Global Gold Hedge Book Heads Below 10 Million Ounces

The gold price, during the Far East trading day on Tuesday, was mostly down hill. This trend continued into London trading as well, with the bottom coming shortly after 12:00 noon in London... about an hour before trading began in New York yesterday morning. From there, the price rose unsteadily to it's high of the day shortly before the close of electronic trading at 5:15 p.m. yesterday afternoon. Gold's gain on the days was less than a dollar... which is not great, but better than the alternative.

Silver's path was virtually identical to gold's... from one end of Tuesday to the other. Silver finished up a magnificent two cents.

The most amazing thing about yesterday's activity was the fact that the big gold and silver rally was in the face of a rising U.S. dollar. It's as if what the fiat currencies were doing was irrelevant...which, in fact, it is... when you really think about it. I would not be surprised to see these sorts of 'currency' decouplings continue.

Well, open interest for Monday's big surprise day was interesting to say the least. First of all, volume in gold was a monstrous 227,534 contracts. Open interest only rose 2,371 contracts... so I would think, on the face of it, that buried under all the switches and spreads, there was a fair amount of short covering going on. Total open interest in gold is now sitting at 522,332 contracts. In silver, open interest was up a whole bunch... 3,425 contracts on the biggest volume day I can ever remember seeing... 65,303 contracts. Total open interest is back up to 138,664 contracts. But was there short covering? The increase in open interest belies that, but a lot of short covering can be hidden under the cloak of spread trades. One can only hope that all this data will be in Friday's Commitment of Traders report... and it should, unless they withhold it.

Monday is options expiry. All December option owners are on the move... selling, switching or preparing to stand for delivery. Spread trades are being removed and added... and this activity will grow more frantic with each passing day. December is one of the biggest delivery months of the year in both gold and silver, and it will be of great interest to how many in-the-money option holders will convert their options to a futures contract and stand for delivery on November 30th... and in what quantities. The whispers of delivery default are in the air once again... as they have been every month for the last couple of years. So far, they've been wrong in spades with each passing month. But, like a stopped clock, it's right twice a day... so maybe this delivery month is it. But then again... maybe not. We'll see.

Over at the CME yesterday, the Daily Delivery Notice for gold was unexciting. Only 50 contracts are up for delivery tomorrow... and, so far this month, a whole 894 gold contracts have been delivered. That's about twenty-two 400-ounce Comex good delivery bars... which you could stack on your desk with lots of room to spare. December will be different.

There were no reported changes by either the GLD, SLV or the U.S. Mint yesterday. The Comex-approved warehouses showed a smallish net silver withdrawal of 24,706 ounces.

One thing I never talk about, but will today, is the Comex warehouse stocks in gold. Here's a chart going back about 40 years or so [courtesy of Nick Laird over at sharelynx.com]. Starting seven years ago in 2002, Comex inventory levels in gold have been increasing quickly. As of Monday, the Comex is sitting on 9.53 million ounces of gold... about 30 tonnes... which isn't a lot in the grand scheme of things. There have been statements made on the Internet for the last year or so, saying that Comex gold inventories were being drawn down. As you can see from this graph, dear reader, these claims are patently false.

The usual New York gold commentator had two reports yesterday, with the first coming around 10:30 a.m. Eastern time... "India was an importer in the morning, but not in the afternoon. The rupee softened slightly to $1=R46.30, although the stock market recovered from a 0.9% loss to finish up 0.11%."

"Indian dealers are quoted to the effect that trade is continuing: Demand is moderate. It is not less, despite the high prices. The fear of gold hitting 20,000 rupees [$433] per 10 grams is making them buy, said Shashikant Shinde of Magna Projects Pvt Ltd, a wholesaler in the eastern Indian city of Kolkata."

"People got tired of waiting for 15,000 rupees. Earlier, every time gold hit a high, people would wait for a correction. This time not much of [a] correction is happening. There are a lot of weddings in Kolkata, he added." [The applicable Reuters story, filed from Singapore and Mumbai, is linked here.]

"Following Sri Lanka, the Central Bank of Mauritius has bought 2 tonnes of gold from the IMF. It seems to be an Indian 'sphere of influence' phenomenon."

"As noted last night, morning Vietnam gold stood at a $41.46 premium to world gold... and in the afternoon, local gold was at a $34.71 premium to world gold. The Reuters story mentioned above, reports dealers denying they have seen Vietnamese buying, and last night there was a story of a Vietnamese minister saying bad-temperedly that there was 'plenty of gold' in Vietnam. [This is always true, at a price.] Possibly the authorities were hoping to avoid actually allowing gold imports: pleasing news for the smugglers."

"TOCOM was a very light seller, as the public shaved 0.66 tonnes from their long."

"The European Central Bank weekly statement of condition indicated another €1 million [1,462 ounces] acquisition of gold coin by a captive central bank, was the only gold transaction last week. Excluding the previous week's €20 million [0.91 tonne] issuance of gold coin, the ECB has not sold any gold for 5 weeks."

"Gold has been weakening all through Asia and European trading, but since the NY open, shows an inclination to rally. Estimated volume at 9AM was a fairly heavy 59,663 lots. Several commentaries remark on the eagerness of buyers on dips, especially on the Bernanke jaw-boning yesterday."

And in the wee hours of Wednesday morning came this report...

"Monday's spectacular up $22.50 day for NY gold involved, as expected, very heavy volume indeed. Interestingly, open interest only rose 2,371 lots to 522,332 contracts, a 0.45% gain on a day when gold rose 2%. Obviously some significant short interest was squeezed out."

"This perspective makes Tuesday's NY performance [all] the more remarkable. Half an hour before the floor session started, spot gold bottomed just below $1,129... some $14 below the level achieved just after Monday's floor session closed... the result of 15 hours continuous decline. [It has to be said that this was mainly due to a phase of dollar weakness; Euro gold moved slightly weaker than sideways.]"

"Gold in both US$ and Euro gold then staged a powerful rally, despite further firming of the US$. By the floor close, gold had recovered over $11, so that December gold closed up 20c at $1,139.40. Aggregate estimated volume was 137,913 lots. [The preliminary CME volume figure for Tuesday is reported as 164,938... if it can be believed. - Ed]

"Such counter-trend strength after a day in which many shorts clearly exited, is remarkable. Someone clearly had an agenda in NY. Euro gold matched the US$ gold performance."

"For once, the gold shares were appreciative. Having both been down 2% shortly after their open, the HUI and XAU closed on their highs, up 0.76% and 0.61%."

"Very disturbingly, Reuters has failed to publish a Wednesday morning local Vietnam gold report. Occasionally this used to happen in the days when few were interested, but is odd after several days of posting both an AM and PM reading. One hopes the truculent expression by several Vietnam officials today [about devaluing the dong] has nothing to do with this lapse. An interesting report on Vietnam gold is linked here. [That report is very much worth the read. - Ed]

In other gold and silver news, I see that the Central Fund of Canada officially closed it's US$230,181,000 Class A share issue yesterday. This added another 104,132 ounces of gold and 5,206,600 ounces of silver to their already considerable stockpile. In total, CEF holds "approximately 1,346,502 fine ounces of gold and 67,322,479 ounces of silver." And guess what, dear reader, every ounce of it is actually there! To put that amount of silver in perspective, CEF holds 60% of what the Comex warehouses currently have in inventory. The press release on this story is linked here.

I have another bunch of precious metals-related stories today... plus one having to do with oil. The first story showed up on Monday at my friend, David Tice's website . The article's author, Martin Hutchinson, has an interesting take on gold during the next year or so which I think you should take a look at. The piece is entitled "Waiting For The Train Wreck"... and I thank Michael from Ottawa for sending it along... and the link is here.

The next story is a very interesting piece that showed up at the mineweb.com yesterday. The headline pretty much says it all... "Ignominious End to Glory Days: South Africa's gold miners on final deathwatch as scientist finds gold reserves more than 90% less than claimed." "Research shows that production rates should fall permanently below 100 tonnes a year within the coming decade." I thank reader Brad Robertson for bringing this must read item to my [and your] attention... and the link is here.

The next story is courtesy of Australian reader, Wesley Legrand. This item is posted over at miningmx.com and bears the headline "Global gold hedge heads below 10 Million Ounces". Once north of 100 million ounces, the gold hedge book of the world's gold miners has, for all intents and purposes, vanished in the last few years... leaving the two 'dark lords' of the gold world, Barrick Gold and AngloGold Ashanti, holding the bulk of what's left. And, as I stated last week, Barrick Gold is heading for the hedge book exit as fast as its bandy little legs will carry it. The story is very much worth the read... and the link is here.

Today's last gold story is from The Telegraph in London. In this piece, author Martin Hutchinson writes "Gold remains in focus and its price can still explode higher". I love it when people start talking dirty like that... especially in the main-stream press! The headline of this short, must read piece is "Gold at $5,000 an ounce? Don't discard it"... and the link is here.

The last piece of the day is about oil... peak oil to be exact. Living in Alberta, Canada... the 'Texas of the North'... for the last 36 years, gives me a certain feel for the oil industry that a lot of people don't have. I've known about peak oil for decades now... and I personally believe that we are already on the down-side slope of "Hubbard's Peak". Here is an interview with world-renown oil expert, Matthew Simmons. Eric King, over at King World News, spent at least a half an hour talking to Matt, and what he had to say is even more important than what the other stories had to say about gold. I urge you to take the time to listen to this interview, because in the next few years, we will certainly begin to feel the effects of it. The link to the interview is here.

You know, dear reader, if I couldn't invest in the precious metals... I would have every nickel in the energy industry. I have good, close, long-term friends in the oil patch here in Alberta that know the jig is up for oil. If you're interested in 'peak oil' and the energy sector, Casey Research has a wonderful publication that deals with exactly that issue. It's entitled Casey's Energy Opportunities. It, too, carries the same "100% satisfaction or your money refunded" guarantee that all of the other Casey Research publications do... and all for only $39/year! This is cheap, cheap, cheap!!!

The following was from yesterday's King Report... "About the time the U.S. became a republic (1787), Alexander Tyler, a Scottish history professor at the University of Edinburgh, wrote the following about the fall of the Athenian Republic: A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years.

To say that we live in interesting times would be an understatement. What's happening under the hood in the both silver and gold must be a sight to behold for the small handful of individuals that can see the complete picture. I don't think that the 'powers that be' really know what to do with the bullion banks' short positions in silver and gold. They are now in a 'lose-lose' situation. Ted Butler and I are both waiting with fascination [and some fear] as to how the end game plays itself out. In the entire length and breadth of this ongoing bull market in precious metals, never has the spring been wound as tight as it is now.

As I put this report to bed for another day, I note that the prices of both gold and silver fell a bit during early trading in the Far East... with the bottom coming shortly after Sydney closed for the day... and during the lunch break in Hong Kong. From there, both metals began a slow rise, which accelerated the moment that London trading began earlier this morning. Volume in gold [at 5:54 a.m. Eastern time] is a hefty 32,216 contracts... and silver volume is already a monstrous 9,655 contracts... the biggest silver volume I've ever seen this early in the day.

Several commentators [and readers] have noted the huge number of December gold call options at the $1,200 strike price. Does somebody know something? It could be, as there's certainly a lot of money riding on it. But one thing is for sure about this... we'll know by Monday.

Today's trading in New York could be educational.

I hope your Wednesday goes well... and I'll see you here tomorrow.