U.S. Bullion Banks Pile In on the Short Side Again Yesterday

Gold didn't do much in Far East trading on Wednesday. There was a minor peak at the London open and then the selling began in earnest. This selling spree ended at 9:00 a.m. in New York... and from there a rally of sorts began that lasted until shortly after 3:00 p.m. Then everything fell apart. True, gold finished a few dollars higher on the day, but the real damage was elsewhere.

Silver's price path was similar, but its low occurred shortly before New York opened for business. It, too, rallied until shortly after 3:00 p.m.

The highs for the day in gold and silver were shortly after 1:00 p.m. From there, both metals got sold off a bit, but the shares were steady... holding their gains nicely.

Then, about 3:10 p.m., U.S. stocks tumbled after Wells Fargo got downgraded to a sell. Gold and silver shares got hit hard as well... and all the nice gains of the day disappeared in the last 45 minutes of trading. But the dollar rallied! The CRB made a new high for this move, closing up 5.96 [2.14%] to 248.09... as base metals and crude oil roared higher. Unfortunately, the monetary metals did not [or were not allowed] to join the party.

On Tuesday, gold open interest fell a large 9,640 contracts... as there was obviously some long liquidation going on during the price decline. Silver o.i. fell as well... down 1,732 contracts. Hopefully these numbers will be in tomorrow's Commitment of Traders report.

The preliminary numbers for yesterday's open interest are already posted at the CME website. They show that Wednesday's New York rallies in gold and silver ran into huge opposition... as gold open interest soared 16,484 contracts. Volume was pretty heavy... about 158,000 contracts. Silver o.i. was also up. The preliminary report shows that o.i. rose 2,664 contracts. Volume was not overly large... around 32,000 contracts. It's obvious that the New York bullion banks did not want the precious metals to rise along with the rest of the commodities yesterday. I'll have the final open interest numbers for Wednesday when I file my Friday report.

There was nothing worth mentioning to report regarding gold or silver deliveries yesterday. I couldn't get on the GLD website this morning, but the usual New York gold commentator reported a change, which is in his commentary further down. There were no changes in the SLV ETF. The U.S. Mint had another update yesterday. There were no changes in silver eagle production, but gold eagle mintings showed an increase of 7,000... now up to 76,500 for the month so far. The Comex-approved warehouses reported that their silver inventories declined a rather large 893,248 ounces.

The usual New York gold commentator filed two reports yesterday... one early yesterday morning... and one late last night, both of which I will cherry-pick... "India was not an importer yesterday... the rupee was soft, closing down 0.8%... and the stock market slid 1.24%."

"A weakening rupee would be bad news for gold's friends. On the other hand, Reuters reports that recent festival demand was unexpectedly strong: 'The Dhanteras festival, celebrated last Thursday, is India's biggest gold-buying day and generally accounts for sales of 15-40 tonnes in the world's biggest market, according to various trade estimates. This year, sales may have risen by a few tonnes for the festival from this benchmark. Sales were fantastic. Compared to last year, it was 20-30% up, said Harmesh Arora, director of NIBR Bullion Pvt Ltd., a Mumbai-based refinery that manufactures coins and bars.'" [The Reuters story is linked here.]

"As noted last night, Wednesday's local Vietnam gold stood at a $19.99 premium to world gold of $1,054.50. This must be high enough to warrant smuggling." [Yes, it certainly does. - Ed] Today [Thursday morning] Vietnam gold stood at a $17.23 premium to world gold of $1,060.80."

TOCOM continued to buy... and the public added 1.7 tonnes to their longs... up another 12.3 percent."

"Gold had a complicated day on Wednesday. After a five and a half hour slide, the down $10.50 level seen in the December contract around 9AM, proved to be the day's low. Gold then fought its way back, closely tracked by Euro gold. December gold peaked up $7.10 just before the floor close and settled up $5.90 at $1,064.50. But just after 3PM, the stock market hit an air pocket and slumped over 100 points into the close. Gold shares and gold immediately followed suit in a remarkably co-ordinated fashion. [Yes, it was! - Ed] By 4PM gold had lost $3.90. Subsequently the metal has been edging back up in what appears to be quiet [Far East] trading."

"Having been up 3.16% and 3.2% at their highs, the HUI and XAU slumped to close down 0.17% and up 0.66% respectively. Not a good day for the diversifying qualities of gold shares."

"For the first time in eleven days, the GLD ETF registered a change in gold holdings: down 1.22 tonnes to 1,108.09 tonnes"

I have a selection of stories this morning. The first is from The Wall Street Journal. It bears the headline "Dollar Decline Draws International Protest". Here's a quote to whet your appetite... "Some sort of crisis is looking inevitable," said Neil Mellor, a currencies analyst at the Bank of New York Mellon in London. "You can't continue down this road without something giving way, and it's clear that the U.S. is not going to do anything to put meat on the bones of its strong-dollar policy." Because it requires a subscription to read it, I am including the GATA release of this article, which is linked here.

The next story, courtesy of the King Report, is from The Telegraph in London. The headline reads "Mervyn King: bail-outs created 'biggest moral hazard in history'"..."On Tuesday night, Mervyn King, the Governor of the Bank of England, launched his fiercest attach yet on big banking." His comments will be seen as a "clarion call for a potential break-up of Britain's banks". The story is well worth the read... and the link is here.

The next story is a short speech given yesterday in Chicago by Gary Gensler, Chairman of the CFTC. In it, he speaks about the necessity of reining in the $100+ Trillion OTC derivatives market. He says... "Though there are certainly many causes of the crisis, I think most would agree that the unregulated OTC derivatives marketplace played a central role. The time has come for comprehensive regulation." One can only hope that he's as good as his word... not only here, but in the massively rigged gold and silver markets which the CFTC will soon [hopefully] announce new position limits for. I thank Ted Butler for sending it along. It's a quick read, and the link to the pdf file is here.

James Turk of goldmoney.com fame has posted new commentary over at his fgmr.com website. He says that "The US dollar remains on the road to the fiat currency graveyard." The short read [with an excellent graph] is headlined "Hyperinflation Watch"... and the link is here.

The next item is another that I 'borrowed' from the King Report. It's a blog posted over at Reuters.com. It's entitled "The Secret Paulson-Goldman meeting" which apparently occurred in Moscow [of all places] at the end of June 2008. This is a dynamite story... and I think you should read it. The link is here.

And lastly is this video courtesy of the usual New York gold commentator. From his report late last night comes this... "The Frontline program The Warning, featuring the repression of Brooksley Born of the CFTC in 1997/8 by Rubin, Summers, Greenspan etc, is historic. The program is cast in a tediously anti-market mode, and never addresses the question of why, after her heroic effort to regulate OTC derivates was overwhelmed, Born fell so silent for a decade. Neither does it really solve the question of why these men [who turn out to include Arthur Levitt of the SEC] were so desperate to prevent any transparency in derivatives. As I said in an essay regarding Long-Term Capital Management many years ago... By now the reader is wondering about the wisdom of allowing these financial nuclear weapons to fall into the hands of such children... derivatives have put immense surreptitious power in the hands of privileged individuals, not always without official knowledge. It makes the furious efforts by Rubin and Greenspan to block closer supervision of derivatives look, in the words of Alice in Wonderland... curiouser and curiouser." You'll need to pack a lunch before you view this Frontline video, as it's 55 minutes long, and the link is here.

There are no markets anymore... only interventions. Chris Powell, Secretary Treasurer, Gold Anti-Trust Action Committee

Well, after viewing the preliminary open interest numbers for Wednesday's trading in gold and silver earlier this morning, it should be obvious that the New York bullion banks are not backing off one inch. They are still going short against virtually all longs being placed on the Comex. It's the 'same old, same old' story. I note that in late Far East and early London trading, both silver and gold are under selling pressure once again. As of 5:50 a.m. New York time as I write this, volume is already pretty decent... with gold trading 19,000 contracts, and silver around 3,700. Most of this volume would be the U.S. bullion banks trading out of their London offices, but the real action [and volume] will occur [as always] during the New York session.

Yesterday, there was strong buying at the Comex open... and it will be of great interest to see if another 'white knight' shows up again today.

I hope your Thursday goes well, and I'll see you tomorrow.