JPMorgan et al Cover More Silver Short Positions

Gold was under pressure right from the open in Far East trading on Thursday...and by half past lunchtime in London, gold was down about eight bucks...or thereabouts. Then the bottom dropped out from underneath the gold price at the precise moment that the dollar began a big rally...a coincidence that's just too cute for words. Gold's low of the day occurred around 10:25 Eastern time at $1,342.50 spot. Two subsequent rallies in the gold price got sold off...and gold closed barely off its low of the day.

Since silver is at the centre of JPMorgan's universe, it was singled out for its usual 'special treatment'. Like gold, the silver price was in negative territory right from the open in Far East trading...and was down about two bits by 12:30 p.m. in London. From there, the price fell like a stone...with the low of the day [$27.37 spot] coming somewhere between 10:30 and 10:45 a.m. in New York. From it's high at 9:05 a.m. on Wednesday, to it's low yesterday...silver got hit for over two bucks. JPMorgan et al are obviously serious about covering their short positions...and they did lots of that during that time frame. Silver also tried to rally off its lows, but got sold off both times...the same as gold...and closed the Thursday trading session down $1.30.

Platinum and palladium both got hit yesterday as well...but their sell-offs began in Zurich at least half an hour before the out-of-the-blue dollar rally began...and 'da boyz' pulled the pin on silver and gold. Both of these metals also had very strong rallies off their respective lows...which also occurred at the same times as gold and silver made their lows...but they then they went on to recaptured most of their losses on the day. The bullion banks made sure that there was no recovery in either silver or gold. Here's the platinum chart as an example...but the recovery in palladium was even more dramatic.

For the day, gold finished down 1.82%...silver was down 4.52%...platinum down 1.31%...and palladium was down 0.25%. It's very obvious where the bullion banks' interests lay.

As far as the world's reserve currency is concerned...it hovered around unchanged for most of Far East and early London trading. It's 'low' of the day, such as it was, came at 7:30 a.m. Eastern time...which was right in the middle of London's lunch hour. Starting at precisely that the time, the dollar began a 70 basis point rally...and hit its high of the day shortly before 11:00 a.m. in New York...which was about fifteen or twenty minutes after the precious metals hit their respective lows of the day. From its zenith, the dollar slid back to up only 20 basis point on the day by the time that New York trading ended.

As I said in my gold commentary, this dollar rally...along with the crucifixion in silver and gold...was just too must of a coincidence. This was a planned operation...and JPMorgan and the rest of the bullion banks pulled it off with almost military precision. Good job, guys!

The gold shares gapped down at the open...and the low tick of the day came at 11:00 a.m. Eastern time. From there, the stocks recovered two percentage points of their loss...and the HUI only finished down 1.45%. However, almost all the silver producers...both large and small...got smoked once again.

The CME Delivery Report showed that 5 gold and 17 silver contracts were posted for delivery on Monday. Nothing to so here, folks...as January is not a regular delivery month for either metal. Month-to-date, only 1,325 gold...along with 517 silver contracts...have been posted for delivery. The gold number is not significant...but the silver number is pretty high.

For a change, there was no report from the GLD ETF...but over at the SLV ETF, they reported another large silver withdrawal. This time it was 1,563,046 ounces. The SLV ETF reached it's peak holdings on December 14, 2010...and has had 14.1 million ounces of silver withdrawn since that date.

For the second day running, there was no sales report from the U.S. Mint.

There wasn't a lot of activity over at the Comex-approved depositories on Wednesday...as they reported a smallish withdrawal of 55,131 ounces of silver...which isn't worth checking out.

As I mentioned in this column yesterday...Thursday was the day that The Central Bank of the Russian Federation updated their gold reserves for December. They added a smallish 200,000 ounces...bringing them up to 25.4 million troy ounces. Here's Nick Laird's most excellent chart.

¤ Critical Reads

Vallejo Bankruptcy Plan Would Pay Creditors as Little as 5%

Today's first story is one that I 'borrowed' from yesterday's King Report. It's a Bloomberg offering that bears the headline "Vallejo Bankruptcy Plan Would Pay Creditors as Little as 5%". General unsecured creditors would collect 5 percent to 20 percent of their claims under the plan of adjustment filed late yesterday in U.S. Bankruptcy Court in Sacramento, the state capital. The link is here.

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Path Is Sought for States to Escape Debt Burdens

On a similar theme, here's a story that was sent to me by reader 'Charleston Voice'. It's a piece from yesterday's edition of The New York Times. The headline reads "Path Is Sought for States to Escape Debt Burdens". Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers. Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign. I respectfully request that you find the time to read this...and the link is here.

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The Specter of Inflation: Rising Prices Lurk in Europe's Immediate Future

On the inflation front comes this story posted over at the German website spiegel.de. This one is courtesy of reader Roy Stephens...and the headline reads "The Specter of Inflation: Rising Prices Lurk in Europe's Immediate Future". Moderate inflation isn't a bad sign. But prices in Europe are threatening to spiral upward in the near future as commodity prices across the globe explode. What's more, there may be little the European Central Bank can do about it. There isn't...and the link to the story is here.

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The Waiting Game: 'Communist Monopoly' Teaches Downside of Socialist Life

Here's another Roy Stephens offering...and this one is really quite interesting. It, too, is from the spiegel.de website. It's a new board game developed in Poland called 'Communist Monopoly'. It teaches young people about life under Communism. In the game, which is inspired by Monopoly, players must wait in endless lines at stores for scarce goods. For added realism, they have to put up with people cutting in line and products running out -- unless they have a "colleague in the government" card. There are no glamorous avenues for sale, nor can players erect hotels, charge rent or make pots of money. The headline states "The Waiting Game: 'Communist Monopoly' Teaches Downside of Socialist Life". It's a very short, fun read...and the link is here.

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Société Générale crafts strategy for China hard-landing

Here's a story from yesterday's edition of The Telegraph that's also courtesy of Roy Stephens. It's an Ambrose Evans-Pritchard offering that's headlined "Société Générale crafts strategy for China hard-landing". Société Générale fears China has lost control over its red-hot economy and risks lurching from boom to bust over the next year, with major ramifications for the rest of the world. It's worth the read...and the link is here.

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China Seizes Rare Earth Mine Areas

While we're talking about China...here's another story about that country that's courtesy of Australian reader Wesley Legrand. It was filed from Hong Kong...and was posted on The New York Times website yesterday...and is headlined "China Seizes Rare Earth Mine Areas". A Chinese government agency has taken steps to more tightly manage the production and export of rare earth minerals, crucial materials used in a wide range of technologies and products vital to the West. They did this by invoking a seldom-used mining law to take direct control of eleven rare earth mining districts in southern China. It's a bit of a read, but it's worth it...and the link is here.

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GATA participates in Vancouver and London conferences this month

I'm off to Vancouver for a precious metals conference tomorrow morning...and I hope to see some of my readers there. GATA's Chris Powell has a few words on this conference...plus the Cheviot Sound Money Conference in London on Thursday, January 27. Both conferences are free...but reservations are required. The headline reads "GATA participates in Vancouver and London conferences this month"...and the link to all the pertinent details on both conferences is here.

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Russia to Raise Gold Share in Reserves, Ulyukayev Says

Russian reader Alex Lvov provides our first gold-related story of the day, which is a Bloomberg piece filed from Moscow. The headline reads "Russia to Raise Gold Share in Reserves, Ulyukayev Says". It's a short read...and worth skimming. The link is here.

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Gold and Silver to Take Off Despite Weakness

Interviewed today by Eric King of King World News, GoldMoney founder James Turk remarks that Europe's sovereign debt problems are being camouflaged and getting worse, not alleviated...and this will put a bid under the precious metals despite the usual bear raids. The headline reads "Gold and Silver to Take Off Despite Weakness"...and the link is here.

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Inflationary Guerilla Tactics Resume As Comex, Nymex Hike Margins On Gold, Silver, Cracks, Spreads And Other Products

Here's my last offering of the day...and it's a very important read. It was a zerohedge.com posting that Washington state reader S.A. sent me early yesterday evening that's headlined "Inflationary Guerilla Tactics Resume As Comex, Nymex Hike Margins On Gold, Silver, Cracks, Spreads And Other Products". Normally, margins are increased as prices rise...but not this time...and this is the second time that margin prices have been increased as the underlying asset has fallen steeply in value.

Tyler Durden has this to say about it..."Wonder why the smart money was rushing headlong out of gold and silver over the past few days, and especially today in the AM session? Here's your answer: in tried and true fashion the Comex just hiked margins in gold, and silver by about 6%, and threw in a few other commodities to mask things up."

As the headline reads, these are truly 'guerilla tactics' that are being used to force the technical longs to puke up their long positions. Needless to say, this was done at the behest of the bullion banks in cahoots with their 'friends' at the Comex. And, as I said before, 'da boyz' are really serious about getting out of their short positions this time...especially in silver...and they are leaving no stone unturned in their quest to pick up every speculative long Comex contract that they can find.

I consider this a must read...and the link is here.

But, in an e-mail from silver analyst Ted Butler in the wee hours of this morning, Ted had this to say about yesterday's margin increases..."I don't think it's as critical this time, due to the damage already done...and the relatively small increase."

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Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.- Norm Franz

Well, I must admit that I wasn't entirely surprised by yesterday's action in both silver and gold. I mentioned in 'The Wrap' yesterday that when the bullion banks paint a key reversal to the downside in silver [or gold] like that, it's never good news...and that certainly turned out to be the case this time.

It's really impossible to tell how low JPMorgan et al are capable of moving the price...but as I've said a couple of times this month...they'll keep at it until there are no longs left that are prepared to liquidate. At that point, the bottom will be in. The changes in margin requirements yesterday were designed to help them speed that process along...which I'm sure it did. But to what extent, is hard to tell.

The CME's preliminary volume figures for Thursday's trading day showed that gold volume was not particularly heavy...and if the preliminary open interest numbers are to be believed...there could be another large decline in open interest when the final numbers are posted later this morning.

Silver volume yesterday was north of 80,000 contracts net of all roll-overs. That volume was almost 60% of the total net volume in gold...which is a huge percentage. Normally gold volume is always much higher than silver volume. I've never seen that high of a percentage before...so it's also obvious from this, that silver is the metal that 'da boyz' are really after. Hopefully we'll see a big decline in open interest in silver as well later this a.m...as the preliminary open interest numbers indicate that there will be a fairly big drop.

The final open interest numbers for Wednesday showed a real decent decline in gold o.i...which is what I said would happen...as it declined 5,024 contracts. Silver's o.i. showed a decline of only 1,254 contracts...and I would expect that there was a bigger open interest drop than that, but it was hidden by spread trades or 'Raptor' buying.

Gold, which had been attempting to break above its 50-day moving average, is now well back below that number. Here's the 6-month chart that includes yesterday's candle.

In silver, we are now solidly below the 50-day moving average...and this certainly accounted for a large portion of yesterday's volume, as there's always big volume when any 50-day moving average is broken decisively to the down-side...as this is sell signal to a lot of technical traders.

If gold and silver continue to move lower from here, it will then be of interest to see if any of the technical funds actually begin shorting these two metals in a big way...but we haven't arrived at that stage just yet. Today's Commitment of Traders report should tell us quite a bit...and next Friday's COT report will tell us a lot more.

While I'm on the subject of the COT...the new one will be posted at 3:30 p.m. Eastern time sharp...and when that moment arrives, you can click here to get the latest numbers.

I note that both metals are now diving deep into oversold territory. The RSI indicators can certainly fall more than this before we're hugely oversold...and it remains to be seen how low these indicators get before the bottom is in.

Not much happened in gold during Far East trading earlier today...but I note that the silver price took a bit of a nosedive to a new low for this move down. That occurred about fifteen minutes before London opened for trading...so it looks like the bullion banks are still gunning for more silver longs...and they found some. Gold volume is very light...around 20,000 contracts net of all roll-overs...but silver is a very chunky 9,500 net contracts traded as of 4:47 a.m. Eastern time. As you can tell, it's all about silver.

This is all emotionally and financially painful to live through...and my stocks are getting killed just like everyone else's...so I'm not a happy camper, either. But I do take comfort from the fact that each passing day such as yesterday, strengthens the internal structure of the market for the next move up in both metals. As I said yesterday...this too, shall pass.

I must admit that I couldn't help myself yesterday...and phoned my bullion dealer and bought some more silver. You've heard me [and others] say that you should be buying while blood is running in the streets, well...I put my money where my mouth was on Thursday. I hope you're in a position to do that as well.

As I said in this column last Saturday, I know it's hard to think of precious metals investment opportunities at a time like this. But as I mentioned in the previous paragraph, the time to buy is when blood is running in the streets...and there's certainly been a lot of that this week and last. There's still time to either readjust your portfolio...or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], or BIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. A subscription to the International Speculator also includes a free subscription to BIG GOLD as well. And don't forget that our 90-day guarantee of satisfaction is in effect for both publications.

My Saturday and Tuesday column will be written from the precious metals conference in Vancouver...and I can tell you right now, that they will both be short and sweet, as I have plate full during the four days I'm there.

Enjoy your weekend...and I'll see you here tomorrow.