Short Squeeze in Silver Could be "The Big One"

Gold rose a few dollars during most of the Far East trading day on Thursday...but gradually lost most of what little gain there was by the London a.m. gold fix at 10:30 a.m. GMT. From that interim low, the gold price never looked back...and climbed slowly to its high of the day...which was around 3:30 p.m. in electronic trading in New York.

The low of the day was around $1,374 spot, which occurred shortly after Far East trading began...and the New York high around 3:30 p.m. Eastern was $1,386.20 spot.

The star of the day was silver. The price didn't do much in Far East and early London trading...and was actually down about a dime by 12:30 p.m. in London...when the price finally began to turn upwards. The price rose slowly at first, but at 11:15 a.m. Eastern, the silver price began to rise faster, before the rally ran out of gas a few minutes after 3:00 p.m. in electronic trading in New York. From there the price traded sideways until the close at 5:15 p.m. Eastern.

Silver's low on Thursday was around $30.60 spot...and the high [$31.88 spot] occurred late in electronic trading in New York.

The world's reserve currency didn't do much yesterday...and closed down about 25 basis points from its Wednesday close.

The gold stocks basically tracked the gold price action...and since the gold price was only up about nine dollars, the HUI didn't do much better, closing up 0.99% on the day. Considering the silver price's stellar performance yesterday, I was rather underwhelmed at the reaction of a lot of the silver stocks...but don't want to read a thing into it at the moment.

The CME's Delivery Report showed that 58 gold and 18 silver contracts were posted for delivery on Monday. The link to what action there was, is here.

The GLD ETF showed another decline yesterday. This time it was 48,777 ounces. The SLV ETF inventory went in the other direction...up 878,883 ounces.

The U.S. Mint had it's fourth sales report in a row yesterday. They sold another 4,500 ounces of gold eagles, along with a smallish 42,000 silver eagles. Month-to-date, the mint has sold 60,000 ounces of gold eagles...along with 1,772,500 silver eagles.

There wasn't a lot of in or out activity over at the Comex-approved depositories on Wednesday...and they only received a net 17,364 ounces of silver...and the activity isn't worth looking at.

Before starting with my stories today...here's a graph sent to me by Washington state reader S.A. It shows the relationship between the S&P500 and QE1 and QE2. As Ben Bernanke has stated on several occasions, the stock markets has to be supported...and it's obvious that the primary dealers are doing his bidding.

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Fed Tells U.S. Banks to Test Capital for Recession

Washington state reader S.A. also has our first story of the day, which is a Bloomberg piece from yesterday. The headline reads "Fed Tells U.S. Banks to Test Capital for Recession". The Federal Reserve ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession with unemployment rising above 11 percent, said two people with knowledge of the review. The link is here.

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Andrew Sentance steps ups rate rise campaign

The next bank-related story is courtesy of reader Roy Stephens. It's a story from The Telegraph that was filed yesterday evening in London. Andrew Sentance, one of the Bank of England's nine rate-setters, launched his fiercest attack yet on his colleagues' delay in raising interest rates, warning the Bank's official forecasts are "too optimistic" about the inflation threat. The headline reads "Andrew Sentance steps ups rate rise campaign"...and the link is here.

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Bank run fears engulf savings bank industry: Officials unveil moves to end panic

There's another bank run going on in the world at the moment. This time it's in South Korea...and the story was sent to me by reader David Crofton. It's posted over at the joongangdaily.joins.com website...and the headline reads "Bank run fears engulf savings bank industry: Officials unveil moves to end panic". More than a thousand customers lined up in front of the Busan II Savings Bank located in Busan yesterday as soon as the nation’s financial regulator announced a six-month business suspension of Busan Savings Bank and its affiliate Daejeon Mutual Savings Bank. The link is here.

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Police use teargas and rubber bullets in raid on protestors

The troubles in Bahrain are highlighted in this story posted over at the france24.com website. It was sent to me by Roy Stephens...and the headline reads "Police use teargas and rubber bullets in raid on protestors". Three people were killed Thursday in Bahrain's capital of Manama, after police used teargas and rubber bullets to disperse protestors camped in Pearl Square. The overnight raid brings the death toll in Bahrain’s recent unrest to five. The link is here.

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Why I'm Buying Silver at $30

My first precious metals-related story is one that Casey Research's own Jeff Clark sent me yesterday. It's a short essay imbedded in yesterday's Casey's Daily Dispatch. It's headlined "Why I'm Buying Silver at $30"...and is very much worth the read. The link is here. You have to scroll down a handful of paragraphs to find it. I was a buyer yesterday, too.

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Short Squeeze in Silver Could be "The Big One."

Interviewed yesterday by King World News, GoldMoney founder and GATA consultant James Turk says all the indicators for silver are bullish and that the Short Squeeze in Silver Could be "The Big One." Excerpts from the interview can be found linked here.

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Man stabbed in robbery of $750,000 in silver bars

For all of you that store some or all of your bullion within easy reach, here's a story from the Canadian newspaper the Times Colonist in Victoria, B.C. that was sent to me by reader Phil Armstrong. The headline reads "Man stabbed in robbery of $750,000 in silver bars". A man from Chilliwack says he was traumatized after he was punched, stabbed and tied up by home-invading thieves who made off with his life savings in silver bars. This is a must read by all...and the link is here.

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Silver and Opium

Lastly today is this essay posted over at the Asia Times website that was sent to me by Swiss reader G.B. It's written by Antal Fekete...and tells the story about China, silver...and opium. It's a true story which I've posted here before, but by a different author. The Opium Wars do not belong to the glorious episodes of Western history. Rather, they were instances of shameful behavior the West still has not lived down. I highly recommend this story as well, which is headlined "Silver and Opium"...and the link is here.

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Yesterday's very positive day in both metals...especially in silver...was not unexpected, considering all that's swirling around silver and gold these days. Gold volume yesterday was very light...under 100,000 contracts traded...net of all spreads. The preliminary open interest number did not warm the cockles of my heart at all.

In silver, volume was immense...around 100,000 contracts net. One of the things I found of interest was the fact that March open interest is hardly declining...but open interest in May increased by many thousands of contracts. We're only seven business days away from First Day Notice for March delivery in silver...so these numbers are a bit of a surprise...and all these contracts either have to be rolled...or they will end up on the First Day Notice list. Preliminary open interest numbers for Thursday's trading day were big, but not as big as they might have been considering the $1.10 increase in price...so the final numbers, when they're posted on the CME's website later this morning, will be of great interest.

Wednesday's final open interest numbers in gold and silver were pretty much as I expected. Gold o.i. was up another chunk. This time it was 5,834 contracts...and in silver it was up 1,153 contracts. I was holding out faint hope that silver o.i. might have declined a little...but that was not to be. And, as I said in the previous paragraph, Thursday's final open interest numbers will be an education.

Well, the spreads in silver tightened further yesterday. The March settlement price was $31.570 per ounce...and the May settlement was $31.581 per ounce. A spread of 1.1 cents. Wednesday it was 2.5 cents. The silver price does not go into true backwardation until the thinly-traded December 2011 delivery month...and then only by a tenth of a cent.

As of this writing at 3:40 a.m. Eastern time...that spread in the March/May delivery month is now down to zero. Less than an hour ago, it was one cent. That one penny spread was shown for the rest of the 2011 delivery months in silver. But, as you can see from this data, it's all subject to change without notice...in either direction...and in very short periods of time as well... so we'll just have to try and keep up. All the elements for backwardation in the silver price are in place.

Today is also the release date for this week's Commitment of Traders report. I know that silver analyst Ted Butler will be looking it over with great interest. I also know what he's looking for...and I hope that he finds it. Ted is in Phoenix at the Silver Summit...and I hope to have something to report from him in my Saturday column.

Here's the 6-month silver chart that I'm posting for information purposes only. Yesterday's big spike up, drove the RSI in overbought territory for the first time on this rally...and what happens from here is anyone's guess. You can throw that data point on top of backwardation and first day notice as well.

Here's the 6-month gold chart. The gold price is now firmly through the 50-day moving average...but it didn't feel like tech fund buying yesterday, as the price action was very subdued...and volume was light. According to this chart, the RSI is nowhere near oversold...so it will be interesting to see what the price action is like as we go forward.

Yesterday I posted this new product that EverBank has just come out with...and here it is again today...

Exciting news! EverBank is going to offer a new MarketSafe® CD starting February 17, 2011. It's called MarketSafe® Diversified Commodities...and is available for deposits starting February 17, 2011 – in the afternoon. The funding deadline is March 17, 2011.

The components are:

A 5-year term...and it's comprised of 10 commodities – equally weighted: WTI Crude Oil, Gold, Silver, Platinum, Soybeans, Corn, Sugar, Copper, Nickel and Lean Hogs. There will be 5-annual pricing dates...and the minimum to get is $1,500. There are no fees...and it's IRA eligible.

Just as a reminder, this product is 100% principal protected. There is no downside! So, no matter what the commodities do at the end of the term, investors will receive 100% deposited principal protection. Your maximum upside will be the sum of the average returns for years 1-5, based on the Spot Price as of each Pricing Date relative to the Spot Price on the Initial Value Date; subject to a 10% cap and -20% floor for each commodity.

As mentioned above, the funding deadline is March 17, 2011 – this date reflects when your account needs to be opened and deposit received. The product will be available on EverBank's website starting in the afternoon of February 17, 2011. That was yesterday. So, if you're at all interested...and it looks appealing to me...all you have to do is click here...and all will be revealed to you, as the link is now active.

The silver and gold prices were well behaved in Far East trading during their Friday session...but popped a bit right at the London open at 8:00 a.m. GMT. Volume is very light in gold at the moment...but much chunkier in silver, which is to be expected going into options and futures expiry...and First Day Notice.

It has all the makings of a wild and crazy trading session in New York today, as we are truly in uncharted territory here.

See you on Saturday.