwatch.com that's headlined "Five reasons silver glitters more than gold". The story is a short read...and the link is here.

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Interview With Hinde Capital's Ben Davies

Next is an "Interview With Hinde Capital's Ben Davies" over at King World News. Ben gives an excellent interview on the recent troubles in Europe...and gives KWN listeners a sneak peak of what he expects for gold going forward. The interview runs about fifteen minutes...and the link is here.

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Will Asian ETF help Morgan rig gold's most prospective market?

The next item is a GATA release that Chris Powell has headlined "Will Asian ETF help Morgan rig gold's most prospective market?" It's a story that's posted over at TheStreet.com that they have headlined "New Gold ETF Set for Launch on NYSE"...and the link is here.

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As West's gold paper price falls, metal gets scarce in Asia

Today's last gold-related story is a story that appeared in yesterday's edition of London's Financial Times. Chris Powell's headline reads "As West's gold paper price falls, metal gets scarce in Asia". The FT headline reads "Gold Prices Buoyed by China Demand". It's a short read, but worth your time...and the link is here.

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Throughout the rest of 2011...May you always make the right move.

May your cup runneth over with love.

May you always find shelter from any storm.

May you remain good looking and looking good!

May you find the perfect diet for your soul.

[If this face doesn't make you want to stop eating sausage, nothing will.]

May you find perfect balance in the company you keep.

May you have as much fun as you can, before someone makes you stop.

May the worst thing that happens to you come in slobbery pink and furry tan.

May you manage to make time for a siesta.

May all the new folks you meet be interesting and kind.

May your accessories always harmonize with your natural beauty!

Should your mouth be bigger than your stomach, may you have a chewing good time!

May you always know when to walk away...and know when to run.

And may your friends always bring you joy!

MAY YOU HAVE A WONDERFUL NEW YEAR FILLED WITH LOVE, HAPPINESS...AND HOPE

Today's 'blast from the past' goes back to 1886...and it's the 13th movement from Camille Saint-Saëns "Carnival of the Animals". It was originally written for cello and piano...but has been transposed for many different instruments over the years. This one is for cello and harp...and features Julian Lloyd Webber as soloist. It's a stunningly beautiful piece...and, in one form or another, everyone knows it. Julian's interpretation of the work is definitive...and the link is here.

Nothing that happened in the precious metals markets surprised me in the slightest yesterday...and it shouldn't have surprise you, either. JPMorgan et al are still trying to cover as many of their short positions as they can. And even though the process is painful in the short term...both financially and emotionally...it's not like we haven't been here before, because we have...and have always gone on to new highs. It will prove to be no different this time.

As I mentioned at the top of this column, silver's move below its 50-day moving average saw big volume, which was probably accompanied by huge long liquidation by the technical funds, plus short covering by the bullion banks.

It's my opinion that the worst of the move is now behind us...although we may 'consolidate' at these prices for a bit. I was confident enough to put my money where my mouth is...and purchased more silver yesterday. My bullion dealer says that business is still good, but would be much better if the local weather up here co-operated a bit more...as it's been worse than awful for the last week. This has been one of the snowiest...and coldest...winters on record.

Here's the 6-month silver chart. I suppose that the bullion banks could go after the 200-day moving averages in both metals, but I'm not expecting that, as the law of diminishing returns soon sets in, even for the bullion banks.

As I also mentioned earlier, volume in silver was particularly heavy...well over 75,000 contracts net of what few roll-overs there were, so long liquidation was predominant. Gold's volume was slightly over 200,000 contracts, so there was more long liquidation in gold as well. Every time that 'da boyz' set new low prices for the move, more longs get liquidated...and this process of Comex futures long liquidation is what's moving the price.

Both Ted and I feel that when prices start to move upwards once again, JPMorgan et al will be on the buy side...just like they were doing starting the third week of August. You can easily see that on the above graph. This was the first time that JPMorgan was a buyer as prices rose. Normally they sold short against all comers...as what I call not-for-profit sellers. They weren't back in August...and they most likely will be buyers when this current price trend finally reverses itself. As a matter of fact, JPMorgan's buying will be the major factor driving the prices upwards when they start covering shorts in earnest once more. They want out...and it looks like the other bullion banks have started getting the message as well. So, cheer up!

As I said in this column yesterday, I know it's hard to think of precious metals investment opportunities at a time like this. But as I've mentioned before, the time to buy is when blood is running in the streets...and there's certainly been a lot of that this week and last. There's still time to either readjust your portfolio...or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], or BIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. A subscription to the International Speculator also includes a free subscription to BIG GOLD as well. And don't forget that our 90-day guarantee of satisfaction is in effect for both publications.

That's it for another week. See you on Tuesday.