Gold: Get It While You Can

Well, it was another good week in the gold market once again... with another weekly high closing price. The RSI still shows hugely overbought...but we've been there before... and the price continues to move from "the lower left to the upper right", as Dennis Gartman is so fond of saying.

The sell-off on Thursday reduced the overbought position somewhat, but it's still way up there.

Here's the 3-year gold chart... and you can read whatever you wish into the current situation.

The silver price closed the week at another new 30-year high price. It's price, like gold's, is way into overbought territory as well. The 3-year chart tells all.

Here's the world's reserve currency's price action for the week that was. It lost a full cent... down to 77.18 cents... with a brief low spike on Thursday around 76.90.

The 3-year dollar chart is not a thing a beauty. However, it's horribly oversold... exactly the opposite of the precious metals... which is to be expected. But after the IMF's failure to resolve the exchange-rate issue on the weekend, any recovery in the U.S. dollar should certainly be short lived.

Here's the HUI for the week that was. After closing in new record high ground on both Tuesday and Wednesday, the shares got sold off a bit when gold and silver got smacked on Thursday.

On the previous week's gold and silver price action, I could hardly do better than to quote Ted Butler's comments on Thursday and Friday's trading action in a note to clients on Saturday morning... "We got a taste of volatility on Thursday when gold and silver fell sharply from fresh highs made earlier in the day. I know this price action rattled more than a few people... We start reading too much into short-term price volatility, especially when prices have moved as sharply as they have over the past six weeks. Particularly in silver, given its past history of sudden and manipulated price drops, it's natural to want to sidestep any future sickening price smashes. This leads many to sell at the first sign of a reversal, like we experienced on Thursday. Please understand me... I don't know the very short term direction of silver prices. But neither do you, or anyone else. Maybe we sell off, maybe we explode in price."

The CME's Delivery Report for all of last week shows that 241 gold and 68 silver contracts were delivered for the week that was. Month-to-date, there have been 5,956 gold and 588 silver contracts delivered on the Comex. When I say 'delivered'... I mean that good delivery bullion bars have been exchanged between Comex members when they deliver [issue] and receive [stop] contracts. The bars change ownership, but most of the time the metal never leaves the rack it's sitting on over at the 'Comex-approved depositories'... and is hardly ever delivered off the exchange. This is where all the metal talked about the in the CME's daily delivery report is actually held.

There are only 592 gold and 8 silver contracts still open for October at the moment. These are tiny amounts... and unless something really extraordinary happens, October looks like another uneventful delivery month.

Despite all the positive price action in gold last week, the GLD ETF actually showed a net decline of 453,545 ounces for the week that was. Inflows into GLD have been flat since early June when GLD showed a gold inventory of 41,469,621 ounces on June 3rd. Last Friday [October 8th] the GLD ETF stood at 41,418,145 ounces. Gold has risen about $120 since June 3rd. If you're looking for an answer to this dichotomy, I don't have one... unless physical buyers of gold are starting to get suspicious of GLD and are buying other physical metal funds.

But the SLV ETF is on fire. As Ted Butler pointed out... "Over the past six weeks or so, almost 30 million ounces of silver have flowed into the Trust. This is equal to 37% of world mine production in that same time span... an almost unbelievable amount. There has been an impressive 10% growth in metal deposits into the Trust, to a record total amount of more than 324 million ounces."

Over at the Zürcher Kantonalbank in Switzerland they reported receiving a smallish 16,832 ounces of gold and 98,928 ounces of silver in their respective ETFs. This data is for the week ending October 1st. I thank Carl Loeb for providing these numbers. Last week's data will be available either tomorrow or Wednesday... and I'll post that info as soon as I receive it.

Last week, the U.S. Mint reported selling 31,500 ounces of gold in their gold eagle program... and another 425,000 silver eagles. Month-to-date... 36,500 ounces of gold eagles have been sold, along with 750,000 ounces of silver eagles.

The Comex-approved depositories reported receiving about two million ounces of silver last week.

Well, the Bank Participation Report for October came out on Friday... along with the weekly Commitment of Traders report. The BPR indicated a slight decrease in the total and concentrated net short positions in both Comex silver and gold futures.

The COT report in silver showed that the bullion banks in the '8 or less' trader category reduced their net short position by 3,286 contracts... 16.4 million ounces. In gold, the bullion banks also decreased their net short position. This time it was 3,242 contracts, or 324,200 ounces of gold.

Even though I was on vacation last week, I spoke to Ted Butler every day. I totally agree with his comments on the COT and BPR... the bullion banks are obviously starting to cover their short positions in both metals. That's why prices are rising this strongly in both. Ted also said that he felt that JPMorgan was covering like mad on Thursday's sell-off... and also on Friday. We will learn more when the next COT report is issued on October 15th.

¤ Critical Reads

25 Critical Reads

Because I was away for a week, I have a lot of stories... 25 to be exact...and the vast majority of them are precious metals related. I'm just going to provide the headline and the link. I have no time for attributions or preambles today, as I just want to get my in-box cleared out for my Tuesday commentary that begins a new week. A lot of the older ones you've may have already seen elsewhere... so you, dear reader, can provide the final edit from this point onwards. They're mostly sorted from the latest stories to the oldest... the oldest are from a week ago.

1. IMF fails to strike deal over currency frictions: The Telegraph
2. Currency wars are necessary if all else fails: Ambrose Evans-Pritchard, The Telegraph
3. IMF Fails, Gold Shines as Currency Wars Continue: Ben Davies, King World News [Must read...very short]
4. India's September gold imports soar 30%: smartinvestor.in
5. Gold, Get it While You Can: Jeff Clark, Casey Research [Must Read]
6. I'll speak on silver if CFTC doesn't: Commissioner Bart Chilton, citywire.co.uk [a very short must read]
7. IMF Calls For A New Round Of Huge Bank Bailouts, businessinsider.com
8. AngloGold Eliminates Gold Hedge Book, gata.org
9. Bernanke Tells the Truth: The United States is on the Brink of Financial Disaster, economicpolicyjournal.com [a 5-minute read that's well worth your time]
10. India's rich throng to gold, mineweb.com [worth the read]
11. Indian gold traders stock for festivals as rupee up, reuters.com
12. Gold hits record as Vietnam mulls imports, miningmx.com
13. GoldSeek interviews GATA secretary about lawsuit seeking Fed's gold records, gata.org [a very interesting 16-minute audio interview, which I think is worth your time]
14. The noose tightens for gold bears: Alasdair Macleod, gata.org [must read]
15. Smaller dips in gold being bought, James Turk tells CNBC Europe, a 6-minute interview on cnbc.com that's worth watching
16. Gold Mania? Not Quite, The Wall Street Journal
17. Perth mint inundated as gold price soars, theaustralian.com.au
18. Insider Selling to Buying Ratio: 2,341 to 1, zerohedge.com
19. Super-rich investors buy gold by ton, reuters.com
20. Does the Bundesbank Have any Gold in its Vaults?, James Turk comments on this at maxkeiser.com [a very short must read]
21. Bank of Russia speeds up gold purchases, goldenfront.ru [a must read... especially Note 1 at the bottom] Thanks Dimitriy!
22. Japan needs devaluation and gold to hedge against it, Davies tells King World News, gata.org
23. U.S. pension fund takes shine to gold, Financial Times, London [a 5-minute video that I feel is worth your time]
24. Investors see silver lining in economic gloom, The Telegraph [the first piece on silver I've seen in this paper]
25. Doubt growing about central bank gold reserves, gata.org [four stories]

View full GSD edition

A system that relies totally on money which comes into existence as the "flip side" of new debt is doomed. It is doomed at the point where both creditors and debtors begin to flee from it because they fear that it has already been debased beyond the point where any return will compensate for the risk of default. We are getting very close to that point.- Bill Buckler, The Privateer, 09 October 2010

Since I didn't have a Friday commentary, there was no 'blast from the past'. However, I thought I'd toss one in today. I never had any time for Steve Martin as an actor... or as a comedian. However, about a week ago, a kind reader sent me a video about Steve Martin the musician. I was totally blown away. I must have led a sheltered life way up here in the frozen north of Canada for the last 62 years, because this side of him I knew nothing about. If you didn't either, please click here.

Well, nothing is resolved, but the numbers from last Friday's Bank Participation and Commitment of Traders reports show that things are heading in the right direction. The failure of the exchange rate issue this past weekend will certainly weight heavily on the markets. Then there's the not-so-little matter of position limits for silver that the CFTC is supposed to be coming out with.

Everything is pointing to a 'this time it's different' scenario... but it won't be without some speed bumps along the way... with Thursday's price activity being a case in point. However, when the 'this time it's different' scenario finally does appear, I [for one] will not be sitting on the sidelines. I expect that there will be little [if any] warning when this whole thing really starts to come unglued.

Both gold and silver were in positive territory in Far East trading on Monday... although a not-for-profit seller showed up at precisely 8:00 p.m. Eastern time Sunday night to sell off both metals... as they looked like they were about to head seriously higher. And, since that point, both metals have been trending lower. This has continued into the London open. As of 4:32 a.m. Eastern time, volume in gold is moderate... and silver's volume is pretty chunky.

By the way, the 3-day Casey’s Gold & Research Summit ended last Sunday. If you’re wondering how long this gold [and silver] run might last, what could bring it to an end, and how to play it along the way, you should consider the CD recordings of the conference. 17 hours long, with speakers including Eric Sprott of Sprott Asset Management, John Hathaway of Tocqueville fame and Richard Russell of the Dow Theory Letters, they’re worth every minute of your time, and the link is here. You should consider this an investment in your future, so I urge you to give this offer serious consideration.

See you on Tuesday.