Jesse's Café Américain

The metals action is reminiscent of the other failed option expiration stuffing that backfired on the bears as we had noted last week. The difference is that silver has relinquished its leadership role to gold at least for today.

A whiff of cordite has caused gold and stocks and to some extent silver to diverge today significantly, but tomorrow is another day. The call holders will convert to futures and their positions, leverage and will to hold them might be tested.

These markets are riddled with control frauds, but they are the works of men. So while they can be oppressive, they are hardly omnipotent.

“Jesse” sees gold going to $1376, then a quick retrace, then on to $1455.

Excerpts from MIDAS:

*The real reason gold rose today is that physical market demand is overpowering the bums’ ability to keep the price from taking off. There are just too many reasons to own gold and silver at this point in time.

*As you know, today was option expiration for both gold and silver. Gold was hopeless, so The Gold Cartel and other dealers did what they could to keep silver from really taking off and making the pain much worse.

*For gold and silver to do what they did today on an option expiration is yet another sign The Gold Cartel is in deep trouble.

*A flurry of off the record information has come my way in the last 24 hours that suggests we are going to see gold/silver DELIVERY problems in the months ahead. The "S" is gradually hitting the fan, as long predicted by The GATA camp. The panic will be particularly acute in silver.

The COT was set up for the cartel to maximize their put/call profits by taking gold below 1350 and silver below 27. They didn't count on gold/silver moving in the opposite direction for the stock market today, that's for sure, because the metals were very highly correlated with stocks since last Wednesday mid-day until yesterday.

I will say, depending on how many in the money calls actually get exercised, the cartel may try to lean heavily on the metals the rest of this week, especially since we are in the contract "roll" period right now and there' s a lot open gold o/i that has to roll out of December by next Monday's close (or take delivery). They did pulled off this stunt in August after that options expiry, as I recall.

…geopolitical scares like this morning’s Korean news are usually extremely quickly digested by gold. It looks like Jim Sinclair’s ruminations last night were correct: the shorts are worried.

…another day closer to when gold/silver and the shares become THE GO TO investment play around the world. World stock markets are on shaky ground. The US bond market is a bomb waiting to go off as inflation concerns accelerate in America, and our real estate market is in a deep hole which will take some time to get out of. The stock, bond market, and real estate issues are prevalent all over the western investment world.

Meanwhile, back at the ranch, the tiny gold and silver markets continue to gain favor. It is still hard for investors to fathom the prices of gold and silver soaring from here, something GATA supporters and Café members take for granted. The perception will change, and is changing, as the need to find very profitable gold and silver will take center stage. One day the shares of the junior/exploration sector will explode, never to look back for a very long time.

Jim Sinclair

Thought For The Evening

Gold continues to act out of sync with its normal motivators.

Reports indicate that South Korea shot first. International tensions have not had a major impact on gold in the past year, yet gold held the majority of its upside today.

This is the third trading day that gold has managed the shake off normal market detractions. I find that interesting.

What’s Behind The Gold and Silver ETFs?
CIGA Eric

ETF products hold nine years of global, not US as suggested below, mine supply. How much 1285.08 tonnes current holdings represent physical gold? The legal wording of the GLD prospectus should present signficant clues for investors.

There are no assurances that the gold bar exist until added to the account of HSBC custodian or subcustodians. Then the prospectus clearly states that if the subcustodian(s) do not have the gold, Trustee cannot be assured that they will be able to recover any damages from them.

Under the Allocated Bullion Account Agreement, except for an obligation on the part of the Custodian to use commercially reasonable efforts to obtain delivery of the Trust’s gold bars from any subcustodians appointed by the Custodian, the Custodian is not liable for the acts or omissions of its subcustodians unless the selection of such subcustodians was made negligently or in bad faith.

Basically, shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians or any losses relating to the safekeeping of gold by such subcustodian.

Then the legal speak takes it a step further by suggesting that neither Trustee or Custodian really knows the activities or holdings of the subcustodians.

Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may temporarily hold the Trust’s gold bars until transported to the Custodian’s London vault, failure by the subcustodians to exercise due care in the safekeeping of the Trust’s gold bars could result in a loss to the Trust.

When the objective of the fund is to track the price of gold, does it really have to own any gold to do it? No.

Meanwhile, the theoretical gold supply held by the gold ETF(s) continue to soar as money seeking an easy way to track the price of gold finds an easy solution. This game of musical chair will play until holders of baskets (100,000 shares or more) demand payment in gold. The music could very well stop when this happens.

Exchange-traded products own 2,088 metric tons, equal to nine years of U.S. mine supply, data compiled by Bloomberg show.