How Much More Demand Can Silver Handle?

After Tuesday's excitement, there isn't much to report regarding Wednesday's gold trading day. Gold's New York high of $1,368.20 spot was at 10:20 a.m...which was immediately followed by gold's new York low [$1,357.20 spot] at precisely 11:30 a.m. Eastern. The gold price recovered from that...and closed virutally unchanged from Tuesday.

Here's the New York Spot Gold chart on its own, as what happened elsewhere yesterday isn't worth looking at. The 11:30 a.m. on-the-button low is the standout feature...and I would bet serious coin that it wasn't random market forces at work here.

The silver price action was slightly more interesting than gold's on Wednesday. A rally that went vertical just before the Comex open was dealt with in the usual manner by the bullion banks. The silver price held most of those gains for the next couple of hours, but then sucumbed to the same 'market forces' that drove the gold price into the dirt at 11:30 a.m. in New York. Every subsequent rally attempt, no matter how tiny, ran into a determined seller...and silver closed down about 17 cents on the day.

Here's the New York Spot chart for silver...and you can see where every rally attempt got sold off.

The dollar opened around the 78 cent mark...and held in there until 11:00 a.m. in London before gravity took over. Seven hours later, at precisely 1:00 p.m. Eastern, the dollar hit its nadir around 77.53...and closed the New York trading session almost on that low.

There was no sign that the dollar's activities yesterday had any influence on the gold price at all. If you can see any correlation, please let me know.

The gold stocks opened in positive territory, but didn't stay there long. And, despite the fact that the gold price recovered after it's 11:30 p.m. low, the gold shares continued to get sold off...and the HUI closed down 1.75%...just off its low of the day. Most of the silver stocks didn't do well, either.

Wednesday's Daily Delivery Report from the CME showed that 50 gold and 87 silver contracts were posted for delivery on Friday. The link to that action is here.

The GLD ETF showed another decline yesterday...this time it was 68,297 troy ounces. And there was no reported changes in SLV.

The U.S. Mint reported selling another 4,000 ounces of gold eagles yesterday, which brings the February total up to 24,000 ounces of gold eagles sold. Silver eagles sit at 897,000 for the month so far.

There was a fair amount of in/out activity at the Comex-approved depositories on Tuesday. They reported receiving 797,177 ounces of silver...and shipping out 621,340 ounces...for a net change of up 177,837 troy ounces. The link is here.

Before getting into my stories for today, here's a graph that was sent to me by Washington state reader S.A. It shows the S&P price action plotted against QE1 and QE2. It should be no shock to anyone that the equity markets are doing well, as Bernanke has made no secret of the fact that he wants the equity markets higher...and it's obvious that the primary dealers are doing his bidding.

¤ Critical Reads

Job openings fall for second straight month

My first two offerings of the day are courtesy of reader Scott Pluschau. The first one is an AP story that's posted over at finance.yahoo.com. The headline reads "Job openings fall for second straight month". Employers posted fewer jobs in December, the latest evidence that businesses are not ready to step up hiring. The link is here.

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Foreclosures ramp up as 30% of mortgages are underwater

Scott's second piece is a cnnmoney.com story that's also posted over at finance.yahoo.com. The headline here reads "Foreclosures ramp up as 30% of mortgages are underwater". Sometime, somehow, the foreclosure crisis will ease. But probably not anytime soon...as home prices dropped 2.6% nationwide during the last three months of 2010, pushing more borrowers underwater, according to a quarterly real estate market survey from Zillow.com. This is definitely worth the read...and the link is here.

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How to profit during monetary crisis

Reader Peter Handley is up to the plate next with this story that's posted over at investmentpostcards.com...and is headlined "How to profit during monetary crisis". It's Judge Andrew Napolitano interviewing Jim Rogers on Fox News. In the clip, Jimmy discusses gold, silver and the Fed. All his comments are well worth listening to...and the link is here.

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Portuguese 10-Year Bond Yield Hit Fresh Lifetime Highs

We now head overseas for the remainder of today's stories. The first on is zerohedge.com posting courtesy of Australian reader Wesley Legrand. The headline of this article reads "Portuguese 10-Year Bond Yield Hit Fresh Lifetime Highs". It's only a couple of paragraphs...and the graph speaks volumes. The link is here.

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Bundesbank chief Axel Weber throws ECB presidency into doubt

Next is a story from The Telegraph that was sent to me by reader Roy Stephens. It originally started life out as a Bloomberg piece...and the headline reads "Bundesbank chief Axel Weber throws ECB presidency into doubt". Bundesbank president Axel Weber may not seek reappointment when his current term expires next year, a central bank official said, calling into question the future of a policy maker tipped by some economists to take over the European Central Bank (ECB).

“This is pure chaos,” said Carsten Brzeski, senior economist at ING Group in Brussels. “Europe has already made a mess of the sovereign debt crisis, are we going to make a mess of the succession of Jean-Claude Trichet? This mess needs to be cleared up very quickly.” The link to the story is here.

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WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

Washington state reader S.A. has another story for us today. This one is from the Tuesday edition of The Guardian out of London...and the headline reads "WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices". The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

This is not rocket science, or a surprise, as Matt Simmons book Twilight in the Desert pretty much spelled that out about six years ago...and the link to this must read story is here.

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Egypt's Warning: Are You Listening?

My last non-precious metals related story was sent to me by reader U.D...and it's another posting from over at zerohedge.com. It's a guest post by Chris Martenson that's headlined "Egypt's Warning: Are You Listening?". And, like the previous story, has a lot to do with oil...peak Egyptian oil to be exact. This is a longish read, with some great graphs as well. It's also a must read...and the link is here. If you only pick one story out of my column today, this is the one you should pick.

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China may increase gold reserves beyond Fort Knox level – Hale

I only have three precious metals-related stories today...and the first one is courtesy of Nick Laird of sharelynx.com fame. It's filed from Capetown...and is posted over at the miningweekly.com website. The headline reads "China may increase gold reserves beyond Fort Knox level – Hale". China’s central bank is being advised to increase its gold holdings nearly ten fold to a level greater than the world’s biggest bullion depository, the US’s Fort Knox. Various officials in China have proposed the central bank should increase its gold reserves to 10,000 tonnes, which would give China larger gold reserves than Fort Knox. The link to the story is here.

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Perth Mint Out of 100 oz. Silver Bars for at least 6 Weeks

The second one is a blog about silver that Eric King over at King World News slid into my in-box in the wee hours of this morning. It's headlined "Perth Mint Out of 100 oz. Silver Bars for at least 6 Weeks". I know for a fact that the Sunshine Mint in Coeur d'Alene, Idaho is giving a 90-day delivery date on all their bullion products from 1-ounce to 100-ounce bars. Small-sized investment bars are getting tough to find. The link to the KWN silver story is here...and it's worth the read.

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How Much More Demand Can Silver Handle?

Lastly today is a short piece on silver written by Casey Research's own Jeff Clark. Jeff is the editor of the monthly BIG GOLD report...and this article is entitled "How Much More Demand Can Silver Handle?". It's less than a 5-minute read...and very much worth your time...and the link is here. You have to scroll down a handful of paragraphs to get to it.

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If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand.~ Milton Friedman

I was underwhelmed by yesterday's price action in both metals, as there was absolutely no follow-through from Tuesday's big day in both metals...especially silver. Gold volume, net of all roll-overs was a very light 115,000 contracts...and for silver it was around 62,000 contracts net, which I felt was quite a bit.

I would guess, by looking at the preliminary open interest numbers in gold, we'll show a decline in open interest for the Wednesday trading day...and it's hard to tell by looking at silver's o.i. numbers whether it will be up or down. I'll check them as soon as I get out of bed this morning.

Gold's up day on Tuesday produced an increase in open interest of only 3,679 contracts...but silver's o.i. jumped a rather alarming 3,465 contracts. All of this data will be in tomorrow's Commitment of Traders Report...and we'll have to wait until then to see what the breakdown is of the long and short positions that were done by the bullion banks.

This is what silver analyst Ted Butler had to say about it in commentary to his paying subscribers yesterday..."The only potential fly in the ointment is the same potential negative we've always been faced with, namely, the dirty rotten crooks on the Comex, led by JPMorgan and the other big commerical shorts. Recent increases in the open interest on rising prices might mean that these big commercials may have increased their short positions, after notable recent reductions. There is no way of knowing for sure, until we can analyze the COT data on Friday....If the big concentrated shorts have put on additional shorts, it's solely for maniulative and price-capping reasons."

"Let me be as clear as I can be. I don't know if the big commercial crooks will institute a sell-off at this point. That's impossible to know. What I am saying is that if we do sell off from here, it will only be because the big commercial short crooks rigged the market lower for their own advantage. The true supply/demand fundamentals dictate much higher prices for silver."

Since the Far East open earlier today, both gold and silver prices have been working their way lower in price...and I note that silver is now back under $30 the ounce for the moment. Now that London is open, that decline has accelerated a bit. Since the dollar's on-the-button 1:00 p.m. low yesterday, the world's reserve currency has been working its way higher...and is now up a chunky 60 basis points as of 4:44 a.m Eastern time. Gold's volume is a bit under 16,000 contracts and silver's volume is about 7,300 contracts net.

It will be interesting to see what the New York bullion banks have in store for us when Comex trading begins this morning. I'm ready for anything...and I'm still 'all in'.

See you Friday.