"Everybody Knows That U.S. Gold Reserves Are Leased and Shorted"

The sharp rise in gold and silver prices in Far East and early London trading I spoke of in my closing comments last night, ran out of gas pretty quick. By 9:00 a.m. in London, the gold price had flattened out and stayed that way until the London p.m. fix was in at 3:00 p.m. local time [10:00 a.m. in New York]. In the next half hour, gold tacked on a quick four bucks... but at precisely 10:30 a.m. in New York, someone showed up to sell the price down to its [N.Y.] low of the day at $1,110.80 spot. This is exactly what happened at 10:30 a.m. on Tuesday as well. Check the chart below.

Anyway, once the seller disappeared, gold recovered most of that loss and closed near its high of the day.

The silver price mirrored gold yesterday... with the big difference being the severity of the 10:30 a.m. New York sell off. For the second day in a row [starting at 10:30 a.m. in N.Y.], silver got smacked out of all proportion to the gold price. The silver chart shows in even more graphic detail, the intervention in the precious metals prices that occurred at that time.

Of course the silver price recovered somewhat and finished up on the day, but one wonders how high it might have risen if JPMorgan hadn't shown up. They also hit the platinum price at the same time as well... but left the palladium price untouched.

Of course the HUI fell in 'sympathy'... starting at precisely 10:30 a.m. as well... with no time lag whatsoever. Does this look suspicious to you... or is it just me?

As for Tuesday's open interest... gold o.i. went one way and silver the other. Gold open interest rose 4,558 contracts on pretty chunky volume of 175,589 contracts. Total open interest is now up to 526,176 contracts. But silver's open interest took a tumble on Tuesday... falling 3,966 contracts on pretty big volume of 51,080 contracts. Total silver o.i. is now down to 136,309 contracts. Tuesday was the cut-off for tomorrow's Commitment of Traders report... and hopefully all this data will be in it.

Yesterday, the CME reported that 102 gold contracts are to be delivered tomorrow. That's the biggest delivery yet for the month of November... a whole 10,200 ounces worth. December will be much different. There were no changes reported by either the GLD or SLV ETFs... and nothing from the U.S. Mint either. However, over at the Comex-approved depositories, they reported that a pretty substantial 945,355 troy ounces of silver were withdrawn.

The usual New York commentator had two reports on yesterday's activity, and the first one was filed at 10:40 a.m. Eastern time... "India was an importer today. The rupee was strong... closing up 0.5%. Combined with the big move in world gold, this must have made price discovery by the Indian dealers difficult. But from a global point of view, there is no sign of the biggest gold buyer being evicted from bidding the world market. Horrible news for [the] Bears."

"As noted last night, early Wednesday morning Vietnam local gold stood at a $57.50 premium to world gold of $1,106.30 [Tuesday $59.37/$1,102]. Subsequently, apparently, the Vietnam gold market went totally berserk and many dealers stopped selling the metal." [Read the details in this must read story posted at vietnamnet.vn headlined "A crazy day for the gold market"... and the link is here. - Ed]

"In the afternoon, the Vietnamese Central Bank announced that legal imports of gold, banned since last May, would once again be permitted." [The link to that story is here.

"Although Vietnamese premiums will now, of course, collapse... this is positive news for gold's friends generally, as it means that the unquestionable appetite for gold in Vietnam will more effectively make itself felt in the world market."

"Somewhat surprisingly, liquidation by the 'general public' on the TOCOM slowed sharply: their long slipped only 0.27 tonnes [1%]. This is interesting because the TOCOM public is quite shrewd in its trading."

"A particularly astute London analyst points out this morning that open interest in the $1,200 December call has risen substantially since late September. There is the view that such a development has a magnetic effect."

"Today, of course, world gold has continued the climb seen in the aftermarket yesterday, with a major acceleration when Europe opened and, apparently, right now. Estimated volume by 9AM was a very heavy 86,852 lots."

"If this goes on, maybe the gold shares will go up."

His second commentary arrived at an ungodly hour earlier this morning...

"If a profit-motivated short seller was present, Wednesday was not a happy experience: gold surged in Tuesday's aftermarket and never subsequently returned. Even a neat intraday $7 sell-off between 10:30 and 11AM NY time was totally reversed, and December gold closed up $16.20. Estimated volume was high: 165,287 lots."

"However, the actual intraday NY experience was anomalous. At the close, spot gold was actually about $1 below the open."

"Gold shares were extremely mutinous. The HUI closed up only 0.76% and the XAU up 0.57% having been up 2.6% and 2.4% at their highs. This was despite gold having added another $3 or so by the stock market close. Even at the Comex close, gold was up 1.1%"

"Market conditions in Vietnam [Thursday morning] were, of course, turbulent. Reuters reported that afternoon gold stood at a $30.04 premium to world gold of $1,116.90 [Tuesday $57.50/$1,106.30]." [Well, with the afternoon premium north of $30... it doesn't look like premiums have collapsed... at least not yet. - Ed]

The big news about Vietnam's resumption of gold imports was all over the Internet yesterday. In the German newspaper story below, Vietnam's central bank basically acknowledged that it was trying to suppress the price... and this news may also stop the gold smuggling industry in its tracks. The headline says it all... "Vietnam to Allow Gold Imports to Stabilize Market". This story is a must read too... and the link is here.

Besides all the stories about Vietnam's gold situation, I have a lot of other stories today as well. The first two stories are courtesy of the King Report. The first is posted over at The Pragmatic Capitalist. The writer wonders aloud as to who the mystery buyers are in the S&P futures market when they "get gunned on low volume days". Well, dear reader, we can make an educated guess. It would be well-known New York investment houses working for the President's Working Group on Financial Markets... a.k.a. the Plunge Protection Team. This short piece is entitled "Who is the Mystery Buyer?"... and the link is here.

The next story [courtesy of the King Report] is from London's Financial Times. Apparently there's big trouble brewing in the Japanese bond market, as long-term government bond yields are starting to rise. This is not good news for Japan, one of the world's most indebted governments. The story is headlined "Japan worried about steep rise in bond yields"... and the link is here.

Next, is another story courtesy of Australian reader, Wesley Legrand. It appears that legendary short investor, Jim Chanos, has turned into a big China Bear. Chanos, a billionaire, is the founder of the investment firm Kynikos Associates and a famous short seller ˜ an investor who scrutinizes companies looking for hidden flaws and then bets against those firms in the market. His firm made a fortune shorting Enron back in 2001. Could he be right again? But he's not the only one who thinks he sees disaster lurking behind the Chinese production facade... so I'd take the time to read this story if I were you. The story is posted over at politico.com... and the headline reads "Is China headed toward collapse?"... and the link is here.

Many years ago, GATA consultant James Turk, made the discovery that part of Germany's gold was most likely being stored at the U.S. Mint at West Point. Last month, the German government confirmed that part of it's gold holdings were being held outside the country. Well, here's a youtube.com video from Russia Today that sheds a big light into the nether reaches of post-WW2 German/American "relations"... if you want to use that word. A new book has just been published by the former head of West Germany's military intelligence stating that Germany's gold reserves are being held in the United States. I sent the video off to James Turk for his comments, and got this reply back in the wee hours of this morning... Wow! What can I say? This video and the book is amazing. I was just in Munich and there was a lot of discussion about where is the German gold. I did not hear about this book though. But given who wrote it, the book must be authentic. And I am not surprised that the US would want to dominate West Germany [just like the Russians dominated East Germany]. Needless to say, this video is worth watching a couple of times... and a big thank you goes out to reader, John Diamond, for sending it to me... so I could share it with you. The link is here.

Several months back, there was a lot of talk about tungsten, uranium and a whole pile of other metals that were allegedly being used to fill gold bars. It's possible, as the technology actually exists to do it... and there's even a company in China that does this sort of thing... and even advertises their skills [with tungsten and gold] on their company website. Here's a short item posted over at safehaven.com that goes into this "fake gold bar" business in some detail. The piece is entitled "Tungsten as a Gold Substitute"... and the link to this very worthwhile read, is here... and I thank U. Doran for sending it along.

I have two stories left to post... both gold related... and both must reads. The first is from Ambrose Evans-Pritchard at The Telegraph in London. It now appears that Barrick Gold is scurrying around the world apologizing for its hedge book. In the last three or four months, Barrick has gone from easing towards the hedge book exit, to a panic exit of biblical proportions. I'm somewhat disappointed at this turn of events, as I was hoping that they would burn in hell with a full hedge book... but their bullion bank, JPMorgan, must have had other ideas for them. The story is headlined "Barrick Shuts Hedge Book as World Gold Supply Runs Out"... and the link is here.

And lastly, is this blockbuster story from Canada's Globe and Mail yesterday. The author of this particular piece, Fabrice Taylor, is very well known in Canadian business circles. Fabrice is a chartered financial analyst and a financial columnist for this paper. He says in his column that True, the U.S. has a lot of gold... but it's well known in bullion circles that a lot [or most] of it has been lent out to banks and whatnot, that sell it short, The headline reads "A rock-solid case for gold reserves: Like India, the Bank of Canada should rely less on the U.S. dollar and more on gold"... and the link is here.

As for the argument that U.S. dollars are backed by the biggest gold reserves in the world, so holding them in reserve is relatively safe, that's rubbish. True, the U.S. has a lot of gold, 8,100 tonnes of it officially, or 77 per cent of its reserves. But it's well known in bullion circles that a lot or most of it has been lent out to banks and whatnot, that sell it short, depressing its value. - Fabrice Taylor, Globe and Mail, November 11, 2009

Well, there's been lots of smoke billowing out of the secret world of gold in the last few weeks. The Germans... and now the Canadians... are blowing this whole thing wide open, so it's only a matter of time before the U.S.bullion banks find themselves in some sort of crisis situation... if they aren't there already. How far [and for how long] they can keep kicking the gold and silver cans down the road remains to be seen. But, I would suspect, it won't be for much longer.

In a private letter to his clients yesterday, Ted Butler feels the same way. We both suspect that the days of the market management of the precious metals [and a lot of other things] are numbered.

However, I'm still very concerned about the precious metals share price action... plus the non-confirmation of silver. I feel that both are being held back to make sure that neither confirms the breakout in the gold price. Am I seeing things here, you might ask? Well, I don't think so... especially with the silver price. If this isn't the case, then both have a lot of catching up to do... and fast.

And, as I put this commentary to bed, I note that gold and silver prices are about unchanged from where they were this time yesterday morning during London trading. Volume is pretty heavy in both... around 36,600 contracts in gold and 6,900 contracts in silver. It could be another interesting day in New York when the Comex opens for trading.

See you on Friday.