GATA Goes to Washington

Although the gold graph below looks impressive, not much really happened anywhere yesterday. There was the usual decline going into the New York open... and two hours later, once the London p.m. gold fix was in, gold took off a bit... only to be capped around $1,105 spot. That was it for the day. The 'high' of the day isn't worth mentioning.... and the low was around $1,094 spot... which occurred shortly before 1:00 p.m. in London trading.

Silver's price action was a bit more 'volatile'... but the price track was similar. Silver began to decline at the same time as gold... shortly after 2:00 p.m. in Hong Kong... with the low [around $16.72 spot] also coming at the same time as gold's... shortly before 1:00 p.m. in London trading. And, like gold, once the London p.m. fix was in, silver's two rally attempts during the rest of the Comex trading session were firmly capped by a not-for-profit seller... and the price slid to close only pennies higher than its Monday close.

The precious metals pretty much followed the dollar moves tick for tick. The highs and lows of the dollar on Tuesday... and the corresponding lows and highs in gold and silver, match to the minute. I always find this type of activity suspicious because there's never any lag time, which never happens in a free market. There's always a little bit of lag as the dollar traders can't know what the gold traders are doing at the same split second... unless they're the same people. You may think, dear reader, that I'm searching for black bears in dark rooms that aren't there... but that's what I think when I see this kind correlation.

The precious metals stocks rose back into positive territory once gold and silver rallied after the London p.m. gold fix... and hung around either side of the unchanged mark for the rest of the trading session... finally closing up 0.19%.

Open interest changes for Monday showed a further decline in both metals. Gold's o.i. was down 2,390 contracts on decent volume of 198,467... of which 30,000 or so were spreads. Silver's open interest was down a smallish 375 contracts on volume of 34,574 contracts. I'm sort of expecting Tuesday's open interest numbers to be higher, as the bullion banks threw a fair amount of paper at the rallies in both gold and silver that started once the London p.m. fix was in yesterday.

The CME didn't have much to report in the way of deliveries on Tuesday... as just 10 gold and 12 silver contracts were posted for delivery tomorrow. A fairly large 146,860 ounces of silver were reported taken into the GLD yesterday... but there was nothing reported for the SLV or the U.S. Mint. And, for whatever reason, the Comex-approved depositories did not post an updated inventory report yesterday.

The usual New York gold commentator was kind enough to provide this Reuters graph of India's gold imports for the last three years. It will be quite a while before we see imports like they had in 2007.

He also mentioned that the European Central Bank reported that "gold and gold receivables" rose by a million Euros last week... "attributed to a purchase of gold coin by one of the captive central banks. So far this year, two E1 million rises and one E1 million fall has been the extent of the ECB group [reported] gold activity."

Tomorrow is the day for the CFTC hearings into concentration and position limits by the CFTC in Washington. GATA's chairman Bill Murphy will be there to present the case on behalf of our organization. We should all wish him well, as there is much at stake.

If you want to watch/listen to these hearings as they progress, all the information necessary to do that is contained in this GATA release, which secretary treasurer Chris Powell sent out yesterday. The link is here.

I only have one item for your reading pleasure today... but I have a lot of commentary to go with it.

First of all, when GATA started out, it took us a couple of years for us to figure out that it wasn't just a few bullion banks like JPMorgan and Goldman Sachs out to make a few bucks... but that it was a conspiracy on a far grander scale which involved the U.S. Treasury Department and the Federal Reserve... plus other central banks. It was the cornerstone of Secretary Treasurer Robert Rubin's "strong dollar policy" which we still hear talk of every once in a while.

With that policy now in the trash bin of history, the price management scheme is still going on... with the two U.S. bullion banks [at least the ones we can see]... JPMorgan and HSBC USA... doing the heavy lifting for the Fed and the Treasury Department. These are two of the big bullion banks in the Commercial '4 or less' traders category of the Commitment of Traders report. Now they are stuck with these huge short positions which cannot be covered without driving the prices of both metals to the outer edges of the know universe.

Gold and silver, the two monetary metals, are the often mentioned "canaries in the coal mine". A parabolic rise in the face of the economic, financial and monetary woes that this planet is currently experiencing, would cause a stampede out of paper assets and into hard assets... a fight that they are [slowly, but surely] losing anyway. They're trying to prevent 'death by a single thrust'... by substituting 'death by a thousand cuts' instead. It's a controlled retreat... and they're hoping that nobody will notice... that's why they have their 'talking heads' that they trot out to denigrate gold whenever the precious metals markets are showing... or about to show... too much 'irrational exuberance'.

But what brought GATA's fight into clear focus, was a piece written by British economist Peter Warburton back in April of 2001. The whole article, entitled "The debasement of world currency: it is inflation, but not as we know it" is worth reading [linked here]... but it's three paragraphs from that essay that brings the Federal Reserve's fight against the precious metals [and all physical commodities] to the forefront. I've quoted them in my column before, but on the eve of the CFTC hearings tomorrow, they are worth revisiting... and here they are. Don't forget Warburton wrote this nine years ago next month... so some of the figures he's using are out of date... but that doesn't matter.

Central banks are engaged in a desperate battle on two fronts

"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets."

"It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200bn, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices."

"Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade."

There, in a nutshell, is the entire story.

So, with that preamble out of the way, I now present today's 8-page letter sent to CFTC chairman Gary Gensler, by GATA director Adrian Douglas. It goes without saying that this a must read... and if you have the time, you should read it more than once. This letter, and the letter sent in by GATA chairman Bill Murphy, pretty much sum up what GATA's presentation tomorrow in Washington is all about.

Borrowing heavily from the work of silver analyst Ted Butler and others, Adrian spells it out. There are too many highlights to mention them all, but one of the biggest is the graph from German researcher and GATA consultant Dimitri Speck at the top of page 4... which is titled "Average GOLD Intraday change: August 1993 - March 2009". That's five and a half years of data. How many times, dear reader, have I mentioned the fact that the lows of the day [in both metals] occurs at the London p.m. gold fix? Well, this graph says it all. There's also a fine example of it in both gold and silver in the two graphs at the top of today's column. The red line is Monday, March 22nd... the lows of the day, you ask... in New York trading at the London p.m. gold fix.

Mr. Douglas also commented on something else that's a favourite whipping boy of mine... and that's the fact that the two U.S. bullion banks holding the biggest short positions in silver and gold... JPMorgan and HSBC USA... also happen to be the custodians for the SLV and GLD ETFs. I've mentioned that countless times in this column over the years. At GATA's Annual General Meeting in Vancouver, B.C. in January... board member Catherine Austin Fitts brought up the subject of a "material omission" in the prospectuses of these two ETFs regarding this... and I'm glad to see that Adrian has put this very important issue on the record with the CFTC. GATA plans to proceed further on this point once tomorrow's CFTC hearing is out the way.

There are many other solid points made by Douglas in this letter... and as I said before, I urge you to give this letter the time it deserves. It's headlined "Comments for the Commission for the Public Hearing on the Metals Market: March 25, 2010"... and the link to the pdf file is here.

There are no markets anymore... only interventions. - Chris Powell, secretary treasurer, GATA

Well, there wasn't much to see in Far East or early London trading during their Wednesday. Both gold and silver were pretty flat, despite a rising dollar, right up until the usual 2:00 p.m. Hong Kong time slot, when both metals 'rolled over'. This slight downward trend has continued into London trading... but nothing's really happened that's worth more than a passing mention. The continuing dollar rally is worth keeping one eye on, however.

As of 4:57 a.m. Eastern time [9:24 a.m. in London] gold volume for April is around 15,500 contracts net of spreads... and in silver, volume is reported around 2,600 contracts for May. Nothing to see here either, folks.

The CME's preliminary trading numbers for both gold and silver are as follows... gold volume was robust again at 193,518 contracts... from which you can subtract about 30,000 spread trades. And in silver, volume was 33,482 contracts... of which about 3,000 were spread related.

Volumes in gold will be pretty high for the rest of the month, as traders roll out of their April contracts into future months. Options expiry is tomorrow... and as I mentioned yesterday, first notice for delivery into the April gold contract is next Tuesday.

And, despite these hearings in Washington, I expect it to be 'business as usual' for the U.S. bullion banks until we get some sort of ruling from the CFTC.

See you on Thursday.