Ed Steer's Gold and Silver Daily

In Far East and European trading, gold meandered back and forth across the $1,000 mark until shortly after the Comex open in New York. From there, some serious buyers showed up and the price was quickly over $1,010... and heading much higher. But the moment that the London gold fix was in at 3:00 p.m. in London [10:00 a.m. in New York], one or more of the U.S. bullion banks showed up, and that was it for the day. But, despite that, gold had its highest weekly close in history... even though the shares did not show up for the party... selling off sharply once it was obvious that 'da boyz' weren't going to allow the price to go anywhere.

Silver rose in Sydney trading, with the peak price coming right at the Sydney close. From there it sank slowly until the end of Hong Kong trading. Then silver rose a bit, and the price action got more energetic after the Comex open, but every time silver stuck its head above $17... it got smacked. It was obvious that there was a heavy hand in the silver market as well. Silver's peak price was $17.02 on the spot market.

The open interest numbers for Thursday's small drop in price, showed an equally small drop in o.i. for gold... down a smallish 1,113 contracts. Open interest is now a huge 457,715 contracts, and yesterday's volume was a large 147,710 contracts. However, silver's o.i went the other way by a huge amount... up an eye-watering 3,413 contracts to 121,162... on volume of 32,622 contracts. I'm not even going to try and analyze this dichotomy as the situation is now beyond the point of reason.

And now for the Commitment of Traders report. I knew it would be bad, but just the sight of the numbers took my breath away. In silver, the bullion banks went short another 8,345 contracts... 41.73 million ounces. That's more silver than the entire U.S. mining industry will produce in one year! As of Tuesday's cut-off, '4 or less' bullion banks are now net short 56,401 contracts... 282.0 million ounces of silver. The full-colour COT graph for silver is linked here.

Silver was bad enough... but gold...wow! As you know, in the week that was, and as of the close of trading on Tuesday, these same bullion banks went massively short gold as well. As Ted says in his interview with Eric King below, it's the biggest one week change he has ever seen in his three decades of watching it. The gold net short position by the bullion banks increased by... wait for it... 54,089 contracts. That's 5.4 million ounces of gold that the banks shorted in just one week!!! Anyway, 'da boyz' [as of Tuesday's close] have a total net short position in gold of 270,797 contracts... 27.1 million ounces. And, like silver, the short position in gold has deteriorated significantly since then... Ted figures around 20,000... I'd say closer to 30,000 contracts. I say that because 'da boyz' threw everything at the gold and silver market on Friday. The open interest report on Monday [for Friday's trading] will tell all... and it won't be pretty. The full-colour COT report for gold is linked here. It's a horrifying picture... and if it doesn't scare you half to death, it's obvious that you don't understand the problem.

As I mentioned in the last paragraph, Eric King interviewed Ted Butler yesterday about 'all of the above'... and it's a must listen... and the link is here.

The Comex Delivery Report showed that 184 gold and 17 silver contracts were delivered yesterday. And surprisingly enough, there are still no changes over at GLD or SLV, despite how much the prices have been rising. Hopefully there will be some inflows next week. The U.S. Mint had no update yesterday either, and the Comex-approved depositories showed that a tiny 5,057 ounces were withdrawn.

The usual N.Y. gold commentator had the following yesterday... and was obviously written before the London p.m. fix... "Indian ex-duty premiums: AM$1.75, PM$1.84, with world gold at $1,001.92 and $1,000.50. Adequate for legal imports. The rupee helpfully closed up 0.3%, at $1=R48.48, having been firmer earlier in the day [Thursday R48.63]. The stock market edged up 0.29%"

"Bad news for Bears. The most recent week in the Monsoon has been decent too. The link to the story about that is here."

"World gold has been rising since the US stock market close yesterday, and has now accelerated. Volume appears fairly heavy: estimated at 47,233 lots by 9 a.m. Importantly, the move in US$ is being closely traced by gold in Euros: Exchange rates have little to do with this morning's actions."

"Yesterday's gold shares are to be congratulated for their prescience. This is, of course, a major technical breakout and the Bears badly need help."

Not that I want to keep kicking Barrick while it's down [but it feels so good, that I just don't want to stop!]... there was this note about it in Canada's Financial Post yesterday morning... "Now consider this comment from George Albino, precious metals analyst at Macquarie Capital Markets: "When we consider the financing/de-hedging plan, however, we note the anticipated $5.6-billion write-down equates to approximately 1/3 of shareholders' equity. For further perspective it exceeds, by well over $500-million, the sum of Barrick's retained earnings plus common share dividends paid over the past 15 or so years."

Al Korelin of Korelin Economics was kind enough to interview me on Thursday, and if you feel what I have to say is worth listening to, the link is here.

For some perspective on the current rally that began back on March 9th, today's 'Chart of the Day' presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow/gold ratio... or the cost of the Dow in ounces of gold. For example, it currently takes 9.7 ounces of gold to “buy the Dow.” This is considerably less (78% less) than the 44.8 ounces it took to buy the Dow back in 1999. Since 2007, the Dow/gold ratio has declined at an accelerated pace (see dashed lines). As a result of the recent rally, the Dow (priced in gold) has moved up significantly and is currently testing resistance of its accelerated downtrend. I thank P.S. for sending this along, and the link to chart of the day.com is here.

Here's another graph from my friend Nick Laird over at sharelynx.com. Yesterday I ran a gold graph vs. the main indices. Today it's the silver price vs. the Dow and S&P 500. I thank Nick for sending this along, and the link to his website is here.

I've got a bunch of stories today... and some of them are a bit of a read. But it's the weekend, and I hope you can find the time.

For years, the last time being yesterday, I have been talking about the second leg down in the residential real estate market. That time is right here and right now. Yesterday's story was good... at least as far as it went. Here is a 60 Minutes segment where Alt-A and Option ARM are discussed at length by someone who knows exactly what he's talking about. I strongly urge you to listen to this segment, as it describes the current situation perfectly. Like I keep saying to all those who care to listen, please call me in 2013 and we'll talk about the 'bottom' of the U.S. real estate market then. I thank Brad Robertson for sending me this clip. It's entitled "The Second Leg Down: Where it will come from and when"... and the link is here.

The next piece is from The Telegraph in London and is, of course, from Ambrose Evans-Pritchard. And it should also come as no surprise that Craig McCarty sent it to me. The headline reads "European Commission sees galloping UK debt crisis"... "Britain's public debt will explode to 180% of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission." The link is here.

Earlier this week I ran a story about two Middle East companies that had just gone under with $15 billion in debt between them... which left countless banks on the hook for it. This Bloomberg offering comes hard on the heels of that story. It sure sounds like the better part of another $25 billion is going to end up in money heaven pretty soon. The headline reads "Istithmar Said to Halt Investment; Dubai Weighs Sale". I also thank Craig McCarty for this story [which is worth the read]... and the link is here.

My last two stories today have the same author... Hugo Salinas Price, president of the Mexican Civic Association for Silver... and one of the richest men in Mexico. The first story, posted over at 24hgold.com is entitled "Why encouraging the population of China to import Gold makes sense". It's a short, and very important, read... and I thank reader Ron Schacht for bringing it to my attention yesterday. The link is here.

And the second story by Salinas Price is also my last story of the day. Hugo outlines his proposal for the restoration of a silver currency in his country, whose fortunes are strongly linked to the metal. This is a much longer read, but well worth your time. The headline reads "Opening the Mint to Gold and Silver--Then and now". The link is here.

The financial history of the last century shows a steady increase in the amount of public indebtedness. Nobody believes that the states will eternally drag the burden of these interest payments. It is obvious that sooner or later all these debts will be liquidated in some way or other, but certainly not by payment of interest and principal according to the terms of the contract. - Ludwig von Mises

Today's 'blast from the past' is from the a 1972 movie that needs no introduction. The song needs no introduction either, so turn up your speakers and click here.

I was happy to see gold break out yesterday... but was not happy to see the bullion banks show up at the London p.m. fix and drive the price back down again. This is an historic situation. As I've said a number of times, there are only two possible outcomes. Either the bullion banks engineer a waterfall decline in prices to cover their shorts... or they simply get overrun by more and more buyers showing up, and they are forced to withdraw from the market.

If, or when, that happens... there won't be anyone left to go short against the new longs piling into the market, and we will have a melt-up in the price of silver and gold that will be one for the record books.

I hope you understand why I have a foot in both camps on this issue... because those are the only two possible outcomes. I don't wish to be too pessimistic... or overly optimistic... I just want to be realistic in the short term. I'm not sitting on the fence either, because every nickel I've got is in the precious metals. As I said yesterday, and in my interview with Al Korelin on Thursday... I'm "all in." But with a current net short position in gold hovering around 30 million ounces... I have a right to be cautious... and psychologically and emotionally ready for either outcome.

That's what you should be preparing for as well.

See you on Tuesday morning.