Follow the Money: Eric Sprott

Gold rose about ten dollars between the Far East open and the London a.m. gold fix at 10:30 a.m. local time...which is 5:30 a.m. Eastern. From there, it didn't do much...but stayed above the $1,500 level until about 11:45 a.m. in New York, before getting sold off about eleven bucks.

The selling pressure disappeared at 1:15 p.m. Eastern time...and gold slowly recovered to close a few bucks over the magic $1,500 spot mark. Volume was decent.

Silver was up about seventy cents by the time that the London p.m. gold fix was in at 10:00 a.m. in New York...and from there it rose another seventy cents in two hours before getting sold off a hair.

Then a bullion bank [probably JPMorgan] pulled their bids a few minutes before 1:00 p.m. Eastern...and silver was down about $1.10 in twenty minutes. Once a bid showed up, silver quickly recovered...and was back over $45 the ounce in no time.

I must admit that I was surprised to see this price action, but reader Scott Pluschau, who is a big-time commodities trader, came up with the perfect explanation. With silver about to close the Comex trading session up over a dollar, the margin calls would have gone out to the shorts once again...and this bear raid prevented that from happening, as it ended just minutes before the Comex close...and silver closed the Comex session up less than a dollar from Friday's close.

Is this illegal? You betcha! Is the CFTC, the CME...or the silver mining companies that we, the investor supposedly own...going to lift a finger in protest? Not bloody likely.

Volume was off-the-chart monstrous again.

Since its zenith at 11:00 a.m. Eastern time on Monday, the dollar has been only going in one direction...and that's down...almost 2% since Monday. Wednesday's price action is typical. Here's the 3-day dollar chart, which needs no further comment from me.

A lot of commentators have said that the price action of the precious metals is entirely related to the decline of the dollar. Well, we've certainly seen lots of examples where that just ain't so, but I would say that it was certainly true in the last couple of days. But, as I said yesterday...and a few other times in the last week, the price rise in silver is almost entirely a short-covering rally as the bullion banks, led by JPMorgan, are heading for the hills.

The gold stocks didn't do a lot...for the simple reason that the gold price didn't do much yesterday...and the small sell-off in the gold price between noon and the Comex close at 1:30 p.m. Eastern took away half the gains, with the HUI finishing up only 0.82%.

With some notable exceptions, the silver stocks did much better, but finished nowhere near their respective highs after JPMorgan pulled their bids in the futures market just before the Comex close.

Nick Laird's "Silver Sentiment" chart is still well off its highs...even though the silver price is many dollars higher. As I said, all the top-callers in the silver [and gold] market are scaring the living daylights out of most silver stock holders, because they just don't understand the real forces that are currently driving the silver market.

The CME's Daily Delivery Report was almost a bust, as only 1 gold and 2 silver contracts were posted for delivery on Monday, April 25th...so it's obvious that Easter Monday is not a holiday for the CME.

There were no reported changes over at GLD yesterday...but the SLV took in another big chunk of silver. This time it was 2,146,716 troy ounces. In the last two days they've added 4.5 million ounces...with lots more to come.

The U.S. Mint had no report on Wednesday.

The Comex-approved warehouses did not receive any silver on Tuesday...but reported shipping out a smallish 120,399 ounces of the stuff. The big event was a switch of a large amount of silver from the registered category, to the eligible category over at Scotia Mocatta...5,287,142 troy ounces to be exact.

It's tempting to read something into this, but I don't think it's any big deal. If it is, none us will ever be privy to that information. The footnote at the bottom of the report states the following..."Due to a reporting reclassification...5,287,142 troy ounces was moved from Registered to Eligible." If you want to read something into that, please be my guest. This sort of thing happens frequently...it's just that this is a particularly large amount. The link to that action is here.

Here's an interesting graph that Nick Laird over at sharelynx.com just sent me. It's entitled "COMEX Silver - 200 Day Moving Average Deviation". I guess you have to ask yourself whether history will repeat itself this time...and I would think we'll find out the answer to that question very soon.

Well, the Central Bank of the Russian Federation reported their March gold purchases yesterday...and they bought 600,000 ounces...which brings their 'official' holdings up to 26.1 million ounces. Once again Nick Laird provides the graph.

Reader Charlie Savoie had a very interesting comment about 'junk' silver coins yesterday, which I 100% agree with...and it's worth sharing here..."Up until now, anyone who deals or invests in 90% coin, or the 80% Canadian series, has done so based on mere piece count of the coins per bag or half bag. With the zoom in silver rates, we should start seeing bags sold by weight not merely face value.

The first bag of quarters I bought had too many heavily worn dates. It took a stack of 50 worn coins to match height of stack of 37 coins without wear...yet I was charged the same rate. The value being mainly the metal content rather than specific lower mintage dates...and this becomes a bad deal for silver investors---or dealers. A bag of USA coins is said to typically be 715 oz, down about 8.3 ounces net from original condition.

Bags with many worn coins could contain under 700 ounces. I’ve heard of them being as low as 659.7 oz. Even bags averaging 705 oz, the buyer is getting 10 oz less than the 715’s---a difference approaching $500 in value.

With silver prices skyrocketing, it wouldn't surprise Charlie if the dealers start buying this stuff by weight, rather than by coin count.

I agree totally with this assessment...so be prepared for that eventuality.

Here's a paragraph from silver analyst Ted Butler's private note to clients yesterday..."The facts still suggest higher silver prices, although sharp sell-offs must be expected...whether they are realized or not. [Emphasis mine. - Ed] The facts still point to silver greatly outperforming gold. Therefore, it still looks like the switch from gold to silver is a go. The facts still strongly suggest that silver should be held until three critical factors are played out...or clearly in force. The three critical factors are: widespread silver investment, the dissipation of the concentrated silver short position...and the coming silver industrial user inventory buying panic."

And lastly, my bullion dealer told me on the phone yesterday that he had another huge day at the store, with buyers everywhere. His main silver bullion supplier...one of the three biggest bullion dealers in the USA...advised him yesterday that they were no longer taking orders for 1-ounce rounds or 10-ounce bars...the two most popular sizes. On Monday they told him that new deliveries were extended to six weeks. Two days later, they weren't taking orders.

I have a fair number of stories today...and most of them are precious metals-related in one form or another.

¤ Critical Reads

Leader of Big Mortgage Lender Guilty of $2.9 Billion Fraud

Here's a story that reader Phil Barlett sent my way yesterday that was posted in the Tuesday edition of The New York Times.

The founder of what was once one of the nation’s largest mortgage lenders was convicted of fraud on Tuesday for masterminding a scheme that cheated investors and the government out of billions of dollars. It is one of the few successful prosecutions to come out of the financial crisis.

Let's hope the prosecutions don't stop any time soon. It's not an overly long piece...and is definitely worth your while...and the link is here.

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Bernanke May Reinvest Maturing Debt to Avoid ‘Cold Turkey’ End to Stimulus

Here's a story that's no surprise to me...and certainly shouldn't be for you. This is something that Jim Rickards has been talking about for months in his King World News interviews...but now it's finally making an appearance in the main-stream press. This is Q.E.3 in another form.

I thank Washington state reader S.A. for sharing this Bloomberg piece...and the link is here.

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Jim Rogers Comments On Triple Digit Silver And Issues Warning: "Parabolic Moves Always Collapse"

Rogers had some words of caution for silver bulls: "If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet. I hope something stops it going up in the foreseeable future and we have a correction."

I don't know about you, dear reader, but that triple digit silver price can't get here soon enough for me. I thank reader Peter Handley for sending me this story...and the link to this must read zerohedge.com piece is here.

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University Of Texas Fund CEO Shares His Views On Gold, Explains Why He Took Delivery Of $1 Billion In The Precious Metal

Here's Phil Barlett's second offering in this column. It's another zerohedge.com story...and the title pretty much says it all. The preamble is worth the read...and the 6:26 minute CNBC video is well worth watching...and the link is here.

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Bolivia's Plan to Nationalize Mines Hits Snag

Washington state reader S.A. sent me this next story, which was in yesterday's edition of The Wall Street Journal. It's subscriber protected...but the two paragraphs and change that does show up, tells you all you need to know. It's a 30-second must read...and the link is here.

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CNBC Interview with Nick Barisheff of Bullion Management Group

In this 3:15 minute interview with Mark Haines on CNBC yesterday, Nick explains the fundamental differences between a precious metals exchange traded fund and an open-ended mutual fund. This short interview is a must watch...and the link is here.

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Interview: Jim Sinclair on Gold and the World Financial System

Here's a very interesting commentary from Jim Sinclair that showed up as a GATA release earlier today. There's nothing in here that hasn't been said before, but Jim says it so well and so clearly, that it's worth your time to read it.

I thank Alberta reader B.E.O. for sending me this piece that's posted over at the goldseek.com website...and the link is here.

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Embry and Turk bullish, Moriarty bearish on silver

Here's a 3-in-1 blog set for you...all posted in a single GATA release that came out last evening. Chris Powell has already wordsmithed the preambles for each blog...so it saves me valuable time.

It's no secret or surprise that John Embry and James Turk are fully in the precious metals price management camp...and have been since day one. At the other end of the spectrum is Bob Moriarity...who says the entire price management scheme is horse manure...and won't give GATA's 12-year body of work in gold, or Ted Butler's 25-year body of work in silver, the time of day.

History will decide who is right.

All three of these blogs are very much worth your time...as are Chris Powell's preambles...and the link to the GATA release is here.

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In the Bunker at JP Morgan: Rated PG13

Here's another hilarious spoof from Hitler's bunker...this one's about JPMorgan and their desperate situation in the silver market. This was 'X' rated yesterday...but reader Todd Hegemier was kind enough to change the really naughty words in order to get it past the censor [me] who then revised it to a PG13 rating. It runs for 3:51 minutes...and it's a hoot! The link is here.

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Gold, Silver: Must Holdings

Here is John Embry's latest essay that was posted in the March edition of the Investor's Digest of Canada. In case you've forgotten, John Embry is chief investment strategist at Sprott Asset Management in Toronto.

It will take you about five minutes to run through this...but it's worth the read...and the link to the pdf file is here...and I thank Australian reader Wesley Legrand for bringing it to my attention.

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Follow the Money: Eric Sprott & Andrew Morris

This months' Markets at a Glance commentary from Sprott Asset Management is all about silver.

Eric and Andrew conclude their short essay with the following comment..."Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower.

I didn't see Ted Butler's name in here anywhere, but virtually everything in this commentary was in one of his weekly essays to subscribers about a month ago.

This is a must read...and the link is here.

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It's obvious that the majority of investors continue to view the dollar as a safe holding. Today, there's only one safe holding, bullion coins held tightly in your fist. This assumes that your other hand holds a Colt '45 automatic, loaded, cocked and ready. - Richard Russell, April 18, 2011

Gold volume was pretty decent yesterday...a little over 140,000 contracts net of all roll-overs. The preliminary open interest number is up a rather chunky 7,552 contracts...but it's always the final number that matters...and in some cases even that doesn't help. The numbers in the Commitment of Traders report are the last word on everything...and what happened yesterday [Wednesday] won't show up until next Friday's COT.

Tuesday's final open interest number in gold showed a decline of 992 contracts, which was nice to see considering the preliminary number showed an increase of 4,766 contracts.

April open interest in gold is now down to 600 contracts left to be delivered...and I doubt that delivery will be a problem, so this will be my last comment on this unless the situation changes drastically between now and the end of the month.

Silver volume was exceptionally heavy yesterday...around 118,000 contracts net...as the frantic action in the silver futures market continues unabated. The preliminary open interest number was a very chunky 4,836 contract increase...and the final open interest number in both metals will be something I'll be checking carefully later this morning.

Silver's final open interest number for Tuesday's trading day came in at +1,178 contracts...which was a vast improvement over the preliminary number, which was 5,400 contracts. These final open interest numbers for Tuesday's trading day will be in tomorrow's COT report...and that report will be an education. Both Ted and myself are chomping at the bit to see it.

The silver backwardation situation tightened a bit more yesterday, as most premiums in the nearer delivery months are now under two cents. But the total backwardation is unchanged from Tuesday...and sits at fifty-seven cents. As I've said a few times, I don't know if these numbers mean much...and Ted Butler doesn't think that they do. We'll find out, as they say, in the fullness of time.

Here's another chart that's courtesy of Nick Laird. This one is titled "EBay 1oz Silver Eagle - Base Price Average"...and it's pretty much self-explanatory.

As of 4:53 a.m. Eastern time...gold is up about five bucks...and the silver price is a hair under $46...after breaking through that price barrier late in the Far East trading day...and about an hour before London opened. Gold volume is nothing special...but silver volume is already very heavy, even when the roll-overs are subtracted from the total.

But the question on everyone's mind is whether or not gold and silver are going to get sold off from here. That question can only be answered by JPMorgan and friends...and they aren't talking. Everyone is as nervous as a long-tailed cat in a room full of rocking chairs...and the precious metals shares certainly reflect that angst. All we can do is wait it out. I'm still 'all in'...and that's been my investment strategy for the last ten years. I have no plans on changing it.

I suspect that Comex trading today will prove to be an education once again.

See you on Friday.