'Da Boyz' Are Back in Town! But For How Long?

Between the opening in the Far East yesterday morning, right up until shortly before 9:00 a.m. in Comex trading in New York, gold managed to tack on about 12 bucks. And, for a microsecond, the gold price had the audacity to poke it's nose briefly above $1,020 the ounce. Then the lights went out.

From that point... and in the hour leading up to the London p.m. gold fix at 3:00 in their afternoon... 10:00 a.m. in New York, gold got sold off $10 by the usual not-for-profit sellers. But once the p.m. fix was in, the N.Y. bullion banks pulled their bids, and gold fell over $20 in less than half an hour. Its low was $989.70. So, from it's high of $1,020.20 [spot]... gold got clocked for a hair over $30... all in less than two hours.

Silver's pattern followed gold's in virtual lock-step... and when the smoke cleared at the end of New York trading yesterday, silver had 'lost' another 55 cents, and closed on its low of the day. Silver is the centre of the precious metals universe for da boyz, and that's why it gets hit as hard as it does. Gold they got lots of... silver they've got none.

You will carefully note that Thursday's U.S. dollar began it's rally at the precise moment that gold and silver began their respective declines. Not five minutes later, or twenty minutes later... or an hour. But precisely at the same moment. Was this whole thing orchestrated? You betcha! Like I said yesterday... "If it happens, we'll know who did it, why... and how."

Yesterday was also options expiry for the October contract in both gold and silver. October is not a big delivery month for either metal, so it was a surprise to see the bullion banks do what they did, because there really weren't a lot of contracts that were affected. Maybe 4,300 in gold and 400 in silver. These numbers represent less than 1% of total open interest in each metal... so why did they bother? I guess they have to start somewhere. The Commitment of Traders report is due out this afternoon. It will certainly show that the grotesque short positions in both silver and gold continue unabated. I'll report on that tomorrow.

The other thing that was going on in the silver world yesterday, that was below everyone's radar screen, involved the huge short position that the SLV ETF managers currently have. As I mentioned on several occasions, Ted Butler felt the SLV ETF was owed about 30 million ounces. When the bullion banks were covering their short positions on the Comex, the SLV managers were [at the same time] covering their short positions in SLV shares... because they couldn't get the metal, they're forced to short their own shares. If the price correction is deep enough [courtesy of JPMorgan, the biggest silver short on the planet, who just happens to be the custodian of all the silver in the SLV], then the fund can cover its short position and not have to deliver a single ounce of metal into the fund... which they don't have [and can't get] without driving the price to the moon. Ain't this grand???

On Wednesday, open interest is reported to have risen 2,265 contracts to 466,673 total o.i. Silver open interest rose as well... up 723 contracts to 128,734. Both numbers are a surprise, as the falling price action indicated that open interest should have fallen in both metals... unless shorting was involved. As I've mentioned before, I'm highly suspicious of these open interest numbers now that they have to be manually computed from CME data. Let's see what Thursday's open interest numbers show when I report on it on Saturday.

The Comex Delivery Report for Thursday showed that 114 gold and 27 silver contracts were delivered yesterday. The GLD shed 245,236 ounces... about eight tonnes. The SLV, as per usual, showed no change. There were no changes reported from the U.S. Mint... and the Comex approved warehouses showed that a smallish 15,220 ounces of silver were withdrawn.

The usual New York commentator had the following remarks yesterday... "Indian ex-duty premiums: AM[$4.20], PM[75 cents] with world gold at $1,010.11 and $1,013.92. Above and below legal import point. Vietnam local gold moved back to a premium early on Thursday morning... standing $1.87 above world gold of $1,010. Japan reopened, but had little to say."

"In an astonishing development, the NYMEX published Wednesday's final open interest this morning. This rose 3,467 contracts [10.78 tonnes]. Gold itself, of course, finished the floor session down $1.10 and fell in the aftermarket: short sellers were apparently very active. Actual volume at 131,171 lots was a startling 37% above the estimate."

"UBS, in a timely comment, observed early today: October options expiry on Comex will take place at 2000 GMT today [3:00 p.m. in New York - Ed], and the greatest nearby open interest for October gold is at the $1000/oz strike... $950 and $1050 strikes also have very large open interest - and that open interest between $950 and $1000 is larger than that between $1000 and $1050. We believe this is a consequence of the recent quick move higher in gold from $950/oz rather than options traders explicitly expressing a preference for the downside. Given the large open interest [Huh? It was only 4,300 contracts - Ed] at the $1000/oz strike, we would not be surprised if gold remains close to this level today, barring a sharp move in EUR/USD. To the extent that long October-expiration positioning in the market may have been constraining the range, however, the rolling off of October options should free gold to make larger moves."

"Upon schedule, on the Employment data this morning at 8-30AM NY time, huge selling hit Comex, which a few moments before had registered an intra-day high of up $6.60. So far the low has been down $20. Estimated volume at 10AM was an enormous 104,833 lots."

"Thursday's massive selling continued through the day, with total estimated volume being 175,689 contracts. In all likelihood, actual volume will be over 200,000. This is not good news. Days of over 200,000 lots are quite rare... and in the past year or so, have been associated with serious break-down attempts... notably in mid-July last year."

"This looks more serious than the usual options manipulation. But it is the wrong time of the year for the [gold] Bears. Indian bullion dealers and farther of Indian brides [vintage 2009] will be very happy."
One of my readers thought that it was my daily commentary on Thursday that actually triggered the sell-off... and sent along the following chart as proof positive. This reader obviously has way too much time on his hands!

I have five stories today... which I hope you have time to run through. The first story is from Bloomberg correspondent, Jonathan Weil. He does a well deserved hatchet job on the FDIC. The commentary is entitled "FDIC Is Broke, Taxpayers at Risk, Bair Muses"... and the link is here.

The second story is from The Times in London. As is commonplace with all countries today, governments are piling on debt for future generations to pay, and Britain is one of the worst offenders. The title of this piece is Public sector borrowing highest on record. I thank Craig McCarty for sending it along... and the link is here.

The next story is from Bloomberg as well. This one is filed from Taipei in Taiwan. It appears that Taiwan's central bank called a couple of the country's biggest currency traders and "urged them to reduce their bets against the U.S. dollar." So it appears that, like the Fed and Treasury, Taiwan central bank 'consults' with traders as well. The headline reads "Taiwan Central Bank Urges Reduction in Dollar-Drop Bets"... and the link is here.

This next piece is from Hugo Salinas Price, president of the Mexican Civic Association for Silver. In it, he argues that a new world reserve currency won't solve the dollar problem as long as the new currency is just another debt instrument. Only balancing international payments in gold can do that, Salinas Price writes. His essay is headlined "A New Magna Carta for Our Times" and you can find it at the Mexican Civic Association for Silver's Internet site. The link is here.

The last item is another story from The Times in London. It's about buried treasure... in this case, gold! Chris Powell, GATA's secretary treasurer, sarcastically commented that "the Bank of England has probably already swapped it with the Fed" to continue the gold market rig. The headline reads "Metal detector enthusiast unearths huge hoard of Anglo-Saxon gold". There is also a slide show of every item found in the sidebar just to the right of the story. That's worth looking at as well... and the link is here.

Disobedience is the true foundation of liberty. The obedient must be salves. - Henry David Thoreau

I must assume, until proven wrong, that the flush-out of the technical funds holding massive Comex long positions in both gold and silver may have begun. If true, then how low we go [and how fast we get there] are always the great unknowns. That's why this record short position in gold scares the hell out of me. Do the bullion banks take the prices down to just the 50-day moving averages [currently $965.12 for gold, and $14.94 for silver]... or are the 200-day moving averages in their sights? This is unknowable... and falls into the category of 'can they or will they'. With a current short position of around 28 million ounces, they could do a lot of damage if they really decide to.

Dennis Gartman's commentary on Wednesday about 'darkling forces' preventing gold from breaking through $1,020 proved itself correct again yesterday... as this was undoubtedly as high as the bullion banks would allow the price to rise for this up-move. But I was semi-encouraged by the share price action yesterday. I was expecting a blood bath, but it didn't happen. We are, as we've always been, at the mercy of the bullion banks. I'm hopeful that the CFTC will walk the walk and put in proper [and enforced] position limits in both precious metals... particularly silver.

Not much happened in Far East precious metals market during their Friday trading day. London is now open, and nothing much is happening there either... but volume is pretty substantial in both metals nevertheless. But it could still turn out to be another interesting day in New York when the Comex opens.

Enjoy your weekend... and I'll see you here tomorrow.