Gold: Now That's a Track Record

Tuesday's action in both gold and silver was a virtually carbon copy of what happened on Monday...with the highs and lows pretty much occurring at the same times on both days.

The charts are eerily similar...but if there is something nefarious about it...what might it be?

The dollar fell a bit in Far East trading...and hit its nadir at precisely 10:00 a.m. during the London trading day [5:00 a.m. Eastern]. From there it rose to its zenith at precisely 9:00 a.m. Eastern time exactly four hours later. From there it went into slow decline until the close of New York electronic trading at 5:15 p.m. Eastern time.

One thing is for sure...the precious metals prices were not influenced by anything the currency markets were doing.

The top in the gold price on Tuesday is not hard to find on the HUI chart below. From there, the gold stocks sold off gently into the close of trading. Unlike Monday, when the HUI was down 1.62% on the day, the gold stocks finished slightly in the black yesterday...with the HUI up 0.18%. This, despite the fact that gold was down a few more dollars from the Monday close.

With silver virtually unchanged from Monday, the silver stocks themselves closed basically flat on the day.

I mentioned in this column yesterday that there were about 40 silver contracts left to deliver in March...so the latest CME's Delivery Report was no surprise. There were zero gold along with 41 silver contracts posted for delivery on Thursday...but since Thursday is first notice day for the April gold contract, the deliveries/transfers will probably be made late today.

There were quite a few issuers and stoppers in this delivery report...and, considering this delivery month in silver got dragged right down to the wire, it was all very strange. The link is here.

There were no changes in either GLD or SLV yesterday...and the U.S. Mint only reported selling 1,500 one-ounce 24K gold buffaloes.

There was pretty big activity over at the Comex-approved warehouses on Monday...and I would suspect that the activity had something to do with the March delivery month. They received 1,199,831 ounces of silver...and shipped 320,170 ounces out the door, for a net increase of 879,661 ounces. It wouldn't surprise me in the slightest that the silver brought in was by the short contract holders for delivery to the longs...and it's possible that more may be shipped in during the next couple of business days. We'll see. The link to yesterday's action is here.

I read the other day that the Perth Mint is ending it's unallocated silver program [pool accounts] as of May 1st. These are accounts that have no physical silver backing them. All the 'silver owner' has is a piece of paper that says they own silver. Anyone already in, will be grandfathered...but they won't accept any new customers.

There's probably a good fundamental reason why the Perth Mint [soon to be followed by every other mint/bullion dealer/bank that have pool-type accounts] will be closing their doors to new buyers...and that's because of the current liabilities that these companies face with the paper silver holders that they already have on their books.

As a 'for instance'...let's say that the Perth Mint has 5 million ounces of paper silver sold in their pool/unallocated account under $10 the ounce. They got less than $50 million free dollars in exchange for little pieces of paper they gave the buyers...but they're all still sitting out there waiting to be redeemed at some point in time...and I would bet these are mostly unfunded liabilities to boot. When silver hits $50 or $100 the ounce...those 10 million ounces under $10...and a lot more above that price...are going to be heading for the exits. It's easy to see that in a very short period of time, the Perth Mint could be on the hook for $250 million to $500 million or more in payouts. Do they have that kind of cash laying around?

Now repeat this scenario with every other company that has a pool or unallocated silver account set up for cheapskates who don't want to pay the storage fees for the real metal...and you could see big trouble in River City.

This announcement by the Perth Mint should be a clarion call to get the heck out of paper silver asap...because the mint can already see the handwriting on the wall...and are moving to protect themselves. As you know, I've never been a fan of pool accounts, ever since silver analyst Ted Butler explained to me what they were. So do yourself a big favour. If you own one of these types of paper accounts...sell, and then buy the real deal...and take delivery while you still can.

¤ Critical Reads

Food Inflation Kept Hidden in Smaller Bags

My first story today was sent to me in the wee hours of yesterday morning by Russian reader Alex Lvov...which I just didn't have the space for in Tuesday's column.

Companies in recent months have tried to camouflage price increases by selling their products in tiny and tinier packages. So far, the changes are most visible at the grocery store, where shoppers are paying the same amount, but getting less.

This cnbc.com story is well worth reading...and the link is here.

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Forget About a Raise; More Consumers Expecting Pay Cut

Here's another cnbc.com story...this one courtesy of Australian reader Wesley Legrand. More Americans expect their salaries to be cut soon, reversing a steady decline in the number of workers who fear pay cuts, according to a March survey. Adding insult to injury, those same consumers expect to take a bigger hit on expenses because of rising inflation. The link is here.

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US consumers use savings to pay for basics

This next story is from The Telegraph out of London...and I 'borrowed' it from yesterday's King Report. Americans' savings rate dropped last month as new figures showed that consumers are using more of their disposable income to cope with the rising cost of food and petrol. This is important story is not overly long...and the link is here.

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Home prices decline in all but two of 20 major U.S. markets

Here's a real estate story courtesy of Washington state reader S.A. that was posted in the L.A. Times yesterday...and the headline pretty much says it all. There's nothing to read...just a graph...and the graph is worth 1,000 words, as they say. It's well worth looking at...and the link is here.

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China bank regulator warns of property bubble risks

Here's a Reuters piece that was filed from Beijing that showed up posted over at finance.yahoo.com yesterday. As you are already aware, China is experiencing its biggest real estate bubble in history...and this bubble is just floating around looking for a pin.

Risks that could lead to a property bubble are still building up in China, and more action is needed to cool speculative fervor, the country's banking regulator said on Tuesday. "The quantitative easing policies adopted by the U.S., European countries and Japan have added more pressure to emerging market inflation and asset prices, creating uncertainties for the world economy," it added. Given this context, Chinese banks have to make full preparations for future difficulties, the China Banking Regulatory Commission said.

This is another 'whistling past the graveyard' type of story...and I thank reader Scott Pluschau for bringing it to our attention. The link is here.

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Argentine government hopes to apply new index this year

Here's another story that I 'borrowed' from yesterday's King Report. Earlier this year I ran a piece about Argentina's inflation rate where the story stated that the government was going to come out with a 'new and improved' inflation rate index that would cook their inflation rate lower...and this story is a follow-up on that one.

The government says the 2010 inflation rate was 'only' 10.9%. The International Financial Institute says that it was more like 30%.

This very short story is posted in the Buenos Aires Herald...and the link is here.

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$8,000 Gold is Not Unreasonable: Robin Griffiths

I don't have too many precious metals-related stories today...and the first one is a short King World News blog that Eric sent me late last night.

Griffiths says that...“Most western economies can’t get what Lord Keynes said about gold out of their head, he said it was a barbarous relic. And in our western culture it still is a barbarous relic, but we’re moving into a world where the cultures of China and India are going to be more dominant...and they are the engine of the world’s growth. In their culture, gold is real money, has been for thousands of years...and will be in the future.”

As I mentioned, it's a short read...and the link is here.

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San Francisco Mint to join West Point Mint in striking American Eagles

Here's an interesting story that was posted over at coinworld.com on Monday.

Tom Jurkowsky, director of the U.S. Mint’s Office of Public Information, confirmed March 23rd that trial strikes are currently being produced at the San Francisco Mint, with full-scale, temporary production to begin sometime in May. The trial strikes are being produced to ensure that the quality of the American Eagle silver bullion coins struck at the San Francisco Mint replicate the quality of those produced at the West Point Mint, according to Jurkowsky.

I thank reader 'Jon from Washington state' for sharing this story with us...and it's well worth reading. The link is here.

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Gold: Now That's a Track Record

Today's last gold-related story was sent to me by Australian reader Wesley Legrand the other day...and I was sort of saving it for this weekend, but because it was such a slow news day yesterday, I thought I'd throw it in today's column.

Author, Doug French, says the following..."The WSJ feature provides a wonderful timeline. In 4600 BC, civilizations began using gold as jewelry. Squares of gold were used as money in China in 1091 BC. The first gold coins were minted in what is now Turkey in 560 BC. And so on. That's a track record."

This short essay is posted over at the mises.org website...and is a must read. The link is here.

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As I mentioned at the top of this column, I really don't know what to make of Tuesday's [or Monday's] price action in gold and silver. Maybe it's nothing...but the similarity between the two days is certainly curious.

Yesterday's volume numbers in gold showed that virtually all trading involved roll-overs out of the April contract into other delivery months...mostly June...which will be the next front month after April goes off the board. There was almost no 'new' trading volume at all...and if there was, it was only a few thousand contracts at most. The gross volume was a chunky 260,950 contracts...but this all netted out to just about zero by the time the smoke had cleared. The preliminary open interest number is 3,891 contracts...which I'm not prepared to read a thing into at this time of the month. And I'm not even going to hazard a guess what this means for the final o.i. number when it's posted later this morning on the CME's website. Whatever that number is, will be included in Friday's Commitment of Traders Report.

Gold's final open interest figure for Monday showed a decline of 3,072 contracts. Considering the time of month, I would suspect that this is spread related...but won't know for sure until Friday's COT.

Silver's volume yesterday came in around 50,000 contracts net of all roll-overs...and the preliminary open interest number is a rather smallish 1,040 contracts.

Silver's final open interest number on Monday showed an increase of 1,727 contracts. Neither Ted nor I could figure that one out...at least based on the price action. Hopefully more light will be shed on this in the COT report that comes out the day after tomorrow.

And I wasn't surprised to see the March open interest number in this report, as it was precisely 41 contracts...exactly what was posted for delivery in the CME's Daily Delivery Report from yesterday that I spoke of further up in this column. So the March delivery contract went off the board with no default...but the shorts kept everyone guessing right down to the wire.

The settlement in the silver futures market yesterday showed no change from Monday regarding the backwardation issue. Ted Butler said that this market is easy to manipulate...so it may mean nothing in the grand scheme of things...or everything, as these spreads can [and do] change without notice...and that's why I'll keep reporting on them until they hatch into something.

As I put the finishing touches on this column around 4:30 a.m. Eastern, I see that the price action in silver is getting interesting. Every vertical price spike is being met with selling...but the price is starting to get up there. I wonder if this sudden turn of events has anything to do with the fact that the March delivery month in that metal is now finished...and I'm also wondering if we'll see a big change in the backwardation situation when silver's through trading on the Comex tomorrow. But, then again, maybe it doesn't mean a thing.

Silver's current volume is a little heavier than normal...which is not a surprise considering the price action...but I'd be happier if it wasn't this high. Here's the Kitco chart as of 4:45 a.m. Eastern.

That's all I have for today...and I await today's silver and gold price action in New York with great interest.

See you on Thursday.