"China Should Avoid Using The Open Market To Buy Gold"

Gold's high watermark price was at precisely noon in Hong Kong trading yesterday... and from there it was basically all down hill until shortly before 10:30 a.m. in New York trading on the Comex... which was the low of the day. From that point, a rally ensued that ran out of legs about 3:40 p.m... and from there, gold got sold off almost back to its low of the day by the close of electronic trading at 5:15 p.m.

Silver's high price of the day occurred about an hour before gold's... and from there it drifted lower until the silver fix at 12 noon in London. A bit of rally started from that point, but the moment that Comex trading began, silver was smacked for about 40 cents. It's low coincided exactly with gold's, of course... but the ensuing rally wasn't overly strong, so when gold got sold off, silver got sold back down to its low of the day... and that's where it closed. From its Hong Kong high, to it's New York low, silver got about 65 cents shaved off its price.

Naturally, the precious metals shares were not amused.

Wednesday's open interest numbers weren't a big surprise. There wasn't a lot of price movement, but it was nice to see gold open interest slide another 2,423 contracts [minus deliveries, of course]. Volume was a pretty decent 209,873 contracts... and total open interest is sitting at 519,703 contracts. Silver open interest fell a smallish 15 contracts... and if you factor in deliveries, o.i. was actually up a bit on Wednesday. Volume was 40,547 contracts, with total open interest sitting at 131,884 contracts.

Wednesday's final open interest numbers for the December futures contract showed that open interest for December delivery declined by 902 contracts to 9,363 contracts. In December silver futures, open interest fell another 231 contracts leaving 2,116 contracts open for December delivery.

The CME Delivery Report for Wednesday just got posted [10:00 p.m. Eastern time] and it shows that 390 gold contracts are up for delivery on Monday. So far in December... 5,264 gold contracts have been delivered. So, if you subtract these 390 contracts from the 9,363 contracts of open interest still outstanding for December, there are still 8,973 gold contracts left to deliver before the end of the month. It's not a huge number... but it's big enough. Yesterday's CME Delivery Report is linked here.

In silver, a rather largish 411 contracts are to be delivered on Monday. Bank of Nova Scotia was the big issuer [372 contracts] and JPMorgan was the big stopper [269 contracts]. So far in the first full week of December... 2,071 silver contracts have been delivered... and if you subtract the 411 contracts delivered yesterday from the 2,116 contracts still open for December delivery [see two paragraphs ago]... there are still 1,705 silver contracts left to delivered this month. Not a big number, but it's big enough at this time of month [like gold] to warrant some attention... at least that's what Ted Butler told me on the phone yesterday.

Thursday's data shows that there was a very small change in GLD... the gold ETF... which was up 8,893 ounces. But in the silver ETF...SLV... it was another red-letter day... as another big chunk got taken into inventory. This time it was a paltry 3,634,473 ounces. Another half a dozen shipments of this size and they actually might get caught up. Since October 13th... less than two months ago... 29.0 million ounces have been brought into the SLV. That's equivalent to 75% of the U.S.A.'s entire yearly silver production. To put it another way, that's equal to all the silver eagles that will be sold by the U.S. Mint during the entire 2009 calendar year! And that, dear reader, is a lot!

Talking about the U.S. Mint, I was surprised to see an update from them yesterday... but it wasn't silver eagles that were updated, it was factional sizes of gold eagles... bullion coin sizes that the mint hasn't produced since this time last year. I'm not going to break down the numbers but, in total, it added up to 58,000 ounces of gold... an amount not to be sneezed at. No one-ounce gold eagles were sold. The mint also reported selling another 9,000 24K gold buffaloes as well.

I have three gold-related news stories... none of which are real blockbusters... but I would skim the stories nevertheless.

It appears [from this Wall Street Journal story yesterday] that more simulated gold products are on the way. "Standard & Poor's launched a new index designed to allow investors to participate in equity-market gains while hedging with gold to reduce risks from U.S. dollar fluctuations. UBS AG will create and launch products based on the new index." Of course there's no metal backing to it, as you find out soon enough when you read the article. I urge you, dear reader, to stick with the physical metal in hand. The WSJ headline reads "S&P Launches Gold-Hedged Index To Protect Against Dollar Risk"... and the link is here.

The next story is a Reuters piece. The headline reads "China needs to buy gold in long term: Industry Executive". However, the Chinese industry official also said that China should avoid using the open market to step up gold purchases. It's not an overly long article... and the link is here.

Here's another Reuters story headlined "Investors Taking Contradictory Path with Gold". GATA's secretary treasurer, Chris Powell, said that "since Reuters can't figure gold out, it must be a bubble". Despite the fact that the reporter who wrote this story, Jeremy Gaunt, couldn't find his butt with both hands and a flashlight, it's worth reading... but just barely. So hold your nose... and click here.

In a story posted at the Financial Times in London yesterday comes this headline... "Chinese official slams banks over derivatives". Several months ago, there was a similar story from China where officials said that they would allow state-owned companies to walk away from these sorts of contracts. Of all the stories I've posted so far today, this is the one that's really worth your time... and the link is here.

My last story of the day comes from David Galland's absolutely free daily commentary... Casey's Daily Dispatch. This is a piece from the German website spiegel.de. The headline reads "Searching in Vain for the Obama Magic"... "Never before has a speech by President Barack Obama felt as false as his Tuesday address announcing America's new strategy for Afghanistan. It seemed like a campaign speech combined with Bush rhetoric -- and left both dreamers and realists feeling distraught." This is a wonderful, but disturbing, article... and one you should run through. It's not very long, either... and the link is here.

Before I head into my closing comments for this column, I want to bring your attention to something that David Galland mentioned in one of his Casey's Daily Dispatch commentaries a short while ago.

He was talking about a pretty unique gold deal that might be of interest to any of you who are now beginning to ponder the perfect holiday gift. He was referring to the handcrafted 24-karat gold necklaces and bracelets in carefully assayed one-to-five ounce sizes. I wear similar gold jewellery myself, which I purchased here in Edmonton at the Indian jewellery stores... of which we have many. The mark-up I paid was spot plus 40%... which is not a lot considering what regular jewellery stores charge for 10K and 14K gold... which is usually several hundred percent. The Indians and Chinese laugh at such low-carat jewellery... and don't consider it to be gold jewellery at all.

These 24K gold jewellery items are very attractive with a specific weight and purity. When I bought my gold jewellery, the items were not marked with a price. They took whatever piece I was interested in and put it on a scale... as they sell it by gold content... not by whatever clever design it's made up into. In the Far East, gold is money, and there are gold shops everywhere. Women who go shopping and find themselves short of cash will very frequently take off a ring, bangle or earrings that they're wearing and sell it at one of these gold stores and walk away with the cash... knowing they can replace the item later when they have the money. That's just the way things work over there...especially in India and Vietnam.

As jewellery, it will never be subject to confiscation, should such a thing ever come to pass. And secondly, it’s far easier to move across international borders without raising eyebrows – usually not the case with gold coins or bars. Consequently, in addition to being a special gift, it offers you the added comfort of serving as universally accepted emergency funds – insurance, if you will – that you will [hopefully] never have to rely on.

When you wear it, the 24K gold colour is distinctive... and everyone notices it. Here in Edmonton, the people who really notice my jewellery are the Indian people themselves. They are astonished that a white man would wear it at all. It's a point of personal pride for me that I do wear it... and it's the only kind of jewellery that I buy my wife.

Of the four style choices you have, except for maybe the 'Unity' design, they are just as much a man's necklace as a woman's. My necklace is the 'Anchor' design.

In any event, if this is of interest to you, I’m told that if you order your jewellery today, or before December 11, you should be able to receive it in time for the holidays. Because each piece is handmade, however, only a very limited number of necklaces and bracelets – about 35 – can be produced in any given week. Thus, once the holiday order book is filled, it’s filled – though these will make great gifts any time of year.

Given that each piece is priced based on the spot gold price, you’ll need to lock in your price and order over the phone, just like you would a gold bullion purchase, which is basically what it is... except this is money you wear around your neck or wrist! More details on the jewellery, and the various styles it comes in, are available online by clicking here.

I see that you can e-mail your order as well...or you can skip right to the head of the line by calling in your order at 1-866-885-6971.

A gift like this will also earn you a lot of 'Brownie Points'... and will certainly ensure that the recipient truly does have a very "Happy Holiday" indeed.

I see that the gold price has been all over the place [between $1,200 and $1,210] in Friday trading in the Far East... and now into morning trading in London. Silver is hanging around the $18.80 mark where it closed in New York last night. February volume in gold is a pretty decent 38,977 contracts [at 5:25 a.m. Eastern time]... and silver's volume in the March contract is quite small by comparison at 4,761 contracts.

I note that the CME has its preliminary report up for the metal futures. Gold had pretty decent volume yesterday... around 240,000 contracts. Silver's volume was about 46,000 contracts. The December delivery month once again showed declines. In gold it was down 226 contracts to 9,137... and silver was down another bunch, this time by 493 contracts... leaving only 1,623 contracts left to deliver in December. The final numbers, which will be posted on the CME website later this morning, will show up in my Saturday comments.

The jobs report comes out today. Virtually without fail, the U.S. bullion banks [read JPMorgan] hit the gold and silver price the moment they are released. They did last month as well, but the take-down was rather small... and prices recovered all their losses the same day. It will be of interest to see what they have in store for us this time, so watch for it.

I hope you have a great weekend... and I'll see you here on Saturday morning.