A Wild Ride in New York Yesterday

As I mentioned in my closing paragraph from yesterday's commentary, the Tuesday high in the Far East gold price came around 10:00 a.m. in Hong Kong... and from there it began a slow and steady decline that lasted until about 11:30 a.m. in London... 6:30 a.m. in New York. From there, and until the Comex open a couple of hours later, gold managed to erase most of it's Far East and London loses... before being sold off again. Once the earlier London low had been tested, gold rose a bit into the London p.m. gold fix. And shortly after that, the fireworks really got started.

Gold was up $20 in no time at all, and it was pretty obvious that the U.S. bullion banks tried to stop the vertical price rise before it broke through $1,080. That plan worked for about an hour or so, but then buying broke out anew, and gold powered its way up to around $1,089 in electronic trading before the party ended.

Silver had a similar flight path to gold, but the price rise was more spectacular. Far East and European trading was similar to gold's, with silver's low price of the day coming a few minutes before 9:30 a.m. in New York. It was equally obvious in silver that the U.S. bullion banks [principally JPMorgan] made a serious stand at $17... but that didn't last, either... as silver hit a high of about $17.35 before succumbing to selling pressure and finishing slightly lower.

From their lows to their highs, gold was up almost $35 [+2.33%]... and silver $1.13 [+4.62%]. The precious metals shares turned in a wonderful performance.

As spectacular as these above graphs are, it is painfully obvious that the U.S. bullion banks are still prepared to step in front of any price break-out... but they were only partially successful yesterday. One can only imagine where the closing prices for both gold and silver might have been if there had been no intervention at all. Then I would really have had something to talk about today! The usual New York gold commentator said that "estimated volume at 11AM was an enormous 150,647 lots." So, unless that 30-minute moon shot in prices yesterday was short covering, the open interest numbers for Tuesday... when they become available from the CME website this morning... should be a sight to behold.

Monday's open interest numbers were pretty impressive on their own. Despite the rather unspectacular price action on that day, open interest in both metals surged. Gold o.i. rose 10,051 contracts on volume of 140,871 contracts. Total open interest is closing in on 500,000 contracts again... now at 492,016. Silver o.i. was up 1,862 contracts on decent volume of 40,895 contracts. Total open interest is back up to 132,289 contracts.

The CME Daily Delivery Report showed that 60 gold and 56 silver contracts will be delivered tomorrow. The GLD ETF reported that 156,885 troy ounces of gold were added to their alleged holdings on Tuesday... and there were no changes over at the SLV. The U.S. Mint started off November in low gear, as they reported only 3,000 one-ounce gold eagles minted yesterday... and nothing at all for silver. Over at the Comex-approved warehouses, another 297,314 ounces of silver were withdrawn.

The usual New York gold commentator had a couple of commentaries yesterday. The first one around lunchtime in New York, and the second late in the evening... "India was not an importer yesterday. The rupee weakened abruptly... and the stock market slumped 3.09%"

"Japan was closed today."

"The European Central Bank weekly statement of condition indicated that one captive Central Bank bought €1 million of gold coin this past week [1,462 ounces]. At present, the ECB squadron of central banks appears effectively out of the gold market."

"Today, world gold added some $13 from the NY floor close by the early Asian morning, in good part due the US$ weakness. Pressure in the early-European day eroded some $9, but then, after gyrating around the NY open, gold took off, leaping some $19 in half an hour starting just after 10AM NY time -- right after the 3PM London fix, which was $1,061. Spot gold seems to have met resistance just under $1,080: estimated volume at 11AM was an enormous 150,647 lots. Euro gold is now tracking closely."

"Although strong, gold shares remain conspicuously below their mid-October highs. On the other hand, during a two hour drive this morning, not a word of comment was heard on Bloomberg radio about gold." [Nothing on CNBS either. - Ed]

Then later, came this...

"The surge noted this morning continued. December gold closed up $30.90 at $1,084.90, close to the high of the day: aggregate estimated volume was a pretty heavy 190,865 lots."

"Gold shares responded: the HUI closed on its high, up 8.02%... and the XAU up 6.38%, narrowly below its peak. The former appears to have broken a short-term downtrend. The CEF bullion instrument closed at a 14.8% premium to NAV; the highest in quite some time."

"Local Vietnam gold stood at a 4 cent premium to world gold of $1,082.00 early on Wednesday morning [Tuesday $12.49/$1,064.60]. Not an unreasonable response to a $37 move in world gold since Friday."

"Things are getting hectic in gold: but the usual signs of an overbought market - extreme sentiment, record open interest, physical market discounts - are not yet present."

I noted a very disturbing comment in yesterday's Casey's Daily Dispatch. Under the heading of "No Collateral... No Problem", a group of federal agencies including the FDIC, Federal Reserve, and Office of Thrift Supervision just released new guidelines for how banks deal with troubled commercial real estate loans. And get this: "Under the guidelines, loans to creditworthy borrowers that have been restructured and are current, won't be classified as high risk by regulators solely because the collateral backing them has declined to an amount less than the loan balance." Yes, you read that correctly. Banks won’t have to show losses “solely” because the collateral has fallen in value below the loan. Perhaps most incredible is that this move is being applauded by the business community.

Yesterday, at the height of gold's big rise, Al Korelin of Korelin Economics interviewed GATA chairman, Bill Murphy. The link to the interview is here.

At this juncture, I'd like to set straight a comment that I made in error yesterday. I said that the FOMC meeting was slated for next week. That's not true. It's happening this week... and their communiqué should be released this afternoon. I thank reader, John Skelton, for kindly pointing that out.

I have four stories today. The first is another one regarding the purchase of 200 tonnes of IMF gold by the Reserve Bank of India. This is a story filed from New Delhi, and appears in the pages of The Wall Street Journal. Because the story requires a subscription, I have linked the GATA dispatch that contains the entire article. The headline of GATA's dispatch reads "India may buy still more gold from IMF"... and the link is here.

I note in a Bloomberg story from about a week ago that Ron Paul's "Audit the Fed" bill has run into a big snag... and the headline says it all... "Federal Reserve Policy Audit Legislation 'Gutted,' Paul Says". Mel Watt, a Democrat from North Carolina, has eliminated "just about everything" while preparing the legislation for formal consideration. Watt is chairman of the panel's domestic monetary policy and technology subcommittee. Watt's district includes Charlotte, N.C... headquarters of Bank of America. Well, golly gee! What a surprise! The link to the entire story is here.

The next story is from The Economist over in the U.K. It's a short read on the final fate of CIT. I find the story far more objective than what was said about it in the North American media. The headline reads "CIT files for bankruptcy: A prepackaged pratfall". I thank reader P.S. for sending it along... and the link is here.

And lastly, here's another story from Britain. This one was filed in the yesterday evening in London, which would be mid-afternoon here in North America. More billions of pounds are being heaped on the Royal Bank of Scotland and Lloyds Banking Group... which is, of course, being paid for by the British taxpayer. The measures were revealed as plans to break up the banks were confirmed. "Shadow chancellor George Osborne said the measure would cost the equivalent of £2,000 per family and was a 'new world record as the single biggest bail-out of any bank anywhere in the world.'" I thank Wesley Legrand for sending me the story... and the link is here.

As happy as I am about yesterday's great action in gold and silver, it's obvious that the opposition by the U.S. bullion banks is still there. I've taken a gander at the preliminary open interest numbers provided by the CME at this hour of morning... and although the volumes shown are what one would expect... approximately 231,000 contracts in gold and 63,000 in silver... the open interest changes look suspect, as it shows gold open interest up only 1,975 contracts... and silver's o.i. down a chunky 3,049 contracts. Lately, the preliminary numbers have diverged wildly from the final numbers, so I'm taking these figures with a huge grain of salt. But as I said in an earlier paragraph, those big half-hour price spikes in both gold and silver could have been short covering rallies. However, until the final numbers show up on the CME website, I'll remain skeptical about that possibility.

As both Ted Butler and I have said on many occasions over the last month or so, the bullion banks are either going to get over run... or they will engineer another major sell-off in order to cover their short positions. At the moment, prices look like they could still run to the up-side by quite a bit, as neither metal is overbought... especially silver, however gold is getting up there. Note the RSI in the 2-year gold graph below.

In an e-mail from Ted in the wee hours of this morning, he had this to say... "based upon how the move evolved, it looks like new big tech fund buying over the old highs in gold and above $17 in silver, met with new dealer [bullion banks - Ed] shorting. Despite the news from India, it looked like a COMEX affair. Whether it is orchestrated to suck in more longs at higher prices, or whether the dealers are in trouble, is impossible to say at this point." True enough, but it's been a while since we've had much to cheer about, so I think we should just enjoy the ride for the moment.

I note, as I write this last paragraph, that both gold and silver started showing their usual signs of life during late afternoon trading in Hong Kong. Volume is pretty heavy as well. As of 4:15 a.m. Eastern time, silver has already traded a hefty 4,708 contracts in the December contract month, and gold is at 27,591 contracts traded so far in December.

And it nearly goes without saying that we could be in for another wild ride during New York trading again today.

See you on Thursday.