The Transitional Currency... May Well Be Gold!

Between the Far East open on Monday morning, and until shortly after the London open... gold added about five bucks to its price. But, between that time and 11:40 a.m. in New York, gold gave it back again. Then, out of the blue, both gold and silver headed higher with their highs of the day coming shortly after the close of trading on the Comex. Gold was up almost $15 on the day... and silver was up almost 50 cents.

And, for whatever reason, silver had a little blip in its price right at the close of the equity markets at 4:00 p.m. New York time. Both gold and silver charts looked identical. Here's silver's chart for yesterday...

Volume yesterday showed about 97,000 contracts in gold and 22,000 in silver... based on trading in the December contract. When I spoke to Ted Butler yesterday we both agreed that the rise in prices in both metals did not involve a lot of contracts... as the bullion banks either did not show up until late in the day... or the buying was over.

Lemetropolecafe.com reports that "gold open interest rose 2,145 contracts to 443,967 as the new buyers jumped all over the cheap sub-$990 gold on Friday. Silver’s open interest remains at its highest levels in some time, even as its o.i. fell 166 contracts to 126,548."

The Comex daily delivery notice for Friday showed that 90 gold contracts and no silver contracts were scheduled for delivery today... and Monday's report showed that a smallish 16 gold contracts will be delivered. It appears that platinum is now being reported, but silver hasn't been for the last couple of days. The CME reporting system is from Mars... or is it Jupiter? Over at the GLD ETF, a smallish 49,041 ounces were added... and, as per usual, there were no changes once again in SLV's silver inventory. The U.S. Mint showed a 2,000 gold eagle increase... now up to 17,500 for the month. No changes were reported in silver eagle mintings. The weekly update for the ETFs at Zürcher Kantonalbank is as follows... only 4,989 ounces of gold were added... and not an ounce of silver! I thank Carl Loeb for those numbers. Over at the Comex-approved warehouses, a smallish 127,140 troy ounces were withdrawn from inventory.

The usual N.Y. gold commentator put out a special e-mail on Sunday evening... something he's never done before. The most important tidbit was this... "In an enterprising piece of journalism, TheBullionDesk.com has followed up on the UBS Thursday story of accelerated gold activity in Turkey, possibly stemming from Iranian demand: The traditional response in Iran when the spectre of sanctions looms is to buy gold in large volumes, predominantly through Turkey or Dubai, precious metals strategist Andy Smith of Bache Commodities said. This might already explain at least part of Middle East physical gold demand, which is currently staggering refiners, he added…. (My emphasis)"

"Another source at a large US bank agreed: We saw a big pick-up in Turkish consignment business last week, he said."

"Ambitious Bears could find this extremely awkward."

Then came his two Monday commentaries... and I've cherry-picked them both...

"On Monday, India was an importer... Vietnam local gold stood at a $4.70 premium to world gold of $1,003.40 early in the morning... and TOCOM remained on the sidelines."

"Reuters has carried its occasional story on Eastern premiums, stressing the role of the strong rupee in bolstering Indian buying. Click here."

"Kilo bars commanded steady premiums in Singapore (70-75c) and Hong Kong (30-40c) and remained at a 50c discount in Tokyo. Comments were made about the limited reflux of scrap, even at these prices."

"Today world gold has remained obstinately above $1,000 regardless of the dollar being weak (early) or stronger. Estimated volume was light (28,415 lots at 9AM). Gold shares seemed fairly cheerful. Then, after the European close, at 11:30AM NY time, a strong buyer entered the NY market. Estimated volume leapt 27.2% between 12noon and 1PM [20,000 lots] and gold surged over $13 in just over an hour. December gold closed up 413.50 at $1,017.80; estimated aggregate volume for the days was 99,580; low for such a big move."

"The gold shares were grudgingly responsive. The HUI closed up 3.96% and the XAU up 3.28%: neither decisively repaired recent technical damage. The CEF bullion instrument closed at a low 7.1% premium to NAV." [Net Asset Value - Ed]

"At JSMineset.com, Dan Norcini has posted a remarkable chart of the Dow/gold ratio. [And it is worth seeing! Click here. - Ed] It's not easy to comprehend that the pendulum as swung back so far."

"There is a distinct possibility a U.S. Bull has entered the gold market. The Eastern physical market is positioned such that such an actor has some scope. If so, gold will be entering an exciting [and dangerous] phase. So, unless the Bears get help, the trend is definitely up."

The charts below were shamelessly ripped from Bill Murphy's MIDAS commentary over at lemetropolecafe.com. They're courtesy of Nick Laird at sharelynx.com... and I know for a fact that he won't mind. They are the 9-year price charts for gold and silver respectively... showing the gold and silver price, plus the long and short positions on the Comex as held by the Commercials [all bullion banks], Non-Commercial [large speculators/tech funds], and the NonReportable [small traders] for each metal. You can see the record Commercial short position in gold as it stands right now... with silver heading in that direction as well.

It was a newsy weekend to say the least... and Monday also had its own list of must-read news stories. I have eight today... and, except for minor intros, my major comments will be confined to the top stories.

In a Bloomberg commentary, Alice Schroeder, who is author of The Snowball: Warren Buffett and the Business of Life and a senior adviser to Morgan Stanley, is also a Bloomberg News columnist. She says she hasn't bought gold yet... "but the temptation is rising by the day." The headline reads "Gold Tells You U.S. Bubble Hasn't Popped Yet"... and the link is here.

I thank reader Doug Beiers for the next story which was posted at yahoo.com on Sunday morning. "The head of the U.S. FDIC said on Sunday that she wanted to end the 'too big to fail' doctrine and shrink the shadow banking system that operates outside the reach of regulators. Sheila Bair, speaking to the Institute of International Finance meeting in Istanbul, said a U.S. proposal to create the authority to shut down failing systemically important financial firms may need to be extended to insurers and hedge funds." The Reuters story is linked here.

I thank Florida reader, Charles Dubelier, for the following story from The Telegraph that was posted last Friday. The headline reads "World Bank could 'run out of money' within 12 months". As one of the financial arms of the American Empire that was created at the same moment as the IMF, I suppose it's too much to ask that they would just quietly close their doors and disappear? The link is here.

The next story is courtesy of Craig McCarty. Here's the first of the must reads today. "FDIC Insuring 8,200 Banks with $9 Trillion in Deposits and Zero in the Deposit Insurance Fund". "Total assets at FDIC insured banks amount to $13.3 trillion. However, out of 8,204 banks... 116 hold a stunning $10.28 trillion of these assets." There are two graphs in this story, and if you do nothing else... just spend a few minutes on each graph... but the whole story [posted at mybudget360.com] is worth the read, and the link is here.

I hate to have to say it, but the last four stories are also must reads from one end to the other. The first is an interview of U.S. Republican Alan Grayson [D-Florida]; who, the other day, hectored the general counsel of the Federal Reserve about market manipulation, and was subsequently interviewed by Eric King of King World News. The interview is imbedded in a GATA press release... and the preamble by GATA's secretary treasurer, Chris Powell, is worth running through as well. The link is here.

Here's another piece courtesy of Florida reader, Charles Dubelier. It was posted last night at The Telegraph in London and is authored by their illustrious International Business Editor, Ambrose Evans-Pritchard. The headline is stark... "Banks Brace for Latvia's Collapse". The only question to be asked here, is... how many other countries will go down with it when they're forced to devalue? I urge you, dear reader, to keep one eye on this situation as the country implodes. The link is here.

In an interview with Lars Schall of MMNews in Germany, Egon von Greyerz, managing partner of Matterhorn Asset Management in Zurich, Switzerland, remarks that he expects a hyperinflationary depression in the United States and Britain and expresses agreement with GATA's work. "My view," von Greyerz says, "is that very soon paper gold manipulation will be ineffective and only physical gold will count." You can read the interview [which is pretty lengthy, by the way] at the MMNews Internet site mmnews.de linked here.

And lastly [and I'm just as happy about getting here as you are!] is this story that showed up at the independent.co.uk website late yesterday afternoon. It has since shown up in a Reuters story as well... so it obviously has some legs. The title says it all... "The Demise of the Dollar"... "In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France... to stop using the US currency for oil trading". Although the time line in the article says 2018... the repercussions will be likely be immediate and maybe even dramatic... "The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold." A must read article that will be the talk of the town for a some time to come, and the link is here.

To live beyond our means today is to live below them tomorrow. - Hans F. Sennholz

Well, there's appears to be something afoot out there. After yesterday's surprise performance [in both gold and silver] in late-morning activity in New York... coupled with another bump up at 10:00 a.m. during Hong Kong's trading day today... I'd have to bet my dollar fully in the bull camp in the short term. Although I'm still fearful of an "in your ear" scenario... I've still got every dime invested in the precious metals in one form or another. And correction or no correction, this is not a market to get cute in. It's time to be 'long and strong'.

As both Ted Butler and myself have been saying for the last six weeks, the short position in both gold and silver must be resolved one way or another... a short, vicious sell-off first, or a break-out to the upside as the bullion banks get over run. Those are the only two options.

As the Chinese banking official said... "The transitional currency in the move away from dollars, may well be gold." Is that a threat... or idle chatter? Well, I'm not about to chance it. How about you?

But when this market does break hard to the upside... will you be 'all in' when it does? I just finished perusing the October edition of Casey Research's International Speculator for October, and it's fantastic as usual. I.S. also includes [free of charge ever month] CR's Casey's Gold & Resource Report. Between these two reports, you've got the gold and silver market covered seven ways to heaven. Although you may consider it pricey... it does not cost... it pays for itself many times over... at least it has for me!!! I urge you to check them both out while there's still time to act. Because once we blast off... good luck finding an entry point... and you never want to chase a market. Especially this market.

As I write this last paragraph, I note that London is now open for business... and volume is already pretty heavy. In silver, December volume is a chunky 4,545 contracts... and gold is a hefty 22,510 contracts. It could prove to be another interesting day when trading begins in New York.

See you on Wednesday morning.