Russian Central Bank Stands Ready to Buy Any Gold From State Depository

Both gold and silver prices went vertical the moment that trading began in the Far East on Monday morning. That wasn't allowed to last for more than a few minutes, but it was certainly was a harbinger of things to come... and by around 4:00 p.m. in Hong Kong trading, gold hit it's Far East high of round $1,133 the ounce. Gold didn't do much in London trading... and actually declined around $5 by the time that the U.S. bullion banks opened for business on the Comex. But almost from the open, gold was on the rise once again... and this rally continued more or less uninterrupted until about an hour into electronic trading after the floor market had closed for the day. Gold closed down about $3 from it's absolute high of the day... but it was another high close for the record books nonetheless.

Silver was the standout yesterday... and was well into the plus column for the entire 24-hour session as trading day moved ever westward. The big move came right at the London p.m. gold fix at 3:00 p.m. in London... 10:00 a.m. in New York. By the time the smoke cleared, silver was up almost a dollar on the day.

The shares did very well yesterday, but sold off a bit after the peak price in both gold and silver occurred... which was around 2:30 Eastern time. The HUI finished up a respectable 3.26%.

Although I'm happy about this, I'm still concerned about the fact that neither silver nor the shares are confirming gold's move. They have certainly been giving it the old college try the last couple of days... but we aren't there yet.

The absolute top in the HUI/XAU came in March of 2008 when gold managed to make it up to around $1,040. Then the HUI hit the 520 mark. And here we are, twenty months later, gold is $100 higher... and the HUI is still down 10% from that high... and silver is $3 lower. Here's the 3-year chart of the HUI...

Now, here's the 3-year silver chart. One big thing in its favour is that it is absolutely nowhere near being overbought. So we could still see silver make a big run in a big hurry. Yesterday was a good start.

Now for Friday's open interest numbers. As you are already aware, dear reader, we had a surprise run-up in both gold and silver prices after the London p.m. fix on Friday, that surprised everyone... this writer included. But for such a substantial run-up, there wasn't much of an increase in open interest... only 1,891 contracts. Maybe the bullion banks were improving their short position by covering shorts and going long at the same time. Volume was a pretty decent 170,472 contracts... with total gold open interest now at 519,961 contracts.

In silver, open interest rose 1,252 contracts on volume of 44,696 contracts. Total silver open interest is 135,239 contracts.

Needless to say, Monday's open interest numbers... when they become available later this morning... should tell us a lot. Was yesterday's price action short covering... or further shorting of new longs by the bullions banks. I'm praying for the former... but expecting the latter.

The CME showed no deliveries in gold and silver worth mention again yesterday... and neither the GLD or SLV ETFs showed any changes in their alleged inventories either. However, the U.S. Mint updated their gold and silver eagle production. They reported another 14,500 gold and 750,000 silver eagles minted since their previous report. Month-to-date, the mint has produced 60,500 gold eagles and 1,600,000 silver eagles. Total production year-to-date in each: one ounce gold eagles 1,130,000... and one ounce silver eagles 25,006,500. Over at Switzerland's Zürcher Kantonalbank, they reported the following changes to their precious metals ETFs. Their gold ETF added 17,954 ounces... but their silver ETF showed a reduction of 81,116 ounces. I thank Carl Loeb for those numbers. And finally, over at the Comex-approved warehouses, another significant chunk of silver was reported removed from their inventories... this time it was 596,469 troy ounces. Current warehouse stocks shows that 11,897,802 ounces are sitting there. One would have to go back to the beginning of 2007 and see a silver inventory number that low. Here's the current silver warehouse inventories going back 30 years. I thank Nick Laird over at sharelynx.com for providing this chart.

Before leaving this long-term chart, I want to point out the price graph [in gray] at the top. From the beginning of 1985... and until the end of 2003... the silver price was virtually ruler-flat. It didn't make any difference what supply/demand was... or inventory levels... or economic conditions... silver never strayed much more than 50 cents either side of this line for 18 straight years!. I defy anyone to find a commodity chart [any commodity chart] that bears even a passing resemblance to this graph... and between those years mentioned. Not even gold's long-term graph looks like this. This is a graph of a price in virtual lock-down.

And this is the exact reason why the silver market is about to blow sky high. The supply/demand fundamentals have grown so far out of whack in the last couple of generations, that virtually every last bar of good delivery silver left out there, is almost worth its weight in gold.

Even with JPMorgan short 40% of the Comex silver market, they still can't keep the price down. One can only imagine where the price would be if JPMorgan et al were forced to cover... or if [by government magic] these short position in silver [and gold] could be made to disappear overnight by closing the Comex markets in both metals. That latter possibility exists if the 'powers that be' decide that the corner they are painted into can only be resolved in this manner. Ted Butler alluded to it in his interview with Eric King that I posted on Saturday morning... and Ted and I spent a lot of time discussing it on the phone yesterday as well. We'll see.

The usual New York gold commentator had some Saturday comments about last Friday's action... and I will just hit the highlights... "Moves down of this type on a Friday, with no effective overseas counterparty, are not unfamiliar to gold's friends, and are normally dismissed as tape-painting. Maybe the same is at work. Certainly gold seems to have found some unusual new supporters. The news that Touradji Capital Management now has 87% of its equity holdings in Barrick Gold is not what long-time gold observers are used to." [The link to that Bloomberg story is here.

"The first thing to be stressed is that the physical market is in a profoundly different posture than in Q1/09. Then, regular buyers like Turkey, Vietnam and even India were exporting. Now, to varying degrees, they are buyers. Kilo bars in Istanbul closed at $1.48/ounce premium to spot on Friday, despite gold's rise: India's return to the bid because of the rupee move noted here on Friday, may have been decisive in the NY session's Bear rout; and, of course, Vietnam premiums... as last reported over $30... are crying out for gold supplies."

"It is true that the US bar and coin demand is not as wild as it was earlier this year, but US demand never entirely faded. And a survey of dealers today [Saturday] suggests they have raised their premiums quite a lot in the past 48 hours."

"We are now in a period of extreme seasonal strength. The graphs show that the November through February phase has been reliably enormously strong. There is an obvious reason for this: these are the months of India's peak consumption." On this basis, the possibility of a serious pull-back seems small."

"The Privateer has another way of looking at this issue: ...a lot of people are starting to muse about the current bull market leg getting a bit long in the tooth. In fact, if we compare the current rally with the one which took place after $US Gold's first correction which started in May 2006, we will find that the opposite is the case.

"∑the more recent correction was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS."

Then, in later commentary on Saturday, he had this further data on Vietnam... "Some have questioned the interest here in Vietnam. The reality is that the country is probably the world's most avid user of gold for domestic transactions, no doubt in part because of the dismal events of the late 20th century. When the economy was liberalized some years ago, consumption began rising rapidly, exceeding 90 tonnes in 2006. Virtually all has to be imported."

"According to the mineweb.com article mentioned here on Friday, [it's linked in my Saturday commentary - Ed] Vietnam imported 43 tonnes of gold in the first 4 months of 2008. China only imported 112 tonnes that year. China, of course, has huge domestic gold production. In terms of impacting the world gold trade, Vietnam is in the same league as China."

Then, even before gold began to trade in New York yesterday morning, he had the following to report... "India was certainly an importer in the morning... but doubtful in the afternoon. India was able to more or less keep pace with world gold today because of the rupee being firm, reaching $46 before settling back to close up 0.2% at $1=$46.20. The stock market added 1.09%."

"While one doubts India's bullion importers are rushing in here, the point is that, absent a weaker rupee, they will be forced in by their public if gold should soften. Not what the bears want to hear."

"Reuters amiably published two Vietnam gold reports again today. In the morning, local gold stood at a $44.04 premium to world gold of $1,123.30... and in their afternoon $32.31/$1,129.76 [Friday PM$27.31/$1,102.80]. Clearly gold hunger in Vietnam is real and actual imports will be need to assuage it."

"The Japanese 'general public' liquidated 0.65 tonnes of open interest on Monday -- not much."

Then his late night report last night on Monday's activity basically reiterated what I said earlier, except he added this... "Tuesday local gold in Vietnam stood at a $41.46 premium to world gold of $1,137.20. Reuters quotes a local newspaper report of gold dealers saying they would import little because local demand was "still weak"... which is obviously absurd. They do have some reason to fear volatility."

With three days worth of stories to report, I must admit that I have a full plate today. And if you can remember last Monday... it's almost as bad as that.

The first story today is a GATA release entitled "Greenspan suggested gold price suppression in 1993". The comments were contained in the minutes of a now declassified FOMC meeting way back then. The link is here.

The next story is a Reuters piece filed from Tehran and posted over at asia.news.yahoo.com. The headline reads "Iran central bank coin sale bursts 'gold bubble' - media". "The price of gold coins in Iran fell by more than 4 percent after the central Bank started supplying newly-minted coins to the market, Iranian newspapers reported on Sunday. The planned central bank intervention appeared in part to be an attempt to help bring down inflation and reduce liquidity in the economy." The link to the full story is here.

Next is another GATA release. In it, are two must read stories for you newbies... or those of you who are too young to remember the antics of French President Charles de Gaulle and the London Gold Pool. This is another chapter in GOLD-101... and should be required reading by all... this author included. The title to the GATA release is "When it comes to gold, history itself wears a tin-foil hat"... and the link is here.

The next is a Reuters piece filed out of Sydney, Australia. The headline pretty much says it all... "BlackRock says Central Banks to be net buyers of gold". "BlackRock is one of the world's largest fund managers, boasting a total $1.4 trillion under management across all asset classes. It is manager and adviser to the U.S. Federal Reserve and its views can influence the direction of global markets." The link is here.

The third gold-related story this morning is from the marketwatch.com website... and is filed from New York. The headline reads "Gold grinds to new highs -- but the gold bugs are still optimistic". This short piece, written by author Peter Brimelow, is well worth the read... and the link is here.

I note in an early morning Bloomberg story that the tiny island-nation of Mauritius [a paradise in the Indian Ocean] just picked up 2 tonnes of IMF gold. The story is linked here.

The next gold story is a short two minute CNBS interview with Dennis Gartman. He cites GATA, and asks: "Who cares if gold is rigged?" Of course, there's more to the 2-minute segment than that, so it's very much worth your time. The title to the clip is "Gold Is In a 'Bubble' And Will Keep Going Higher"... and the link is here.

The contents of this second-to-last story are certainly no surprise to me... and shouldn't be to you either. About a month ago the Russian State Depository for Precious Metals and Gems said it would sell up to 50 tonnes of gold on the open market. Less that 24 hours after that statement, the Russian central bank said... "bad idea". The day after that, depository officials said "OK... we won't".

Now here's another story from RIA Novosti posted out of Moscow, which states that "The Bank of Russia is ready to buy any gold that may be sold by the State Depository for Precious Metals and Gems, the bank's first deputy chief said on Monday." As I stated in prior commentary, that I would have been awfully surprised if any of that gold ever made it out of Russia... and would probably end up in Russia's central bank. This has turned out to be the case. The link to the story is here.

And lastly is this interview of Eric Sprott, Chief Executive Officer and Portfolio Manger of Sprott Asset Management... and Chairman of Sprott Money Ltd. It's posted over at theaureport.com and is headlined "Eric Sprott: Gold Momentum's Picking Up Dramatically". Eric's got a nine figure net worth, so when he's got something to say, I have a tendency to want to listen. And so, dear reader, should you. I thank Wesley Legrand for sending it along... and the link is here.

The chances of you being harmed by terrorists are mathematically minute. The chance of your being robbed by your own government? That's easy... 100% - Joseph Sobran

Well, along with Friday, Monday was another interesting day... especially in silver. Of course I'm happy about all this, as my portfolio is looking better by the day... as is yours, I'm sure. Options expiry for the December contract is only six days away... Monday, November 23rd. And it's looking less and less likely that we'll see a major price correction before then, as there are only five business days left starting right now. But never say never!

But gold is now overbought, and some sort of correction... even back to $1,100... would not be out of line, just to relieve the overbought condition before powering higher.

But looming over both the silver and gold market is the CFTC's decision on position limits. Will they or won't they impose new limits in silver... and enforce the current limits in gold? Or will they close the Comex? Or do nothing? Commissioner Chilton of the CFTC says that something on position limits will be announced in early December. So we wait.

I note in Far East and early London trading that both metals have slipped a little... but nothing earth shaking. Volume is down quite a bit from yesterday, but it's still pretty hefty for that time of day.

I wonder what the U.S. bullion banks have in store for us in New York trading today? We'll find out soon enough, I'm sure.

See you on Wednesday.