The Race to Debase Encompasses the Whole Planet

Well, the sell-off in the after-hours market on Tuesday [especially in silver] was the dead giveaway that JPMorgan et al were about to pull the pin on the precious metals market. Ted Butler's private note to clients, a copy of which ended up in my in-box at 3:12 a.m. Eastern time on Tuesday morning, gave warning in advance of what was about to transpire.

It started in earnest with a quick six dollar drop right at the London open yesterday morning at 8:00 a.m. GMT...3:00 a.m. Eastern time. Then all was calm until about two minutes before the Comex open in New York at 8:20 a.m. when 'da boyz' pulled their bids four separate times [count 'em on the graph below] during the Comex trading session. The tech funds [and small traders] puked up their longs as sell stops were hit...and the U.S. bullion banks covered or went long themselves. Gold was clocked for about $34 from its New York high to its New York low. Yesterday was textbook JPMorgan from start to finish.

Silver's price action was virtually the same...although silver was actually up 13 cents on the day when JPMorgan dropped the hammer minutes before the Comex open. From top to bottom in New York, silver got hit for $1.49.

Both metals managed to finish off their lows once the New York bullion banks withdrew from the market.

The action over in platinum and palladium was similar...but the damage was not as severe. Silver got hit the worst...and the reason why, should be no surprise to you by now.

Volume was monstrous in both gold and silver...and I'll have more on that in 'The Wrap', as the CME doesn't publish its volume data until the wee hours of Wednesday morning...and its not that time yet.

The dollar rose about 40 basis points up until 1:30 a.m. in New York early on Tuesday morning...and then fell to its low of the day minutes before the Comex opened at 8:20 a.m. in New York. But, by 11:00 a.m., the dollar was up about 55 basis points to its high of the day, before trading sideways into the New York close. The crucifixion of the precious metals began at the exact low in the dollar...but the bloodshed in both metals continued on for a couple of hours after the dollar's high was in. Here's the chart...and I think the New York bullion banks tried to hide their dirty work behind the skirts of this tiny rally in the world's reserve currency...but I'll let you be the judge of that.

The gold stocks got creamed...but the bottom came about ten minutes before the gold and silver prices hit their exact lows of the day... and the HUI closed well off its lows...down only 2.65%. A lot of the junior resource stocks got smoked pretty good...most of the ones I own were included in that. But, despite the carnage, I was amazed to see that there were a lot of gold and silver stocks that finished virtually unchanged on the day...or actually finished in the green.

The CME Daily Delivery Report showed that 43 gold and 1 silver contract were posted for delivery on Thursday. JPMorgan issued/delivered 36 contracts from its proprietary [house] trading account...and the Bank of Nova Scotia was the stopper/receiver. The numbers aren't worth looking at.

The GLD ETF showed another decline on Tuesday. This time it was 136,648 troy ounces...4.25 tonnes. SLV showed no change.

There was nothing from the U.S. Mint yesterday, either.

The Comex-approved depositories reported taking in a big chunk of silver bullion on Tuesday...1,036,441 ounces [net] to be exact. The bulk of the action was at Scotia Mocatta...and the link to the action is here.

Although yesterday was not a happy day for holders of gold and silver stocks...especially the juniors, as mentioned above...my coin guy was up to his armpits in business. The silver business for him in 2010 was excellent...and 2011 was off to a roaring start when he reopened yesterday after the New Year's long weekend. The 'buy-the-dips' crowd has learned their lesson well...and were obviously out in full force.

¤ Critical Reads

Inflation Jumps in Europe

I have a reasonable number of stories for you today. The first three are courtesy of reader Scott Pluschau... and the first of these [from The New York Times] is filed from Paris...and is posted over at finance.yahoo.com...and is headlined "Inflation Jumps in Europe". Higher prices for food, oil and other commodities are starting to stoke inflation in the euro area, data released Tuesday indicated, while British residents got their first taste of higher taxes on retail goods and services. The link is here.

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2011: Year of the bank run?

Scott's second offering is from cnnmoney.com... and bears the eye-opening headline "2011: Year of the bank run?" Is a bank run about to bring Europe to its knees? Some market watchers say yes, pointing ominously to the torrents of money pouring out of Ireland, as Irish bank deposits declined in November for the fourth straight month. This story is worth your time...and the link is here.

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Obama: Not Always a Fan of Upping Debt Ceiling

And lastly, Scott's third story is this little gem posted over at the nationalreview.com website. As you know, the current U.S. debt limit is now up for review...and this very short story is about that. The headline reads "Obama: Not Always a Fan of Upping Debt Ceiling". Imbedded in this story are Obama’s thoughts on the debt limit in 2006, when he voted against increasing the ceiling. This is definitely worth reading...and the link is here.

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Recipe for a Successful 2011

Congressman Ron Paul from the great state of Texas provides the next item for your reading pleasure. It's a 5-paragraph commentary headlined "Recipe for a Successful 2011". Here's a taste of what Ron had to say... "I am excited by the prospect of real oversight of the Federal Reserve, but I also hope to focus on the important ways in which our foreign policy and monetary policy are related. Just last week the Financial Times reported that the limited oversight of the Federal Reserve allowed by the passage of a watered-down version of my Audit the Fed bill revealed that approximately 55 percent of the loans made available under the largest Federal Reserve bailout program, the Term Auction Facility, went to foreign banks! This is but one example of the real cost to Americans of maintaining its empire overseas, and it cries out for more transparency and oversight." The rest is worth reading...and the link is here.

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Legislation proposes Utah adopt a gold-based system

The rest of today's offerings are pretty much all precious metals related in one way or another. The first story is from the December 29th edition of The Salt Lake Tribune...and bears the headline "Legislation proposes Utah adopt a gold-based system". Utah is not the first state to propose this sort of legislation...and it certainly won't be the last. One of these days a bill like this one will become law...and the fox will be amongst the pigeons from that point onward. I stole this from yesterday's King Report...and the link is here.

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The race to debase encompasses the whole planet

Here's a story that found its way into a GATA release yesterday...and I'm just going to steal Chris Powell's preamble...and post the link. Mike Maloney's GoldSilver.com has plotted the 2010 performance of gold and silver against dozens of world currencies and there can be only one conclusion: For the last 12 months the strongest currencies on the planet weren't issued by any government, but rather were the old standards dug out of the ground. The GATA headline reads "The race to debase encompasses the whole planet"... and the link is here.

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CFTC's Chilton: Reluctant To Support Position Limit Proposal So Far

Well, the CFTC and their flamboyant Commissioner Bart Chilton were certainly making the headlines yesterday. The first piece was posted over at Kitco and sent to me by Pennsylvania reader Ed Galla. Here is one thing that Bart had to say that may be of interest to you..."the CFTC must address “excessive speculation” in the markets immediately. “There are some who suggest that certain commodity prices are currently delinked from supply and demand fundamentals, and are being impacted by excessive speculation. The delayed implementation in the Commission proposal exacerbates this already troubling set of circumstances,” Golly gee, I wonder which metal on Dmitiri Mendeleev's 1869 version of the periodic table of elements Bart might be referring to? The link to the story is here.

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CFTC's position limit plan gains needed support

Here's another story concerning Bart Chilton on the same issue. It's a Reuters piece from yesterday evening that in some way contradicts the story at Kitco. The headline of this article reads "CFTC's position limit plan gains needed support". There's a 60-day public comment period associated with this...and I'm sure that Ted Butler will be rallying the troops to write in one more time. The link to the story is here.

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Bloomberg's "Chart Of The Day" Is The Latest Amusing Attempt To Create A Gold Selling Frenzy

My last item today is courtesy of Washington state reader S.A. It's a zerohedge.com posting that's headlined "Bloomberg's "Chart Of The Day" Is The Latest Amusing Attempt To Create A Gold Selling Frenzy". The story starts off by saying the following..."The barrage to get investors to dump their gold is on in full force, after one after another media outlet takes turns to guarantee that a day of profit taking in an asset that two days ago was trading at its time highs, and experienced an uninterrupted 30% run in the past year, means the rally is over pretty much in perpetuity." I also note that Dennis Gartman was also badmouthing gold on TV yesterday as well. The story is worth the read...and the link is here.

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Although yesterday's New York bullion bank-sponsored action was pretty brutal, it's nothing we haven't seen before...and survived to go on to new highs. The good news is that it cleaned out a lot of tech fund longs...and greatly strengthens the already bullish scenario for Friday's Commitment of Traders Report and Bank Participation Report. Ted figures that that was the reason why JPMorgan did what it did...to improve what both reports will say, especially the BPR.

Of course, being born in Missouri in another life, I'll believe it when I see the change in open interest numbers tomorrow, along with the COT report on Friday. This carnage all happened on a Tuesday, which is the cut-off for both of these above-mentioned reports...and, as I've said many times in this column, the bullion banks have a long record of being tardy in their reporting of changes in open interest when they 'do the dirty' on the cut-off day, so the jury is out [at least for me] until Friday at 3:30 p.m.

Now that the CME has issued its volume report for Tuesday, I note that gold volume was monstrous...north of 215,000 contracts net of all roll-overs. Silver volume was also immense, with over 85,000 net contracts traded. The volumes are impressive, but its the final changes in open interest that I'm concerned about...and that won't be posted on their website until later this morning. Can the bullion banks hide their tracks? Will they report it all? Or will they hold back the data and release it tomorrow when it won't show up until the COT report on January 14th? We'll find out soon enough.

Here's the 1-year gold graph for your viewing pleasure. You will note that the 50-day moving average was taken out to the downside, but the price didn't close below it. We haven't seriously penetrated the 50-day moving average since last July...each time bouncing off it. Will this be the same? Only JPMorgan et al have the answer to that.

The 1-year silver chart is a totally different looking animal...and it's hard to say what the future holds here. The 50-day moving average is a long way down, even from yesterday's low...and even if 'da boyz' could pull it off, one has to wonder how many contracts they would be able to cover, as the tech funds are pretty much cleaned out on the long side...and don't have a lot of contracts to sell, especially after what they coughed up yesterday. All we can do is wait it out and see.

Both gold and silver didn't do much in Far East trading earlier today...and both metals opened quietly in London as well. The gold price is up a couple of bucks...and silver is down about two bits in price from the New York close yesterday. Volume in both is pretty decent as of this writing...4:50 a.m. Eastern time.

I sold all of my position in one gold mutual fund yesterday...and will use the proceeds to pick up a couple of silver stocks that are current recommendations in Casey Research's International Speculator.

The time to buy is when blood is running in the streets. These are such times...and there was obviously lots of bottom fishing going on yesterday. As reader Phil Armstrong said in an e-mail yesterday..."You have to love days like today when the weak hands are selling...most silver stocks off 8-10%...loaded up the truck."

I have no idea what today's trading action will bring when the New York bullion banks show up for work at 8:20 a.m. Eastern time this morning. As you know from yesterday's action, only what happens in New York trading counts for anything, as it will again today.

And I'm still 'all in'.

See you on Thursday.