Extreme Silver Tightness Causing Delivery Problems: Rick Rule

Gold traded in a ten dollar price range through all of Far East...and the first half of the London trading day on Thursday. The absolute low price came at the London silver fix at 12:00 noon local time...which is 7:00 a.m. in New York. After that, it was up, up...and away for the rest of the trading day.

The chart looks more impressive than it really is, as gold was only up a percent and a bit...and I'll really get excited when I see gold up 3-4% in one day...which I'm sure that the bullion banks won't allow...but hope springs eternal.

However, having said that, I should just be thankful...and I am. Volume was pretty decent, so this rally is not going unopposed.

The silver price wandered around with a general positive bias early Thursday morning...and about 2:30 p.m. Hong Kong time, silver really caught a bid...and by the London open was up about sixty cents. During the subsequent four hour period, silver proceeded to give back all those gains...plus a few pennies more...and by 12:00 noon [the London silver fix] was down about a dime from the close in New York on Wednesday evening.

But that was the absolute low...and the silver price rose from there...and closed the New York trading day up $1.52...and on its absolute high of he day...and a new 30-year high.

For the second time this week, there was co-relation between the dollar and the precious metal prices...but it was a pretty thin fig leaf to hide behind yesterday.

From shortly after the open in the Far East...and until 2:30 p.m. Hong Kong time...the dollar fell well over 40 basis points. Then from that 2:30 Hong Kong low, the dollar rose 50 basis points and hit its zenith at precisely noon in London...7:00 a.m. in New York. Please note how both gold and silver reacted up to that point.

Then, from that 7:00 a.m. Eastern high, the dollar rolled over and gave back all of its gains from the previous four hours...but this time the effect on the price was enormous.

The day netted out with a 30 basis point loss. There were two big rallies...and one big decline...all about equal in size...but the effects on the precious metals prices during the last decline was out of all proportion to what went on prior to that. Maybe it had something to do with the fact that most of the final decline occurred during the New York trading session, which Ted Butler says is the only market that really matters.

I was amazed to see that the gold shares reacted poorly to all this positive price action yesterday. Not even all the silver stocks joined the party but, on average, did much better than their golden counterparts. Two silver companies in particular were down big...but that was for unrelated reasons...and I'll have the story on that further down. The HUI finished up a smallish 1.30% on the day.

Well, we finally had some delivery action [256 contracts worth] in gold. As I'd pointed out several times, there were still a lot of gold contracts open in the April delivery month. Now some of the shorts have delivered...and surprise, surprise...JPMorgan was the big issuer in its client account...plus the big stopper in its house [proprietary] account. This is a perfect example of the house betting against its own clients. About eight months ago, JPMorgan said it was going to stop all trading in its proprietary [or house] trading account. I've seen no sign that they are doing this. The Bank of Nova Scotia was also a stopper of note.

There was no delivery action in silver...and yesterday's delivery report is well worth checking out for the reasons I mentioned in the previous paragraph...and the link is here.

The GLD ETF showed no change yesterday...and the SLV ETF showed a smallish increase of 146,377 troy ounces.

The U.S. Mint had no sales report...and nothing of consequence happened at the Comex-approved depositories on Wednesday.

Before I post the stories for today, here's a graph of the Gold/Silver Ratio. After yesterday's big gain in silver, it's a new low...and will get much lower before this bull market in the precious metals breathes its last.

¤ Critical Reads

BofA CEO: Owners shouldn't look at home as an asset

Today's first offering is from reader Jack Anderson...and his comment included in his e-mail is a classic..."So, does it follow, that BofA should not look at home mortgages as assets?" Amen to that!

Homeowners may need to look elsewhere for long-term investment returns as housing prices in some areas may not rebound long-term, Bank of America Corp Chief Executive Officer Brian Moynihan said on Tuesday. Moynihan, CEO of the largest U.S. bank, said at a state attorneys general summit that low population growth in some regions of the country indicated that prices might not rise in the wake of the worst financial crisis since the Great Depression.

The story, filed from Charlotte, N.C...is posted over at msnbc.com...and the link is here.

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Moody’s, S&P Caved In to Ratings Pressure From Goldman, UBS Over Mortgages

Today's next item was posted over at Bloomberg on Wednesday...and is courtesy of reader Scott Pluschau. There's nothing in this story that surprises me at all...and it shouldn't surprise you, either.

The world’s two largest bond-ranking companies, both based in New York, made exceptions to rules when bankers asked for better safety ratings on complex mortgage-backed securities, the Senate Permanent Subcommittee on Investigations said yesterday. When Moody’s and S&P changed their assessments of hundreds of those bonds in July 2007, it helped trigger the financial crisis, a U.S. Senate report said.

The story is well worth skimming...and the link is here.

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Deutsche Bank Sold Mortgage-Linked ‘Pigs’ as Market Buckled, Lawmakers Say

Here's Scott's second offering in this column today...and what's in this Bloomberg story should be no surprise, either.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” Michael Lamont, the group’s co-head, said in a Feb. 8, 2007, e-mail about Deutsche Bank’s Gemstone CDO VII Ltd., according to a report released yesterday by the Permanent Subcommittee on Investigations. The Frankfurt-based firm sold $700 million of the instruments, which lost most of their value within 17 months. The link is here.

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Goldman Sachs Chief Blankfein Could Face Criminal Prosecution For Role In Financial Crisis

Here's another man that richly deserves to be in jail for the rest of his life...just like Bernie Madoff.

Goldman Sachs executives deceived clients in order to profit from the brewing financial crisis and then misled Congress when asked to explain their actions, concluded a top lawmaker who led a two-year investigation into Wall Street's role in the meltdown.

Carl Levin, chair of the Senate Permanent Subcommittee on Investigations, will recommend that Goldman executives who testified before his panel, including chairman and chief executive Lloyd Blankfein, be referred to the Justice Department for possible criminal prosecution, the Michigan Democrat announced Wednesday.

This is a Huffington Post article that reader Roy Stephens sent my way...and the link is here.

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Keiser Report: Banking XXX

I don't usually post any videos involving Max Keiser, but Arizona reader Clay Hill sent me this 25:55 minute video which I'll make an exception for...especially considering the previous three stories that I posted.

Max...and his sidekick, Stacy Herbert...take the major banks to task in his usual vitriolic and somewhat profane manner, and they’re right on the money. That takes up the first half of the show. The second half is an interview with Jim Rickards...and for that reason as well, I'm posting this youtube.com video. The James Rickards interview, according to Clay, is pretty much vintage Rickards. The link to all this madness, which is well worth watching, is here. Jim has some very interesting comments on gold as well.

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Fears grow over Greek debt default despite bail-out

Investors' flight from Greek government debt left 10-year bond yields at a new euro lifetime high of over 13pc and yields on two-year bonds at over 18pc, after Wolfgang Schaeuble said "additional steps" could be necessary if the European Central Bank concludes that the country's burden is unsustainable.

It's obvious to me that the debt will have to be restructured...which is another way of saying that the bond holders are going to get some sort of haircut before this is all over.

The story was posted late last night over at The Telegraph...and I thank Roy Stephens for sharing it with us. The link is here.

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Will Silver Surge Following The Nationalization Of Bolivia's Silver Mines By Embattled President Evo Morales?

There sure wasn't much in the way of interesting precious metals news yesterday. However, I did mention earlier in this column that a couple of silver miners got smacked pretty good...and it had nothing to do with anything they did.

If you remember, I ran a story either yesterday or the day before about what Bolivia was up to with their new nature preservation scheme. Well, the word came down yesterday.

The first item on this was sent around by reader U.D. yesterday...and is a piece that was posted over at zerohedge.com yesterday...and the above title is pretty much self-explanatory. The story is a must read from top to bottom...and the link is here.

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Bolivian Protests Dent Silver Production

The following Reuters story was posted over at theaureport.com website on Wednesday...and contains nothing about what was in the above zerohedge.com piece...because none of that news came out until Thursday.

It's a short read...and worth your time as well. I thank Washington state reader S.A. for sharing it with us...and the link is here.

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Extreme Silver Tightness Causing Delivery Problems: Rick Rule

I have one more precious metals story for you today...and that's something that Eric King slid into my in-box about 3:30 a.m.Eastern time this morning. As you can see, it's a Rick Rule blog...and it's all about physical delivery problems in silver.

It's a short read...and the link is here.

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China Property Softening Fuels Gold Demand - JPMorgan

And this story just in at 5:10 a.m. Eastern time...and I thank reader George Findlay for spotting this piece filed from Singapore earlier today...and posted over at the morningstar.co.uk website.

"The slowdown in China's property market, being directed by Beijing to rein in housing affordability issues, is driving gold demand by the country's "mass affluent", argues JP Morgan's China equities and commodities MD Jing Ulrich."

It's a very short must read...and the link is here.

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Gold's volume yesterday was a bit over 150,000 contracts net of all roll-overs. The preliminary open interest number is a staggering 22,034 contracts. As I said in my gold commentary at the top of this column, this rally is not going unopposed by the bullion banks.

Gold's final open interest number for Wednesday's trading day showed a drop of 2,967 contracts. The preliminary o.i. number showed +2,763 contracts...so that was a nice decline. I would suspect that some of this was spill-over from the price action on Tuesday...as Wednesday's price action didn't warrant such a decline.

April's open interest in gold stands at 1,377 contracts...and will be further reduced when the 256 contracts that were posted for delivery on Monday [that I spoke of above] get taken off that total.

Silver's net volume was around 90,000 contracts...and the preliminary open interest number was a very chunky 7,729 contracts. Silver's rally is not going unopposed, either. There's little, if any, signs of short covering going on at the moment. JPMorgan et al are going short against all comers. Without doubt, silver's o.i. number [along with gold's] will be lower when the final numbers are posted at the CME's website later this morning...but it doesn't really matter, because I already know that they're going to ugly no matter what.

Silver's final open interest number for Wednesday's trading day showed a smallish increase of 395 contracts...but this is a huge drop from the preliminary number of +4,259 contracts. I suspect that this is also spill-over from Tuesday's trading day...which wasn't reported in a timely manner...something that the bullion banks are very good at when it suits them. If they had reported it on time, it would be in today's Commitment of Traders report.

The backwardation issue in silver is basically unchanged. The spread between the April 2011 delivery month...and the December 2015 delivery month currently sits at 41 cents.

Well, based on yesterday's price action, the silver shorts will get another margin call this morning...and at US$5,000/contract, it doesn't take long for this to add up to real money. As of the last Commitment of Traders report, there were 143,000 silver contracts held short. Now some of these are spreads, so they don't count...but even if you be generous and take out 53,000 contracts worth of spreads [long one month/short another]...you're still left with 90,000 contracts held naked short. Every time the silver price rises a dollar...the margin calls go out at $5,000/contract. So some of these shorts must be screaming in pain...because they have to cough up real cash to put in the longs' margin accounts.

How long the silver shorts can keep on bleeding cash like this is something that Ted Butler spends a lot of time thinking about. When the shorts finally head for the hills [and it won't take many of them to do it] then you'll see it in the price action immediately. But, so far, there's no sign of it, as this rally has been very orderly to the upside. The day it becomes disorderly, will be the day when you see some of these shorts covering their positions.

Here's a graph that Nick Laird over at sharelynx.com sent me in the wee hours of this morning. It's titled "Cumulative Gold Production vs. World Population"...and shows the number of ounces of gold per person as the population has soared.

Gold and silver were down a bit during Far East trading during their Friday...and recovered back into positive territory by the London open at 8:00 a.m. local time...which is 3:00 a.m. Eastern. Then, shortly after that, both metals came under selling pressure...especially silver. It will be interesting to see what the bullion banks have in store for us when Comex trading begins in New York.

Once again, there's still a little time left [but not too much I would suspect] 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.

Have a good weekend...and I'll see you on Saturday.