Ed Steer's Gold & Silver Daily

07/31/2009

I wouldn't read a lot into Thursday's trading action. Most of the movement was dollar related, as the buck started to roll over yesterday...and both gold and silver reacted accordingly. But whenever either metal showed just a little too much "irrational exuberance" to the upside, there was someone there to sell the rally down...with the most obvious time coming at the close of trading in London yesterday...4:00 p.m. their time...and 11:00 a.m. in New York. The usual N.Y. gold commentator said that "volume was only 89,394 contracts...only a third of the previous two days."

For Wednesday, gold open interest fell a very large 13,688 contracts to 372,652...on another monstrous volume day...238,587 contracts. Without a doubt, most of this decline was a carry-over from Tuesday's price hammering...as gold was down less than one percent on Wednesday. The bullion banks didn't report all their data in a timely manner. Some would say they do this deliberately...and I'm one of them. Because of it, the Commitment of Traders today won't show all the improvement it should...and as I said earlier this week...because of that, options expiry yesterday and end-of-month window dressing...we won't get an accurate gold [or silver, for that matter] o.i. number until the COT report on August 7th. I think that's a deliberate strategy by the bullion banks. Talking about silver...it's o.i was actually up 1,021 contracts. JPMorgan et al are doing a beautiful job of covering their silver short positions [or going long]...and then covering their tracks with spreads. For that reason, I'm far more interested in the silver o.i. numbers today than I am gold's. So is Ted.

The Comex Delivery Report for Thursday showed that no gold contracts were delivered but 28 silver contracts were. Thursday was the last delivery day for the July contract. In total...817 gold contracts [81,700 ounces] were delivered in July. In silver it was 3,942 contracts...which is a hair under 20 million ounces. There were no changes in the alleged holdings of either GLD or SLV yesterday. The U.S. Mint didn't report any further mintings yesterday...and I don't think they will today either. If they don't, the totals for July are as follows: one-ounce gold eagles...77,000; one ounce silver eagles...2,585,000. If there are any further additions reported by the U.S. mint, I'll report on it on Saturday. Over at the Comex-approved warehouses, another 487,759 ounces were withdrawn.

The usual N.Y. gold commentator had the following to report yesterday...and early this morning..."The heavy selling which drove August gold down $11.90 yesterday involved 238,587 contracts traded: 14.1% above the estimate. Open interest plummeted 13,676 contracts [42.5 tonnes or 3.5%] to 372,664 contracts. After the June 2nd $980 high...open interest bottomed at 370,347 lots on June 23rd. So it would appear that the excitement of this week has been primarily the exit of a large spec, frustrated [or alarmed] by gold's inability to break through the mid $950s last week. [This was] very profitable for the Bears." [Bears means bullion banks. - Ed]

"Reuters quoted the head of the Bombay Bullion Association this morning saying that Indian gold imports so far in July were 8-10 tonnes...down from 24 tonnes last July. Rupee gold prices are some 20% higher. Another Reuters story reports that Vietnam gold imports in Q2 were about 20 tonnes [all smuggled]. That represents a big swing from Q1 when over 80 tonnes were thought to have been exported."

"With open interest down 21,965 lots in just two days...68.3 tonnes, or 5.6%...and returning to the late June lows, gold's friends may be thinking that the storm has passed."

In other gold news, I note in a story over at mineweb.com that AngloGold has reduced its hedge book by a rather large 1.4 million ounces...bringing its hedge book down to "well below a single year's gold production." That's quite an accomplishment considering where they were about a decade ago. The link to the story [which is well worth the read] is here.

My first offering of the day is a story from rasmussenreport.com. They did a telephone survey and found "that 75% of Americans favour auditing the Federal reserve and making the results available to the public." The link to the story is here.

Next is a Reuters story that "bonuses paid to executives at nine banks that received U.S. government bailout money in 2008 were greater than net income at some of the banks..." For instance..."Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses, and received $10 billion in TARP funding." The list goes on and on...and you can read all the sordid details in the story headlined "Some U.S. bank pay "unmoored" from performance: Cuomo"...and the link is here.

The next story I lifted from this morning's King Report. It's a story from the Association of American Railroads, where they report that "freight rail traffic remains down this week." It also reports on Canadian and Mexican rail traffic..for the week, for the year...and year over year. It doesn't make for happy reading. Bill King commented on the story by saying this..."The evidence is crystal clear. The Dow Jones Transportation Average is severely detached from reality, perhaps by a record degree..." and the link to the story [well worth reading] is here.

And lastly, while we're on the subject of transportation, here's a story from The Economist over in London. It's entitled "Shipping in the downturn: Sea of Troubles"..."The recession is buffeting the world of shipping...with even rougher waters ahead" This story...and the prior one...state clearly that all this talk of "green shoots" is a crock! I thank P.S. for this article...and the link is here.



No currency can hold up in the face of an economy that survives on borrowed money and debt. - Richard Russell

So...what might happen today? Well, the new GDP numbers come out. Will 'da boyz' hit gold on this data like they always do for the jobs report? Don't know. The usual N.Y. commentator feels that the coast may be clear...but the bullion banks just covered the 21,000 odd contracts that they went short the previous week. As of this writing, the net short position by the U.S. bullion banks is still around 18.5 million ounces of gold. An improvement, yes...but I'm not celebrating just yet.

But what you should have both eyes on right now is silver. Quietly, and without fanfare, JPMorgan et al are heading for the exits...and have been since the commodity 'crash' that started in early July of 2008. Even though the Commitment of Traders report won't show it today...the net short position held by the 'four or less' bullion banks is back to levels not seen since the bottom in October of last year when the silver price was around $8.25 the ounce. Something is definitely up...and if JPMorgan doesn't show up on the short side of the next rally...the price move to the up-side will be something to behold.




I hope you have a great weekend...and I'll see you here tomorrow.