Ed Steer this morning

posted on Nov 12, 09 10:20AM

"Everybody Knows That U.S. Gold Reserves Are Leased and Shorted"

The sharp rise in gold and silver prices in Far East and early London trading I spoke of in my closing comments last night, ran out of gas pretty quick. By 9:00 a.m. in London, the gold price had flattened out and stayed that way until the London p.m. fix was in at 3:00 p.m. local time [10:00 a.m. in New York]. In the next half hour, gold tacked on a quick four bucks... but at precisely 10:30 a.m. in New York, someone showed up to sell the price down to its [N.Y.] low of the day at $1,110.80 spot. This is exactly what happened at 10:30 a.m. on Tuesday as well. Check the chart below.

Anyway, once the seller disappeared, gold recovered most of that loss and closed near its high of the day.

But from a global point of view, there is no sign of the biggest gold buyer being evicted from bidding the world market. Horrible news for [the] Bears."….

"As noted last night, early Wednesday morning Vietnam local gold stood at a $57.50 premium to world gold of $1,106.30 [Tuesday $59.37/$1,102]. Subsequently, apparently, the Vietnam gold market went totally berserk and many dealers stopped selling the metal." [Read the details in this must read story posted at vietnamnet.vn headlined "A crazy day for the gold market"... and the link is here. - Ed]

"In the afternoon, the Vietnamese Central Bank announced that legal imports of gold, banned since last May, would once again be permitted." [The link to that story is here.

"Although Vietnamese premiums will now, of course, collapse... this is positive news for gold's friends generally, as it means that the unquestionable appetite for gold in Vietnam will more effectively make itself felt in the world market."…

In the last three or four months, Barrick has gone from easing towards the hedge book exit, to a panic exit of biblical proportions. I'm somewhat disappointed at this turn of events, as I was hoping that they would burn in hell with a full hedge book... but their bullion bank, JPMorgan, must have had other ideas for them. The story is headlined "Barrick Shuts Hedge Book as World Gold Supply Runs Out"…

And lastly, is this blockbuster story from Canada's Globe and Mail yesterday. The author of this particular piece, Fabrice Taylor, is very well known in Canadian business circles. Fabrice is a chartered financial analyst and a financial columnist for this paper. He says in his column that True, the U.S. has a lot of gold... but it's well known in bullion circles that a lot [or most] of it has been lent out to banks and whatnot, that sell it short, The headline reads "A rock-solid case for gold reserves: Like India, the Bank of Canada should rely less on the U.S. dollar and more on gold"... and the link is here.

As for the argument that U.S. dollars are backed by the biggest gold reserves in the world, so holding them in reserve is relatively safe, that's rubbish. True, the U.S. has a lot of gold, 8,100 tonnes of it officially, or 77 per cent of its reserves. But it's well known in bullion circles that a lot or most of it has been lent out to banks and whatnot, that sell it short, depressing its value. - Fabrice Taylor, Globe and Mail, November 11, 2009…

Well, there's been lots of smoke billowing out of the secret world of gold in the last few weeks. The Germans... and now the Canadians... are blowing this whole thing wide open, so it's only a matter of time before the U.S.bullion banks find themselves in some sort of crisis situation... if they aren't there already. How far [and for how long] they can keep kicking the gold and silver cans down the road remains to be seen. But, I would suspect, it won't be for much longer.

In a private letter to his clients yesterday, Ted Butler feels the same way. We both suspect that the days of the market management of the precious metals [and a lot of other things] are numbered.

However, I'm still very concerned about the precious metals share price action... plus the non-confirmation of silver. I feel that both are being held back to make sure that neither confirms the breakout in the gold price. Am I seeing things here, you might ask? Well, I don't think so... especially with the silver price. If this isn't the case, then both have a lot of catching up to do... and fast.