Congressman Ron Paul Tells CNBC That the Gold Price is Rigged

Well, Monday's trading in both gold and silver didn't produce any significant fireworks of any kind which, I must admit, was a bit of a surprise. Gold's low price of the day came shortly after 1:00 p.m. during afternoon trading in Hong Kong... retested that low around the London a.m. gold fix... and, from there, worked its way back to its high of the day, which came precisely at the end of floor trading on the Comex around 1:30 p.m. New York time. From bottom to top, it was about a $20 price swing. So it appears that another [but smaller] attempt to drive the price down in Hong Kong trading ended up with the same result as Friday's action. The shares finished slightly in the plus column as well. Here's the gold graph to show Monday's activity in context with what happened last Friday during Hong Kong trading in their afternoon.

Silver followed more or less the same path as gold, finishing on its high price of the day... and up 19 cents [spot] from Friday's closing price of $18.25 spot.

Friday's open interest figures are noteworthy in the fact that considering the price moves involved, there weren't a lot of big changes. Gold open interest only declined 3,413 contracts... but volume, once again, was gargantuan... with 403,720 contracts traded. Total open interest for gold sits at 528,724 contracts. Open interest in the December delivery month fell the most... down 26,940 contracts to 17,426. Yesterday was first day notice for delivery into the December contract... so, once December's open interest numbers for Monday are published this morning, we'll have a pretty good idea of how many contracts are standing for delivery this month. This same process applies to silver... and in that metal, Friday's o.i. declined 2,305 contracts on 81,975 lots traded. Total silver open interest now sits at 133,187 contracts. In the December delivery month, silver o.i. is already down to a pretty low 3,998 contracts... and that number will decline further once the CME posts the final numbers in their futures report later this morning.

What these rapidly dwindling December open interest numbers indicate is that the likelihood of a short squeeze in the December delivery month is becoming more remote with each passing day. Of course, it's still theoretically possible, but the odds for it happening are fading rapidly. And we won't know 100% for sure until December deliveries finally go off the board at the end of the month. And if there is going to be a short squeeze, the price should tell us that well in advance, as the insiders will be buying everything in sight as soon as they find that out.

The new Commitment of Traders report came out yesterday... and it was a shocker... as there was huge deterioration in both metals. In silver, for positions held at the close of trading on Tuesday, November 24th... the bullion banks [principally JPMorgan] added another knee-wobbling 6,064 contracts to their already grotesque short positions. That's 10+% increase in one week! As of last Tuesday, the bullion banks were net short 64,445 contracts... and that, dear reader, works out to 322.2 million ounces of silver... close to 50% of world silver production. And it's a monstrously concentrated net short position as well, because when you take out the market-neutral spreads, four or less bullion banks are short a whisker under 50% of the entire Comex silver market! And the '8 or less' bullion banks are short well over 70% of the entire Comex silver market! You don't need a master's degree in common sense to figure out why the silver price has not broken out to new highs during this move. The full-colour silver COT report is linked here... and you should spend a couple of minutes on this graph... and it's gold equivalent below.

And for gold... it's now official. In living, breathing black and white... the net short position in gold [at the end of trading last Tuesday] is now sitting at 30.6 million ounces... as the bullion banks increased their net short position by an obscene 31,297 contracts [during the last reporting period] to a total net short position of 306,104 contracts. A back-of-the-napkin calculation shows that '4 or less' bullion banks are short around 17 million ounces of gold... and '8 or less' bullion banks are short around 26 million ounces of the stuff. The concentrated short position in gold has skyrocketed to almost the same obscene levels as silver... as fewer and fewer bullion banks hold larger and larger amounts of short positions. The link to the full-colour COT graph is here.

So, if it wasn't for them, gold [right at this very moment] would be some very large 4-digit price and silver would be some large 3-digit price... as there are no legitimate shorts around to take that side of the trade when another trader goes long. That's where the bullion banks step in and become the non-economic short of last resort. This isn't rocket science.

As Ted Butler has said many times, it's how this "crime in progress" on the Comex is going to resolve itself that will determine where the price goes to from here. Yes, the bullion banks may get over run with this monstrous short position in place... an outcome that I'm cheering for. But, if/when it does happen, it will be for the very first time. The other outcome is an engineered price decline by these same banks. The one that was attempted during Friday trading in Hong Kong didn't turn out the way they would have hoped... as both gold and silver came roaring back to almost unchanged within 12 hours.

This super concentration in both precious metals by a handful of [mostly U.S.-based] bullion banks, is the #1 issue sitting on the desk of CFTC chairman, Gary Gensler. There is no way out of this mess without enormous price dislocations in both gold and silver. I do not envy the position he finds himself in... or the decision he has to make. But, considering the grotesque increases in the net short positions in both metals in this last COT report, the bullion banks [led by JPMorgan] are basically telling Gensler to "go forth and multiply." Gensler did say that he would have something on the issue of position limits ready by early December. Well... 'early December' started at midnight last night. Let's see if he does anything... or is he going to kick this can further down the road?

Now that we're into the December delivery month, we have some figures worth mentioning... and Friday's CME statistics [for December 1st delivery] showed up in my report yesterday. In Monday's report, another 1,141 gold contracts were put up for delivery tomorrow. Bank of Nova Scotia and Goldman Sachs were the biggest issuers... and the biggest stoppers were each other... plus JPMorgan. There were lots of smaller issuers and stoppers in gold yesterday, as activity is always busiest in the first few days following first notice day. In silver, 447 contracts were put up for delivery on Wednesday. The big issuer was the Bank of Nova Scotia... and the big stopper was JPMorgan.

In the first two days of the December there have been 4,007 gold and 1,507 silver contracts put up for delivery already. The link to Monday's CME Delivery Report is here.

The last day of November brought some big changes to both the GLD and SLV ETFs. In GLD, another 68,619 ounces were added... but over at the SLV, it was another day for the record books, as 4,911,710 ounces of silver were taken into inventory. Since October 13th, the SLV has taken in about 25.5 million ounces of silver. Ted Butler figures that they have a few tens of millions of ounces yet to put into the SLV to cover all the shares they've shorted over the last six months... because they couldn't deliver the physical silver necessary.

The U.S. Mint's gold eagle production is still frozen at 124 million one-ounce bullion coins... which is also the final November total. Hopefully they'll get back into production soon. Then the question becomes... will they be minting for 2009, or new orders for 2010. We'll find that out soon enough as well. There were no changes reported in silver eagle production... and the month ended at 2,586,500 sold. However, the mint did report another 6,000 - 24K gold buffaloes sold on the last day of November. Year-to-date the U.S. Mint has produced 1,193,500 one ounce gold eagles and 25,993,000 silver eagles... along with 184,000 24K gold buffaloes [which doesn't seem like a lot, but they only restarted 2009 production in October, so the number is pretty impressive... all things considered.]

There were also more changes reported by Switzerland's Zürcher Kantonalbank. For the week that was, their gold ETF added around 20,000 ounces... and, for the second week running, their silver ETF added about a million ounces to their silver inventory. This time it was an increase of 975,000 ounces. I thank Carl Loeb for those numbers.

Over at the Comex-approved depositories, a very small 5,180 ounces was taken into inventory. Because the Comex reports inventory updates one day late, the final November number won't be published until sometime after 5:00 p.m. Eastern time today... and I'll mention it in my Wednesday report. But, as of the close of business on Friday, November 27th... they reported a silver inventory of 111,598,880 ounces.

Today's first gold-related story is a piece I found over at Kitco... and posted at miningweekly.com. The headline pretty much says it all... "Australia ousts U.S. as second-biggest gold producer, S.A. slips to fourth"... and the link is here.

The next gold story is a Reuters story filed from Beijing and posted over at abcnews.go.com. "Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday." The headline of the story reads much the same... and the link is here.

This next story refers to the headline of today's column. They used to cut away from him during broadcasts of congressional hearings when he got to question Federal Reserve officials. But this week CNBC's "Squawk Box" program did a wonderful 14-minute interview with U.S. Rep. Ron Paul, R-Texas, sponsor of the increasingly popular legislation to audit the Fed. The interview treated the subject with substance... unusual for television. Paul predicted that the Fed will destroy itself as it destroys the dollar. He also remarked that gold is rising even though its price "is rigged by central banks and various entities." CNBC's on-air editor, Rick Santelli, participated in the discussion and emphatically agreed with Paul on the need to pierce the secrecy of the Fed's financial patronage. The video [which is well worth watching] is posted over at lewrockwell.com... and the link is here.

James Turk has another commentary posted over at his fgmr.com website. I just didn't have room for it yesterday, so I saved it for today when I thought you might actually stop and read it. Turk says that the Federal Reserve is essentially insolvent and is now not only "the lender of last resort" but "the buyer of last resort" as well. That's the headline on Turk's commentary -- "The Federal Reserve Becomes the 'Buyer of Last Resort" -- and the link is here.

This next story is courtesy of reader Dave Delve. It's a one-page piece out of Saturday's New York Times. The number of food stamp recipients has climbed by about 10 million over the past two years, resulting in a program that now feeds 1 in 8 Americans and nearly 1 in 4 children. There's an absolutely wonderful interactive graph... and a complete list of food stamp recipients in every county of the United States as of June 2009. See how your particular county is doing in this one-page article headlined "Food Stamp Usage Across the Country"... and the link is here.

My next four stories deal with one subject... the global warming hoax. I never believed in it for a second and denounced Al Gore's movie even before I saw it. In my younger years, I spent seven years in the meteorological service of Canada... surface weather, upper air, solar radiation, ice thickness, snow depth... and one year in rocket meteorology when I worked for NASA... with all of it occurring in Canada's arctic back in the late 60s and early 70s. There's not a lot about the last thousand years of the world's climate that I'm not familiar with.

The global warming world came crashing down about ten days ago after a hacker broke into the computers at the University of East Anglia's Climate Research Unit [in Norwich, England] and released 61 megabytes of confidential files onto the Internet... including 1,079 emails and 72 documents. This is a huge scandal. I have four stories relating to this, and I urge you to take the time to run through each and every one of them. The second-last story was written before this scandal broke... and the last item is a 75-minute video that was released 8 months ago... denouncing, in no uncertain terms, the whole global warming scam.

1. Climategate: the final nail in the coffin of 'Anthropogenic Global Warming'?.

2. Climategate e-mails sweep America, may scuttle Barack Obama's Cap and Trade laws.

3. Stagnating Temperatures: Climatologists Baffled by Global Warming Time-Out.

4. The Great Global Warming Swindle.

Below is the 3-year graph for gold. Friday's smack-down in Hong Kong trading made only a small dent in the huge overbought condition that currently exists in gold. The RSI now sits at 74.98... and the MACD line [Moving Average Convergence Divergence] is just about the highest it's ever been at 32.908... tied with it's late February 2009 peak when gold briefly went over $1,000 back then.

Can gold go higher from here? Absolutely! All that has to happen is for the bullion banks to put their hands in their collective pockets and not go short against all the longs that are currently entering the market. Will that happen? Maybe... because that's what I'm cheering for. The other option, as I've mentioned ad nauseum in this column is for the bullion banks to orchestrate a major decline so they can cover part of their massive short position on the Comex. Will they? Can they? As I said yesterday, I don't think we'll have long to wait before we find out the answer to these questions.

I note, as I write this paragraph, that both gold and silver have shown great strength in late afternoon trading in Hong Kong... and this has now extended into early morning trading in London. This is not the local boys buying and selling, it's the U.S. bullion banks doing their thing on the Globex trading platform... which they have access to almost 24 hours a day.

Trading volume in gold [at 5:10 a.m. Eastern time] is already an absolutely monstrous 47,775 contracts in the February's futures... and silver's volume is 6,584 in the March futures contract... which isn't a lot, compared to gold. And I can tell from these volume numbers that this big price rise is not going unopposed... so Tuesday's open interest increases in both metals will be ugly to say the least!

This is one of the most impressive price break-outs I've ever seen at this time of day. I was expecting activity like this on Monday, but it never happened... so maybe Tuesday is the day. As I said a couple of times in this commentary, the only thing standing between us and a mind-boggling price in both gold and silver is the U.S. bullion banks... and the day they put their hands in their pockets, or make any attempt to cover, will be one for the record [and history] books.

Today's trading in New York should tell us a lot.

See you on Wednesday.