Nothing to Fear From a Gold Price Pullback - It's Still a Bull Market - Frank Holmes

Gold got sold off below $1,500 shortly after trading began in the Far East on Tuesday morning, but managed to crawl back above that mark shortly before London opened yesterday morning. The price sat around the $1,505 spot mark until ten minutes after Comex trading began in New York.

From that point, the selling pressure began anew...and, for the second day in a row, the gold price got sold off starting at 9:30 a.m. Eastern when the equity markets opened for the day. By 10:15 a.m. gold was down to its low of the day.

Once the selling pressure disappeared, gold popped back above the $1,500 mark...and remained there. Then there was a tiny rally into the close of electronic trading...and the gold price closed within a whisker of Monday's close...and Friday's close.

This is the second or third time this year that there have been wild daily swings in prices, only to see the close of the day finish within dimes or a dollar of each other. I have no idea what it means...but maybe the boys over at JPMorgan get some sort of prize for doing this. Volume was pretty decent.

Silver was under pressure right from the open in Far East trading...with the absolute low of the day coming during the lunch hour in Hong Kong. From there, the price pattern was very similar to gold's. Without doubt, the New York bullion banks were active in the silver market all around the world via the Globex trading system yesterday...just as they were on Monday. And, not surprisingly, volume was heavy once again, but not as heavy as Monday.

When the trading day was over...gold was down 0.02%, platinum was down 0.72%...and palladium was down 0.27%. Silver was down 2.94% at the close...and at it's absolute low in early Far East trading yesterday, it was down a hair over 5 percent. As you can tell, the last two trading days have been all about silver.

The dollar rose about 30 basis points early in the Far East trading day and stayed up until 7:00 a.m. in London, before falling back below 74 cents three hours later. From there, the dollar made a few weak attempts to get back above that price, but couldn't make it...and closed virtually on its low of the day around 73.88. Obviously whatever gyrations the dollar went through yesterday were irrelevant to gold and silver...as the precious metals prices were being driven by the shenanigans of the bullion banks.

Gold's low price is easy to spot at 10:15 a.m. on the HUI...and the subsequent rally. Then the gold stocks slowly got sold off...not helped at all by the gains being posted in the general equity markets. However, a bit of a rally into the close cut the days loses by a bit...and the HUI only closed down 1.08%.

And, with the odd exception, the silver stocks got smacked once again...which is no surprise considering that the white metal was still down two bucks when the equity markets closed yesterday...but they did not close on their absolute lows of the day.

What we saw yesterday [and Monday] was weak hands selling to strong hands. The weak hands will be buying back their shares [if they re-enter the silver market at all] at much higher prices than they sold them at. As the old timers [like Richard Russell] say...a bull market will make every attempt to shake people off...and only the very strong and disciplined investor will have the courage to ride this bull market all the way to the top. I plan to be one of them.

Well, I see that the margin requirements for silver were raised by $1,080 per contract to $12,825 as of the close of business yesterday. Normally margins are raised as prices are rising, which is the way it should be done. The last few increases in silver margins have occurred after the silver price has been hit hard. Ted Butler says that this helps the shorts...to the detriment of the longs. As you can see...the CME and the NYMEX are out there to protect the short holder...not to create a level playing field. And any advantage this gave to the short holders on the Comex has already been factored into the market...and has no long-term effect.

The CME's Daily Deliver Report yesterday showed that 197 gold contracts, along with 47 silver contracts, were posted for delivery on Thursday. Once again, JPMorgan was the big issuer in its client account [169 contracts]...and the big stopper [135 contracts] in its house account. It was also the biggest issuer in silver as well. The link to the action, which is worth a quick look, is here.

The GLD ETF showed no changes on Tuesday...but it was an entirely different story over at the SLV ETF. On Monday they reported receiving 7.8 million ounces of silver...but yesterday they reported a withdrawal of 4,439,517 troy ounces. I doubt very much whether this withdrawal had anything to do with the price activity during the last couple of days, as SLV is still owed many millions of ounces of silver. One of the authorized participants obviously needed this silver elsewhere.

The U.S. Mint had a big sales report yesterday. They sold 20,000 ounces of gold eagles...3,500 one-ounce 24K gold buffaloes...along with a very chunky 718,000 silver eagles. Month-to-date the mint has sold 87,500 ounces of gold eagles...17,000 one-ounce 24K gold buffaloes...and 2,819,000 silver eagles. We'll probably get at least one more sales report from the mint before the month end.

The action over at the Comex-approved depositories on Monday involved a very tiny amount of silver...and is not worth mentioning.

It was wall-to-wall people at my bullion dealer's store yesterday after the Easter long weekend...as the 'buy the dips' crowd was out in force. There were a lot of first-time silver buyers just waiting for this drop in price to make their purchases. Except for 100-ounce bars, which are available on a 30-day delivery...delivery times on everything else is 8-16 weeks.

¤ Critical Reads

IMF bombshell: Age of America nears end

Thankfully, I don't have a lot of stories today. The first offering is one that I snatched from yesterday's King Report.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe said two weeks ago, “We are witnessing the end of America’s economic hegemony.”

This marketwatch.com story is a short read...but a must read...and the link is here.

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Central banks pump £3 trillion into world economy

Here's a story from yesterday's edition of The Telegraph that reader Roy Stephens sent me last evening.

The world's central banks have pumped £3 trillion into the global financial system since the crisis, the equivalent of 8 percent of the world economy, according to new analysis by Fathom Consulting. Erik Britton, a director at Fathom, compared the development to throwing lighter fuel on a barbecue. The question is, he said, "whether the coals are lit".

The figures will intensify fears that the extraordinary injection of liquidity is responsible for rising stock markets, rather than any underlying pick-up in corporate health or investor confidence.

Of course, this is precisely what's happening, dear reader. As all the world's central bankers know...it's inflate, or die. Once the liquidity stops flowing, the deflationary collapse begins. This rather short story is also very much worth the read...and the link is here.

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France and Italy in call to close EU borders in wake of Arab protests

France and Italy have thrown down the gauntlet over Europe's system of passport-free travel, saying a crisis of immigration sparked by the Arab spring was calling into question the borderless regime enjoyed by more than 400 million people in 25 countries.

This is Roy's last offering today...and it was posted in The Guardian yesterday. It's a very interesting read...and the link is here.

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Monetary Reform: The Key to Spending Restraint

Here's an op-ed piece that appeared in yesterday's edition of The Wall Street Journal. I'm posting it as a GATA release because it's subscriber protected...but Chris Powell was kind enough to post it in the clear late last night.

The problem is simple. Because of the official reserve currency status of the dollar, combined with discretionary new Federal Reserve and foreign central bank credit, the federal government is always able to finance the Treasury deficit, even though net national savings are insufficient for the purpose.

The solution to the problem is equally simple.

First, to limit Fed discretion, the dollar must be made convertible to a weight unit of gold by congressional statute -- at a price that preserves the level of nominal wages in order to avoid the threat of deflation.

Second, the government must at the same time be prohibited from financing its deficit at the Fed or in the banks -- both at home or abroad.

Third, only in the free market for true savings -- undisguised by inflationary new Federal Reserve money and banking system credit -- will interest rates signal to voters the consequences of growing federal government deficits.

The whole story is not overly long...but definitely worth your time...and the link to the GATA release is here.

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Nothing to fear from a gold price pullback - it's still a bull market - Holmes

Here's commentary posted over at the mineweb.com that was sent to me by reader George Findlay. It's a piece by my friend Frank Holmes. Frank is CEO and Chief Investment Officer at U.S. Global Investors...and has been a speaker at every gold conference I've ever been to...and I've been to quite a few.

Frank says that gold is still only midway through what is seen as a 20-year bull market...and any price pullback should be seen as a buying opportunity. The same goes for silver.

I, of course, agree totally...and the link to this must read article is here.

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Should gold bugs fear dollar’s revenge?

This next story was posted over at marketwatch.com yesterday...and is courtesy of reader Nitin Agrawal.

Many believe that the dollar and gold are enemies...but market analyst Mark Hulbert has done his homework and has concluded that..."Only a minority of gold’s recent rally can be attributed to weakness in the dollar. That means that, while unexpected dollar strength will likely cause some weakness in gold, such strength is not likely, by itself, to cause gold’s bull market to come to an end."

As you are more than aware from my daily musings on the dollar vs. the gold price, 'da boyz' at times use the dollar as a smoke screen to hide their nefarious activities in the precious metal markets...and sometimes [most times, actually...with yesterday being a case in point] there is no co-relation at all.

I consider this short commentary well worth your time...and the link is here.

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Jay Taylor's interview with GATA's Chris Powell

As any daily reader of this column is more than aware, I 'borrow' a lot of material from Chris Powell's GATA dispatches...as it saves me a lot of time. Why should I do all the heavy lifting if Chris has already done it for me?

Chris Powell is GATA's secretary treasurer...and in his day job, he's managing editor at the Journal Enquirer in Manchester, Connecticut.

It's a very long must listen interview headlined "Have You Seen Our Gold?"...so top up your coffee and then click here.

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What I have tried to convey is that it’s not just the amount of money the silver option sellers have lost...and how quickly that has come to pass...but also the emotional state they must be in presently. After twenty years of everything going their way, it’s a rude awakening that has befallen them. It's this emotional state that greatly raises the risk of a melt-up in silver prices. Make no mistake – silver call option sellers are silver short sellers, whether they considered themselves that or not. To repeat – the financial and emotional stress to these short sellers is such that it increases the odds of a silver price explosion. - silver analyst Ted Butler, 23 April 2011

Gold's preliminary volume number for Tuesday showed around 135,000 contracts net of roll-overs were traded. The preliminary open interest number showed an increase of 7,609 contracts and, without doubt, this number will be considerably reduced when the final figures is posted later this a.m.

Gold's final open interest change for Monday's trading day showed a decline of 1,411 contracts...which was a vast improvement over the +5,249 contracts that was reported as a preliminary number.

As I mentioned at the top of this column, it was another monster volume day in silver...but a lot of it was roll-overs out of the May contract...and into the next delivery month, which is July. Once all this is removed from the gross volume figure...the net amount adds up to just over 75,000 contracts. And I was delighted with the preliminary open interest number, which showed an increase of only 663 contracts, so the final number later this morning should show a rather large decline.

Silver's final open interest number for Monday showed another big increase. This time open interest rose by 3,046 contracts. It's a huge improvement over the 12,192 contract number that was in the preliminary report...but I'm underwhelmed. Since its peak early Monday morning New York time, silver has declined about $5.50...and I'm hopeful that the final o.i. number for silver reported this morning will fully reflect that fact...and that the bullion banks [JPMorgan in particular] will have reported everything in a timely manner.

Whatever the final open interest numbers in both gold and silver that are posted on the CME's website later this morning, they will be in Friday's Commitment of Traders report.

The preliminary report also showed that May's open interest in silver only declined by 6,303 contracts yesterday...and there are a huge 34,705 contracts still open...all of which has to be rolled over [except those standing for delivery] by the end of Thursday trading...as Friday is First Day Notice for delivery into the May silver contract. I expect that the final number posted this morning will show a precipitous decline in May o.i...but I was expecting that yesterday as well...and it didn't happen.

Once again April net open interest in silver rose...this time by 31 contracts. As I said yesterday, why can't they just wait until First Day Notice on Friday...and take delivery in May like everyone else?

There were no significant changes in the silver backwardation situation yesterday...although the premiums have declined by a few pennies in the far months.

In case you haven't figured it out already...this price adjustment in the precious metals that we've seen over the last couple of days is mostly about silver...as gold has traded in less than a 2% range since Monday...and silver has traded down over 10% at times.

Here's the 1-year silver chart. It will be interesting to see how this chart looks by Friday. It would take a yeoman's effort on part of the bullion banks to get silver all the way down to its 50-day moving average...but that may be their target...and it's a quickly-rising moving target as well. It remains to be seen if they can get enough tech fund long liquidation to reach that price. We shall find out in the fullness of time.

I note that after trading a bit higher in early Far East action...both silver an gold are under a bit of selling pressure going into the London open. Gold is basically flat...and silver is down about a dime as I hit the 'send' button at 4:55 a.m. Eastern. Volume in gold is very light...and the volume in silver is heavy, but once the roll-overs from May are subtracted, there's almost no volume worth mentioning. As I said above, we're going to see some precipitous declines in May open interest during the next three days...and it's happening as I write these words.

Today, the FOMC meeting concludes...and Bernanke speaks. I would expect some 'reaction' from the precious metals when "Helicopter" Ben opens his mouth...and I wouldn't be surprised if JPMorgan et al are waiting for that moment to arrive, so they can pound silver and gold one more time. Of course the opposite could happen...and that's the option I would prefer, even though I expect the former.

Before closing, I'd like to point out that Casey Research is having a Summit Meeting in Boca Raton, Florida from April 29th to May 1st. All 300 available spots for The Next Few Years: A Casey Research Summit sold out in just 27 days – faster than any previous Casey Research summit. But even if you missed getting a spot for yourself, you still have a chance to listen in on what our world-class faculty has to say.

Until May 1st Casey Research is offering the complete audio collection of this conference for US$295...but on May 2nd, the day after the conference concludes, the price rises to US$395.

You can read all about it by clicking here.

I expect another wild trading day in both silver and gold again today...with most of the emphasis on silver.

See you Thursday.