$1,100 Gold... Almost!

Well, compared to Tuesday, world gold action on Wednesday was very quiet. As I pointed out in my column yesterday, things began warming up a bit at the usual time in Hong Kong trading during their Wednesday afternoon session... and gold had added about $10 to its price shortly after London opened. Then it vacillated around $1,090 for the rest of the trading day until New York closed at 5:15 p.m. Eastern time. Nothing to see here folks... please move along. However, volume [according to the N.Y. gold commentator] was pretty heavy.

In silver, it was slightly more interesting... and the action a little more well defined. Like gold, silver didn't do much of anything during most of Far East trading... until the usual time in afternoon trading in Hong Kong. From there, silver began a quiet and gentle rise to its peak price of the day, which was 10:45 a.m. in New York trading. From there, the silver price began an equally slow and gentle decline into the close of electronic trading in New York at 5:15 p.m. The thing to note about silver is that there were five or six tiny rallies that got sold off the moment they looked like they might develop into something.

The shares had an interesting ride yesterday... and looked like they were going to finish in negative territory, but suddenly spiked higher after the FOMC came out with their statement that interest rates are going to remain where they are for "an extended period". This decision should surprise no one.

Well, gold's open interest number for Tuesday was a surprise [to both Ted Butler and myself] in the fact that it wasn't a lot higher than reported by the CME. Gold o.i. was up... but only 13,888 contracts... which is very little, considering the size of the move. I speculated yesterday [based on Tuesday's preliminary CME open interest numbers], that the 30-minute price spike in both gold and silver prices on Tuesday could have involved some short covering. Volume in gold was an off-the-charts 221,572 contracts. Total gold open interest is now back up to 505,904... which is not a new record.

And now for silver. The $1+ price move [from low to high] on Tuesday involved an open interest increase of... wait for it... ninety-four [94] contracts! Volume traded was [like gold] enormous... 63,444 contracts. Total silver o.i. is now 132,383... not a record by any stretch of the imagination.

IF... and notice the emphasis on the word 'if'... these open interest numbers are accurate, then there may have been some short covering in gold on Tuesday. In silver, the short covering may have been monstrous! Now, before you start breaking out the party favours, I'd like to mention the fact that the U.S. bullion banks are not known for their honesty... or their on-time data reporting habits... so it's entirely possible that Wednesday's open interest numbers may contain a lot of spill-over from Tuesday's trading.

A couple of other housekeeping items regarding Tuesday's gold and silver trading. As is always the case, the cut-off for Friday's Commitment of Traders report is at the close of business on that day. Will all that data be in Friday's COT? That's why I was somewhat concerned about how much of Tuesday's price action was, or was not, reported in Tuesday's open interest numbers. Tuesday was also the cut-off for this month's Bank Participation Report which is also due out on Friday... and it will also be affected by what was, or wasn't reported by Tuesday's cut-off. This is the one time a month that we can tell for certain what short positions are being held by JPMorgan and HSBC USA in both metals. I will examine the entrails of both these reports in my Saturday column.

The CME delivery report showed nothing worth mentioning. The GLD ETF showed no changes... and there was a minor decrease in the SLV... down 123,675 ounces... which was probably a fee payment. Nothing from the U.S. Mint either... and, for whatever reason, the Comex-approved depositories did not update their website yesterday, so it's impossible to tell if their silver inventories changed at all. Hopefully they will update it today.

The usual N.Y. gold commentator filed two reports yesterday... one around 11:15 a.m... and the other exactly 12 hours later... "India was not a buyer in the gold market yesterday. The price was below its legal import price, but not by much, considering the recent rise in gold. The rupee staged a recovery and the stock market bounced back 3.29%."

"Japan reopened for business this morning, and the public only shed a minor 0.06 tonnes. The Gartman Letter went long yen gold, which may well be wise: the "General Public" on TOCOM has a good record in yen gold."

"This morning US$ gold and Euro gold have shown divergence since the NY open: gold's strength has been mainly a reflection of US$ weakness. Estimated volume by 10AM was a very heavy 123,070 lots."

"While the physical market is taking a backstage role at present, it is very far from being in the heavy selling mode seen early this year."

And then came his report very late last night...

"Tuesday's up $30.90 day to a record close involved volume of 221,572 lots [16.1% above estimate] and a jump in open interest of 13,888 lots [43.2 tonnes] to 505,904. Higher volume was seen in early July... and, of course, open interest is well under the peak, [which is] just short of 600,000 [contracts] seen in January 2008. So, in this sense, gold is not yet blowing off."

"Wednesday's gold experienced a determined sell-off going into the floor close, such that December gold settled up only $2.40 at $1,087.30. Estimated volume was a heavy 159,108 contracts. In the aftermarket, the Fed's remarks triggered an advance to a new record high of $1,095.20 -- although Euro gold rather conspicuously did not keep pace."

"Gold shares continue to act sullenly. The HUI closed up 0.9%... and the XAU up 0.79%... well of the highs of up 2.7% and 2.4%. Neither index surpassed its early morning high when gold made its aftermarket move."

"Encouragingly for gold's friends, local Vietnam gold returned to a substantial $9.58 premium over world gold of $1,088.30 on Thursday morning [Wednesday 6 cents/$1.082.00]. This was despite a soft unofficial dong rate."

I have a number of stories today. The first is this item that was sent to me by Michael in Ottawa. It's a short piece from CNBC in Europe... and includes a video interview with Chris Zwermann from Zwermann Financial in Frankfurt. He speaks on both gold and silver... and sees silver north of $20 during this move. The interview, headlined "Gold Spells Trouble for Greenback", is well worth listening to... and the link is here.

The next story is from Bloomberg and is courtesy of Craig McCarty. "The U.S. Treasury Department said it plans to sell a record $81 billion in its quarterly auctions of long-term debt next week and replaced its inflation-protected 20-year bond with a reintroduced 30-year security." By choosing to replace its 30-year TIPS with fixed rate, 20-year notes the Treasury is telling everyone that even they believe the US will have higher than normal inflation. With such an obvious move, I don't understand why they just don't take out a full page ad in The Wall Street Journal and tell everyone straight out. The link to the story is here.

Talking about a story in The Wall Street Journal on that very subject... here is a piece from their paper yesterday headlined "Fed Statement May Let Gold Continue Upward Course"... "Federal Reserve officials did not offer any hints Wednesday on when they might start to tighten monetary policy for the foreseeable future, which may well mean a green light for further gains in gold." Since the whole story needs a subscription, I have linked the GATA release which carries the story in full... and the link is here.

The next story was just posted at Bloomberg in the wee hours of this morning. It's commentary by Bloomberg columnist William Pesek. It's obvious that Pesek 'gets it' as far as gold is concerned, and he really tees off on this 200 tonne gold purchase by India. I hope he still has a job when he gets up this morning. The headline reads "India Shows Hedge-Fund Savvy With Huge Gold Buy"... and the link is here. Definitely a must read.

Over at marketwatch.com comes this commentary by columnist Peter Brimelow. The headline reads "Is India clearing the way for gold 'moonshot'?: India's IMF bullion purchase excites the gold bugs"... and the link to this most excellent story, is here.

And lastly comes this wet-blanket story from Bloomberg bearing the headline "Roubini Says Roger's $2,000 Gold 'Utter Nonsense'" Let's see... if we check Nouriel's net worth against that of Jimmy Rogers... what do you think we would find? Yes, dear reader, you would be right about that. Let's see what Roubini has to say for himself when gold is north of $2,000 the ounce. The link to the story is here.

Although I'm wildly bullish about gold and silver prices in the medium to long term, I'm still concerned about the very short term... between now and options expiry on November 23rd... to be specific. Although the gold price has blasted up to new highs...the RSI for gold [and silver] is showing a series of declining tops... silver has not been allowed to break to new highs...and [to say the least] the HUI is lagging badly. The general U.S. equity markets aren't looking that hot either, so I must admit that I'm very nervous at the moment.

Nothing has changed regarding the grotesque short positions held by the bullion banks... and whether they get over run in a 'moon shot gold price rally... or force a short covering price decline... is still not resolved. But it must be resolved... one way or another... sooner or later.

However, I was particularly delighted by the fact that the FOMC meeting came and went, and both precious metals continued to display enormously positive price action... because under normal conditions [if anything can be considered 'normal' these days] price action like this would not have been allowed.

Tomorrow we have the jobs report. I mentioned yesterday that 'da boyz' have a 99.9% track record of smacking gold and silver prices the moment the report is released around 8:30 a.m. Considering the wonderful price activity around the FOMC meeting earlier this week, I'm hoping that this time it might be different... but will be on the lookout for "in your ear" once again.

The "Preliminary" open interest figures for Wednesday's trading are now up on the CME website. If true, they are [in a word] depressing. The report shows that the bullion banks added another 16,418 contracts [1.64 million ounces] to their already obscene short position in gold... and another 4,068 contracts [20.3 million ounces] in silver. This is not good news. I hope that "Final" o.i. numbers that are reported later, will show an improvement... but, in actual fact, I expect them to be even worse than this. We'll see.

I note that there wasn't a lot of price activity in either metal during Far East trading this morning... and with London now open for business, the price of both metals is about unchanged from their respective New York closes yesterday afternoon. But volume is pretty heavy already.

There weren't any follow-through fireworks in New York trading yesterday... so let's see what today brings.

See you on Friday.