Gold to Benefit as Currency Woes Continue

Gold made an attempt to move higher the moment that trading began on the Globex system on Tuesday morning. But, as you can see from the graph, the rally ran into opposition shortly after it developed some legs...and the outcome from that point on was not in doubt.

The low of the day came at the London a.m. gold fix, which occurred shortly after 10:30 a.m. local time. From there, gold made many rally attempts, only to get sold off before any one of them could get far. Gold closed down a couple of bucks from Monday's close but, without doubt, if left to its own devices its closing price would have been substantially higher.

And you'd be hard pressed to notice many significant differences between yesterday's gold graph...and its silver counterpart. The low was also at the London a.m. gold fix. Silver closed down about a dime from Monday...but would have also closed higher if it hadn't been for the New York bullion banks.

The dollar didn't do much until precisely 3:00 a.m. Eastern time. The dollar's zenith was at precisely 8:00 a.m. Eastern time...a rise of 50 basis points from its 3:00 a.m. low. From there, it was all down hill into the New York close.

The gold stocks trading in a tight one percent range yesterday...and the HUI closed almost on it's high of the day...down only 0.52%.

The CME Delivery Report showed that 9 gold and 46 silver contracts were posted for delivery on Thursday. In silver, it was JPMorgan as issuer in both its client and house accounts...and Prudential was the stopper in both of its accounts as well. What little action there was, is linked here.

There was a whopping withdrawal from the GLD ETF yesterday...a cool 1,005,095 troy ounces to be exact...31.26 tonnes! That has got to be pretty close to a one-day record drop in that ETF. The SLV ETF also dropped a bunch as well...976,820 troy ounces.

And, for the third day in a row, there was no report from the U.S Mint.

There was smallish activity in all four Comex-approved depositories on Monday. By quitting time, they had shipped out a net 132,044 ounces of silver. The action, such as it was, is here.

When I was at the Vancouver Resource Investment Conference the last couple of days, I was delighted to see that the Northwest Territorial Mint had a booth for the first time that I could remember since I started attending these conferences many years ago. I spent a fair amount of time talking to the owner of the firm, Ross Hansen. He seemed like a straight-up guy to me. One of things that both he and his staff mentioned was that they sold 51,000,000 ounces of silver last year. That's about 16 million ounces more than the U.S. Mint...and over 6% of total world silver production. They were running pedal-to-the-metal all year long. I was impressed.

Before proceeding to my stories of the day, I thought I'd post this graph that Australian reader Wesley Legrand sent me on Monday. It's the 3-year graph of the HUI. The comment he posted with the graph reads as follow: The HUI is continuing its correction after its topping pattern in December. It may bounce off the 200-day moving average at 490...but the trend line at 475 would be a better bet.

Since the gold price is a bullion bank-contrived number, the HUI will end up being the same thing when all is said and done. But note the fact that the RSI is plunging into deeply oversold territory...and once at the bottom, has a tendency to reverse quickly.

¤ Critical Reads

Ireland's Voters Ready to Confront Rest of Euro Zone

With the fall of the Irish government last week, the upcoming elections are crucial to which direction Ireland takes. They can continue the way they are...or pull an Iceland, by renouncing the euro...and going back to the punt. The title from the story that's posted in yesterday's edition of The Wall Street Journal pretty much says it all "Ireland's Voters Ready to Confront Rest of Euro Zone". Whenever it happens, Ireland's general election will mark the first clash between the desires of voters in a euro-zone nation that is in receipt of help from its brethren...and the declared interests of the currency area as a whole. At the heart of that conflict will be a blanket guarantee made by the outgoing government to pay back international holders of all bonds issued by Irish banks should they fail. Everything is riding on this...and the world will be watching. I stole this story from yesterday's King Report...and the link is here.

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E-mails Suggest Bear Stearns Cheated Clients Out of Billions

This next story, posted over at theatlantic.com, is courtesy of reader U.D...and is headlined "E-mails Suggest Bear Stearns Cheated Clients Out of Billions". The lawsuit alleges the bank took extreme measures to defraud investors, and now JPMorgan may be on the hook...as former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. [No!!! Really??? Who would have thunk that??? - Ed] The link is here.

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IMF chides US for fiscal folly

The IMF issued a couple of reports the other day...one that dumped on the USA...and the other on Europe. Since the IMF runs a pretty big currency-printing operation itself, this is definitely the pot calling the kettles 'black'. The first story on this is courtesy of reader Roy Stephens...and is from yesterday's edition of The Telegraph. The headline reads "IMF chides US for fiscal folly". The International Monetary Fund (IMF) has issued its clearest warning to date that the latest US fiscal stimulus is ill-judged, unlikely to do much for growth and raises the risk of a bond crisis over the medium term. The link to the story is here.

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IMF Sees Europe's Debt as Top Recovery Threat

The IMF report on Europe is touched on in this story in yesterday's edition of The Wall Street Journal. It's courtesy of reader Scott Pluschau...and is headlined "IMF Sees Europe's Debt as Top Recovery Threat". It's more the same 'do as we say, not as we do'...and the link is here.

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Asian investors lead massive demand for first Euro bail-out bond

Here's another Roy Stephens offering. This one, too, is from The Telegraph...and is headlined "Asian investors lead massive demand for first Euro bail-out bond". Asian and Middle-East investors have thronged to buy the first issue of AAA-rated bonds by the eurozone's new bail-out fund, marking a key moment in the evolution of Europe's monetary union.

With Japan and China already committed to buying worthless European bonds with their equally worthless bonds, the success of this tiny auction of European debt was a foregone conclusion...and the link to this very short Ambrose Evans-Pritchard offering is here.

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Rioting Breaks Out In Egypt

Last week it was Tunisia...and this week it's Egypt. There's chaos in Cairo. The first is this zerohedge.com piece courtesy of Washington state reader S.A. that's headlined "Rioting Breaks Out In Egypt". Tyler Durden states the following..."When we reported three days ago that 59 outbound shipments of gold were intercepted at the Egypt airport, we predicted that the country's oligarchs were proactively preparing precisely for what they knew is coming imminently. It has arrived." This is worth the read...and the link is here.

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Egypt Riots Update: First Casualties Reported As Police Use Live Ammo Against Protesters

Here's another zerohedge.com article that followed hard on the heels of the last one. This one is courtesy of 'David in California'. The headline reads "Egypt Riots Update: First Casualties Reported As Police Use Live Ammo Against Protesters". The most notable update is that according to reports, Jamal Mubarak has left Cairo to London. It's a one-paragraph story with a youtube.com video imbedded...and the link is here.

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Tunisia's Worrying Precedent: Arab Rulers Fear Spread of Democracy Fever

The last word on this issue comes courtesy of reader Roy Stephens...and is a piece posted over at the German website spiegel.de. The headline is prophetic..."Tunisia's Worrying Precedent: Arab Rulers Fear Spread of Democracy Fever". In the wake of Tunisia's mostly peaceful revolution, Arab leaders are worried that their young, frustrated populations might follow suit. While the West sits back and watches, regimes stress stability over genuine democracy and hope to calm simmering discontent with cash. It's a little late for that now...and the link is here.

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Gold to benefit as currency woes continue

My first gold-related story today is courtesy of reader Ray Wiberg...and is posted over at mineweb.com. The headline reads "Gold to benefit as currency woes continue". Continued currency woes, further monetary easing and the potential for default are likely to further boost gold's appeal in 2011. The link to the story, filed from Johannesburg on Monday, is here.

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Richard Russell - Get Out of Your Dollar Assets Now!

Here's part of a Richard Russell blog that's posted over at King World News. The 'R' man is up on this soap box telling his subscribers for the umpteenth time to sell their dollar-based assets and buy gold in all its forms. The link to the blog, headlined "Richard Russell - Get Out of Your Dollar Assets Now!"...is here.

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London Trader - Big Money Lined Up to Buy Gold and Silver

Eric King provided a second story for us late last night. This is a blog entitled "London Trader - Big Money Lined Up to Buy Gold and Silver". The source isn't named...but the photo is worth the trip. I've had this particular photo saved in my computer for quite a while now...and the person who sent it to me says that it was taken in the Bank of England's gold vault. The link to the blog is here.

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A decade of gaining 18% a year --- some 'relic'

Reader Craig McCarty, who has sort of fallen of the map recently, sent me the following story from the January edition of Investor's Digest of Canada. It's Sprott Asset Management's John Embry...and his latest monthly contribution to that publication. The headline reads A decade of gaining 18% a year --- some 'relic'...and the link to this must read article is here.

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If you want to remain slaves of the bankers and pay for the costs of your own slavery, let them continue to create money and control the nation’s credit.- SirJosiah Stamp[1880-1941]

It was an interesting day yesterday. Although there wasn't a lot of heavy-duty price action...there were new low prices set in both precious metals on Tuesday...with both occurring at the London a.m. gold fix. Obviously that brought about more technical fund long liquidation. Hopefully that data will be in Friday's Commitment of Traders report, as it occurred quite some time before the cut-off [for that report] at the close of trading in New York yesterday. It only remains to be seen whether or not the bullion banks will report this data in a timely manner or not.

Gold volume yesterday was monstrous once again...in the 235,000 contract range, net of all roll-overs...although it could have been carry-over from Monday's price action...and there's really no way of telling if that was the case or not. February options and futures expiry in gold is upon us...and that was certainly a contributing factor to the volume number...along with the new low price tick.

Silver's volume on Tuesday was a pretty big number as well...about 65,000 net of all roll-overs...and if the preliminary o.i. numbers can be believed, we'll see another big drop in silver open interest when the final numbers are posted on the CME's website later this morning. More on that further down.

But the real shocker was Monday's final open interest numbers for gold which, as I said in yesterday's column, that I flat out didn't believe when I saw the preliminary numbers in the wee hours of Tuesday morning. Well, when the final o.i. numbers were posted for Monday's trading, it was even more shocking. Gold open interest cratered by 81,752 contracts...a number that will stand as a record for all time...if, in fact, it is correct. The jury is still out on that. When I spoke to silver analyst Ted Butler about it, we both agreed that virtually the entire decline [if accurate] was mostly spread related...as a decline in open interest under any other circumstance, would have resulted in a short squeeze of biblical proportions...with a new record high price to match. That didn't happen, so it had to be spread related. Ted will comment on that in his private letter to clients tomorrow...and I will steal what I think I can get away with...and post it in this space tomorrow.

As for silver's final open interest numbers on Monday, they also showed a huge decline. This time it was 5,368 contracts. How much of that was spread related remains to be seen, but Ted didn't thing there was much of that going on. Thankfully, all of this data will be in Friday's COT report...and it should be a wonder to behold. And, as I mentioned above, based on the preliminary silver o.i. numbers posted early this morning...we should see another big drop in silver o.i. when the final numbers are posted later this morning. It will be the third thing I check when I get my computer fired up later this morning.

This morning's action in the Far East was in the plus column...as it continues to be now that London is open. Gold volume is extremely light...under 10,000 contract net of roll-overs as of 4:49 a.m. Eastern time...and silver's volume is just under half of gold's volume at the moment. With the big changes in spread in silver last week, combined with the big spread changes in gold yesterday, it's rightful to think that something big is afoot. I certainly think that way...as do many others in my peer group...but I/we just can't see the shape of it, although it all seems positive...hugely positive. We'll just have to wait it out.

As is most always the case, what happens during New York trading is what counts...and today could be interesting. First day notice for delivery into the February contract is on Monday...and the New York bullion banks may try and contain prices until then. The rest of this month's price activity in both silver and gold, could prove interesting.

That's all I have for today...and I'll see you here tomorrow.