To a Good Home... 403 Tonnes of Gold! Offers Please!

It was no surprise that gold was under immediate pressure once the New York bullion banks opened for business late Sunday night... early Monday morning in the Far East. Most of the decline over the next 16 hours was dollar-related... and by the time the London p.m. gold fix was in at 10:00 a.m. on Monday morning in New York, gold was down to its low of the day at $995.

But from there, gold rallied nicely for a couple of hours before a seller showed up. However, gold managed to close at $1,003 spot. Gold was down about four bucks on the day, but this has to be chalked up as a win for gold... considering how bad it might have been.

Compared to gold, silver really got it in the neck when the New York bullion banks traded amongst themselves late Sunday night. It rallied a bit in Sydney, but ran into heavy selling at the Hong Kong open, with the low price of the day coming minutes before 1:00 p.m. during their lunch time. From that point, and in fits and starts, silver's price rose slowly until the London p.m. gold fix was in ten hours later. Then, like the gold price, away silver went to the upside. It, too, ran into the same not-for-profit seller as gold... and it got sold off a bit going into the close of electronic trading in New York yesterday.

I must admit that I was expecting much worse, so yesterday's results have to be marked in the 'win' column for both metals... and as I write these words at 1:30 a.m. New York time on Tuesday morning... both gold and silver are back at the prices they closed at Friday night, prior to Monday's open. The dollar rally that started yesterday sure didn't last long.

The precious metals shares sold off on the open yesterday, but recovered a large portion of those loses by the end of Monday's trading day.

Open interest numbers for Friday, if they are to be believed, showed that gold o.i. fell 4,669 contracts to 463,776... but silver o.i. rose 712 contracts to 125,001. I find that silver o.i. number to be hugely suspicious, as the price action did not indicate that silver open interest should be rising... and there was no indication of short covering. If this sort of dichotomy continues, I will stop reporting these numbers, as I do not wish to publish false or misleading data. It's turning out that the weekly Commitment of Traders report is the only data that can be trusted... and that, in and of itself, is a scary thought!

The Comex Delivery Report showed that 6 gold and 23 silver contracts were delivered yesterday. I see that the GLD ETF showed a big jump yesterday... up a fairly substantial 490,487 ounces... 15.3 tonnes. The SLV ETF, which is owed around 30 million ounces, showed no changes once again. Nothing has been added to the SLV since September 3rd... while 763,000 ounces of gold have been added to the GLD. If you think something stinks here, you would be right about that.

Over at the Zürcher Kantonalbank in Switzerland, they reported their activity as of the end of the business week last Friday. They showed that their gold ETF took in another 23,952 ounces, while their silver ETF added another 198,212 ounces. I thank Carl Loeb for those numbers. Except for one week, ZKB has added silver to their ETF every single week for the last four months! And, if my record keeping is accurate, the silver ETF... SLV... has had only six changes in inventory level in the last three months; three up days and three down down. At the beginning of that three month period, the SLV ETF had 280.5 million ounces. As of yesterday it had 280.6 million ounces. Something does not compute here... probably to the tune of 30 million ounces!

The U.S. Mint finally reported some changes after a week with no [reported] activity. Gold eagle mintings shot up by 22,500 to 86,500 for the month. In silver, another 306,000 were minted, finally getting their monthly total over the million mark to 1,060,000 silver eagles. And there were big changes over at the Comex-approved depositories as well. A rather chunky 2,749,661 ounces were brought into their stockpile. That's the biggest one-day change I've seen in a few years.

The usual New York gold commentator had the following remarks yesterday... "Goldman Sachs has suggested that the Reserve Bank of India will allow the rupee to appreciate to color Indian inflation data favorably. This would be surprising to me, but it would of course bolster India’s bid for world gold."

"Vietnam local gold stood at a $3.48 premium to world gold of $998.10 early this morning ($1.29/$1012.20)... and for what it is worth, the active Shanghai gold future closed at a $3.48 premium to spot this morning compared to $1.79 on Friday. I find it difficult to take seriously a futures market with less than 10 tonnes of gold in its warehouse."

"Japan was closed today, and will not reopen until Thursday. The Muslim world was closed for the end of Ramadan."

"Some attention has been drawn by a report of two Chinese officials making favorable noises about bidding for the IMF’s gold. Since however they generously allow "China should consider buying the gold being put up for sale by the IMF, but only at a big discount... this does not seem a serious matter. Of course unless the ECB banks change their behavior, almost all the IMF tranche will be needed for the 2010 WAG3 quota."

"With the key Asian physical buyers out, today was inevitably soft. But Comex was surprisingly supportive, with an initial selling raid being contained within $4 by 8:20 a.m... and most of the day being spent drifting quietly higher. December gold saw its low early in the floor session at down $14 on the day and eventually closed down only $5.40 at $1,004.90. Euro gold tracked the US$ gold closely. Estimated aggregate volume was 90,381 contracts. Volume equal to 56% of the floor session was reported by 9AM--today's impulse was down--but it failed... and the gold shares acknowledged this."

"The GLD ETF, however, produced an extremely interesting result: gold holdings were reported up a large 15.25573 tonnes (that is to one third of an ounce!) to 1,101.73461 tonnes. It is also odd that none of the media comment on GLD suddenly, after almost 5 years, starting to report to the 5th decimal place. What does this mean?"

Now that the weekend is behind us, I have a few more stories than normal... and I hope you have the time to peruse them all.

The big gold story yesterday, which should have come as no surprise to anyone, was word out of China that they're considering buying the entire tranche of 403 tonnes that the IMF is going to be selling. However, one un-named government spokesman added "China will consider buying if the price is right and the return is relatively high." Of course all this IMF gold is actually part of the European [and American] central banks own gold reserves that are earmarked for the IMF... and, as I've said before in this commentary, it will be interesting to see [when push becomes shove] if all these central banks will be willing to ship all this gold out the door for more U.S. dollar 'reserves'. The Reuters story on this is well worth reading... and the link is here.

The next story [which I stole from the King Report] is an Ambrose Evans-Pritchard piece out of The Telegraph in London. The headline says it all..."HSBC bids farewell to dollar supremacy". It's a short read and well worth your time. The link is here.

Next is the only non-precious metals story in my commentary today. It has to do with the second shoe to drop in the residential real estate market... Options ARMs. "Option-ARMs are now considered among the riskiest offered during the recent housing boom." [Risky??? - How about deadly. We'll see foreclosure rates approaching 100% on these puppies! - Ed] I've been harping on this subject since early 2007 when the graph [shown below] was first released in December of 2006. Here's the latest story that showed up in Reuters last week on this subject, and I thank Casey Research's Jeff Clark for bringing it to my attention. The link is here.

Here's the graph, courtesy of Credit Suisse Fixed Income U.S. Mortgage Strategy... which you've seen many times before. We are currently at the 33rd month... with at least two full years left to go.

The next story is a GATA release that was filed shortly after midnight this morning. It's a 5-minute video interview from the Financial Times in London. The headline reads "The Simple Commodity Case for Gold" and the link is here.

As I've mentioned several times over the last week, it's Ted Butler's opinion [shared by myself and others] that the silver ETF... SLV... is currently owed in the neighbourhood of 30 million ounces. Since the ETF can't get that amount of silver without driving the price to the moon and the stars in the process, it shorts the shares of the SLV instead. The unsuspecting buyers of those shorted shares [which the silver ETF must borrow first... or perhaps not] have no silver backing them. It's a longish read, but it's worth it if you wish to fully understand the predicament that SLV now finds itself [again]. I've posted this before, courtesy of investmentrarities.com but at this point in time, it's worth a second look. It's entitled "A Hidden Silver Default"... and the link is here.

No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us. - Ludwig von Mises

I note, as I put the finishing touches on this commentary, that gold and silver have shown signs of life in the usual two hour Far East time slot... starting at the Sydney close and 4:00 p.m. in Hong Kong trading. Volume in both gold and silver is pretty heavy for this time of day. Needless to say, these rallies ran into selling pressure shortly after London opened this morning. It will be interesting to see how frisky the prices are allowed to get during New York trading, as the G20 meeting is in Pittsburg this weekend, and I'm sure that 'the powers that be' in Washington won't want gold on a tear while that's happening. But, who knows, with the US$ falling out of bed again... this time it might be different... and we'll find out soon enough.

I'm off to bed... and I'll see you tomorrow