Silver is the Investment of the Next Decade: Eric Sprott

Gold didn't do much during early Far East trading on Wednesday...and was up maybe five bucks shortly after the London open...and held that until noon their time before rolling over. Gold hit it its absolute low of the day [$1,324.20 spot] just a few minutes after 11:00 a.m. Eastern time. From that point, the whole tenor of the market changed...and gold moved quietly and firmly higher...closing almost on its high of the day, which was $1,3458.10 spot.

Silver rose in fits and starts during Wednesday's trading session...and by lunchtime in London, the price was up about two bits. From there, the price rolled over, just like gold's...and silver's low price of the day [$26.68 spot] occurred at some point between 11:00 a.m. and 12 noon eastern time. Silver then caught a bid minutes after 11:30 a.m. Eastern...and away went the price to the upside, with the high coming at 4:15 p.m. at $27.69 spot. From that point, silver traded sideways for the rest of the New York session.

Of the four precious metals, gold's increase was the smallest...up 1.00%. Silver was up 2.75%...platinum was up 1.51%...and palladium was up a chunky 4.23%.

There was a slight negative bias to the world's reserve currency...but nothing that influenced the price of the precious metals.

Despite the fact that gold dipped into negative territory early during the New York trading session, the shares managed to stay in the black until the big rally of the day got underway. The shares began to pull away from unchanged for the final time about 11:20 a.m. Eastern...and barely looked back. And, by the time that New York trading came to an end at 4:15 p.m...the HUI was up a whopping 3.90%. The silver shares...especially the junior silver producers...were smokin' hot. Unless this is the biggest fake-out of all time, I'd say that the lows for this move are now in.

The CME Delivery Report showed that 9 gold and 53 silver contracts were posted for delivery on Friday. In silver, it was mostly JPMorgan as issuer and Prudential as stopper. The link to the 'action' is here.

For a change, there was no report from either GLD or SLV yesterday...and the U.S. Mint was had no sales report for the fourth day running.

However, over at the Comex-approved warehouses, it was a different story. There was activity in all four warehouses...and the net change for Tuesday was a withdrawal of 134,851 troy ounces of silver. The link to the action, which is worth a brief look, is here.

The big drop in gold open interest that happened on Monday, is still the talk of the town. As I said in this column yesterday, silver analyst Ted Butler would have something to say about it...and here's what it was..."The latest strange occurrence was the sharp drop in gold open interest on Monday, when over 80,000 contracts suddenly disappeared. Making the historic drop even more notable was that most of the decline was centered on the more deferred months with very little trading volume reported to support the liquidation. In fact, over the past week, while silver spreads changed in price dramatically, gold spreads didn't budge at all."

"I've read the early commentary and inquired of those in the know for an explanation for the sudden liquidation of these gold spreads and I would like to offer my own. As I wrote recently, I had written privately to some high officials at the CFTC back in early November, warning them of the inordinate amount of spread positions in Comex silver and gold futures. I warned them that in a silver shortage, the large number of spreads could come to cause severe financial pressure on the clearinghouse system should we move into a pronounced backwardation in silver. [That backwardation has not actually occurred yet, but the dramatic silver spread move over the past week gives a strong suggestion that it might.]"

"I also wrote to these CFTC officials [strictly on a good citizen basis] that while backwardation was less likely in gold, given the improbability of a physical gold shortage, the large amount of gold spreads open on the Comex had to be largely uneconomic in nature and that the CFTC should jawbone the traders holding these uneconomic spreads to close them out. I can't say that the CFTC took my advice and asked those spread traders to liquidate, but then again I can't say that the CFTC didn't take my advice, either. What I can say for certain is that the question of whether these gold spreads were uneconomic in nature appears to have been settled. For such large quantities of spreads to be suddenly closed out with virtually no impact on gold spread pricing [unlike in silver] would indicate they were uneconomic and phony to begin with. As a reminder, I have long contended that the presence of phony spreads in large quantities has the effect of severely understating the true concentration on the part of the manipulators."

¤ Critical Reads

Second wave of housing bust hammers more cities

I have quite a few stories for you to pick through today. The first one is about the continuing U.S. housing crash...and is from reader Scott Pluschau. It's an AP story posted over at finance.yahoo.com...and is headlined "Second wave of housing bust hammers more cities". Home values are dwindling in nearly every American market. Prices fell in November in all but one of the 20 cities in the Standard & Poor's/Case-Shiller index released Tuesday. Eight of those markets hit their lowest point since the housing bubble burst. It's a depressing read...and the link is here.

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New-home sales in 2010 fall to lowest in 47 years

The next item is a real estate-related story that I ripped out of this morning's King Report. The headline reads "New-home sales in 2010 fall to lowest in 47 years"...and it's posted over at finance.yahoo.com. Sales for all of 2010 totaled 321,000...a drop of 14.4 percent from the 375,000 homes sold in 2009, the Commerce Department said Wednesday. It was the fifth consecutive year that sales have declined after hitting record highs for the five previous years when the housing market was booming. The link to the story is here.

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Merrill paying $10M to settle SEC fraud charges

Scott dug up a second story at the same website...and it's another AP offering. This one's headlined "Merrill paying $10M to settle SEC fraud charges". Ten million bucks, considering how much money that Merrill probably made from this, is basically a licensing fee. The link is here.

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Too Much Information

Here's a story that reader Roy Stephens sent me that I came to close to deleting before I even checked it out...and I'm sure glad that I didn't. This is simply amazing...and a must read by all. It's a video clip posted over at WABC that's headlined "Too Much Information". Technology is one thing...but this is entirely different...and, once again, I must urge you to watch this from one end to the other. It only runs 3:11 from start to finish...and the link is here. I wasn't just amazed...I was totally blown away. You will be, too! Watch it!!!

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CBO's Revised Budget Sees 2011 Deficit Rising By $500 Billion To $1.5 Trillion; $4 Trillion In Deficit Through 2013 Guarantees QE3+

Reader 'David from California' sent this zerohedge.com piece my way yesterday. The 2011 U.S. budget deficit just rose by $500 billion yesterday. The headline reads "CBO's Revised Budget Sees 2011 Deficit Rising By $500 Billion To $1.5 Trillion; $4 Trillion In Deficit Through 2013 Guarantees QE3+". Watch them melt the printing presses down to pay for it all...and the link is here.

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As Bankers Kill Off Mark-To-Market For Good, Former FDIC Chairman Gloats

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Finance Board Seizes Nassau County

Reader 'David from California' has got two more stories for us today...and the first one is an eye-opener. It's posted over at businessinsider.com...and the headline reads "Finance Board Seizes Nassau County". For those reader that don't know Nassau County, it's one of the wealthiest counties in the United States...and the link is here.

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Rand Paul Reintroduces Audit The Fed Bill, DeMint And Vitter Co-Sponsors

David's last contribution to today's column is another piece posted over at zerohedge.com...and the headline says it all..."Rand Paul Reintroduces Audit The Fed Bill, DeMint And Vitter Co-Sponsors". It's a very short read, which I feel is worth your time...and the link is here.

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Marc Faber's Most Provocative Interview Ever: Compares Obama To A Prostitute, Goes Long Treasuries

The zerohedge.com website is getting a lot of hits courtesy of this column today. Here's another one from there that was sent to me by Australian reader Wesley Legrand. Marc Faber, who I have met a couple of times...and whom I've heard speak on many occasions, was interviewed by Bloomberg Television yesterday...and he really let it all hang out. Normally he saves this kind of rhetoric for the conference crowd...but not this time. The zerohedge.com headline reads "Marc Faber's Most Provocative Interview Ever: Compares Obama To A Prostitute, Goes Long Treasuries". The interview runs 11:26...and the link is here.

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Barrack Obama's Reassuringly Vacuous State of the Union Address

Reader G.G. provides a foreign perspective on Obama's State of the Union address with this piece by foreign affairs expert Dr. Srdja Trifkovic. It's always educational to get a view of such things from the outside looking in. It's posted over at his website chroniclesmagazine.org...and is headlined "Barrack Obama's Reassuringly Vacuous State of the Union Address"...and the link is here.

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Bank of England chief Mervyn King: standard of living to plunge at fastest rate since 1920s

I've posted many stories over the last year or so about how bad things are in England. Here's another item about that from this morning's King Report that was posted in The Telegraph on Tuesday. British households face the most dramatic squeeze in living standards since the 1920s, the Governor of the Bank of England warned, as he reacted to the shock disclosure that the economy was shrinking again. That's no surprise to me...and the headline reads..."Bank of England chief Mervyn King: standard of living to plunge at fastest rate since 1920s". The link is here.

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WGC Report: Strong Gold Demand Was Broad-Based During 2010

I only have two precious metals-related stories for you today...and the first one is courtesy or Russian reader Alex Lvov. It's an item that was posted over at kitco.com yesterday...and it's headlined "WGC Report: Strong Gold Demand Was Broad-Based During 2010". I have no love for the World Gold Council...but it is an interesting read...and the link is here.

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Silver is the Investment of the Next Decade

My last offering is courtesy of Wesley Legrand...and is an 8:02 minute BNN interview with Eric Sprott of Sprott Asset Management. It's all about silver and gold. The clip is titled "Silver is the Investment of the Next Decade". Needless to say, it's worth your undivided attention...and the link is here. It was 'standing room only' for Eric's speech on Monday at the Cambridge House Investment Conference...and he spent a large portion of that speech talking about silver. Why am I not surprised?

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BoE Governor is Right, We Are in a Depression

And this just in from King World News as I hit the 'send' button at 4:53 a.m. Eastern time. It's an interview with Jim Rickards where he totally agrees with the Bank of England's Mervyn King about the upcoming fall in Britain's standard of living. As you know, when Jim Rickards is talking, I'm listening...and so, dear reader, should you. The blog is headlined "BoE Governor is Right, We Are in a Depression"...and the link is here.

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I have sworn upon the altar of God, eternal hostility against every form of tyranny over the minds of man.- Thomas Jefferson

I'm guessing, but based on the price action, I'd say that yesterday's surprise rally in both gold and silver was short covering by the U.S. bullion banks...as the positive price action did not carry over into Thursday morning's trading day in the Far East...or into morning trading in London. Wednesday was also expiry in the futures market as well...and some of this action would be related to that.

Yesterday's preliminary volume numbers show that gold traded around 225,000 contracts net of all roll-overs...and, if the preliminary open interest numbers for gold are any indication, we should see another large decline in o.i. when the final numbers are posted this morning.

Wednesday's preliminary numbers in silver showed pretty decent volume as well...about 54,000 contracts net...and it appears that the decline in silver o.i. may be much more modest than the huge number that was recorded for Tuesday's trading.

Here's the 1-year silver chart to put some sort of perspective on yesterday's rally.

And here's the gold chart for the same period.

Needless to say, I was very encouraged by the big turnaround in silver and gold prices yesterday...as we are now very close to a bottom...if we're not there already. The precious metals shares [especially the junior silver producers] were proof that there was a feeding frenzy of bottom fishing going on...and that's always a positive sign.

To quote another couple of sentences from Ted's note to clients yesterday..."In short, this was a classic Comex jam-job by the commercials to the downside. Don't be fooled by the now-bearish rhetoric about silver's prospects. News and opinion follows price. Those bearish on silver now, will be singing a bullish tune once prices start to rally. That's just the way the world works."

"The sell-off wasn't invited, or welcomed, by silver or gold investors...or by me. Nor was it a simple case of the free market at work. Far from it. This week's COT report will show just what the most recent COTs have shown, namely, that a very small group of Comex commercials have been able to buy what many leveraged speculative long traders were forced to sell. Without belaboring the point, it is not possible for such a small group of commercial traders to bamboozle so many other traders so methodically and consistently without collusion."

Both silver and gold are under a bit of pressure at the moment [4:29 a.m. Eastern time]...but that's largely due to a 40 basis point pop in the world's reserve currency that began around 7:30 a.m. in London...so I wouldn't read a whole lot into this price action. Gold volume [net of roll-overs] is microscopic at under 6,000 contracts. That's the smallest net gold volume I've ever seen at this time of day. On the other hand, silver's net volume is 8,000 contracts...and this is the first time ever that I've seen silver volume exceed gold volume at any time of day anyplace in the world. It's amazing to look at.

That's all I have for today. New York trading begins pretty soon...and it could prove to be another interesting day.

I'm still 'all in'.