Debunking the Gold Bubble Myth

It was no surprise to me to see gold blast off once trading began in the Far East on Monday morning. This is what usually happens anyway, but I'm sure events in Japan only exacerbated the situation at the open yesterday morning...plus the fact that the U.S. dollar also gapped down at the open.

Within an hour, gold was up over fifteen bucks, but then a not-for-profit seller showed up...and by lunchtime in Hong Kong, the gold price had been beaten back to unchanged. Volume over that time period was extremely heavy.

From that point...and in fits and starts...the gold price climbed higher until it's New York high of the day [$1,431.80 spot], which was the London p.m. gold fix at 3:00 p.m. GMT...10:00 a.m. in New York. Then it got sold off, but recovered a bit going into the close of electronic trading.

The silver price spike during the first hour of trading after the Far East open on Monday morning, was even more spectacular...blasting through $36.40 before being cut off at the knees during the ensuing four hours. Volume was also very heavy during that period...as it appeared that the bullion banks threw everything they had [except the kitchen sink] at the price...just like in gold.

Silver's high price in New York [$36.31 spot] came around 9:40 a.m. Eastern...hitting its New York low of the day at the close of London trading at 11:00 a.m. Eastern time, right on the button. The low was $35.67 spot.

A cursory glance at both charts above shows that every time either metal showed any signs of life during the Monday trading session, it got sold off before the price could gather any kind of upward momentum. Considering the current state of world events, I'm not the slightest bit surprised that the bullion banks were riding shotgun on the precious metals yesterday.

Here's the 6-month gold chart. Gold has been held below $1,430 spot on a closing basis ever since it tried to break through that barrier ten business days ago. Is someone trying to paint a top here? Don't know.

The silver chart looks similar, except for the fact that its price has not been allowed to close above $36.00 spot. I don't know what to make of it, but it could be nothing.

As I mentioned at the top of this column, the dollar gapped down a bit over 30 basis points at the open in the Far East yesterday morning. It gained all that loss back in the next three hours...and then proceeded to lose that and more by the low price tick of the day which came around 4:00 p.m. Eastern time.

The gold stocks pretty much mirrored the gold price action yesterday, but despite the fact that gold finished in the plus column, the HUI finished down 0.29% on the day. I'm sure that the general weakness in the equity markets had something to do with that as well.

Although the silver price pretty much finished the Monday trading day unchanged, most of the silver stocks did poorly.

Yesterday's CME Delivery Report showed that 73 gold along with 188 silver contracts were posted for delivery tomorrow. In gold, the only issuer was Prudential, with all 73 contracts...and the biggest stopper was the Bank of Nova Scotia. In silver, the biggest issuers were JPMorgan and UBS...with the biggest stoppers being Barclays and the Bank of Nova Scotia. This activity is worth a look...and the link is here.

The GLD ETF reported a smallish decline of 58,520 ounces...and there was no reported change over at the SLV ETF.

For the week just past, Switzerland's Zürcher Kantonalbank reported that their gold ETF took in 31,074 ounces...and their silver ETF added 197,341 ounces. As always, I thank reader Carl Loeb for those numbers.

The U.S. Mint had no report on Monday.

Friday was a busy day over at the Comex-approved depositories, as they didn't receive a single ounce of silver, but shipped 700,718 troy ounces of the stuff. The link to that action is here.

Before heading into my stories today, here's what silver analyst Ted Butler had to say about the Comex trading action during last Friday's trading day in silver..."Quite frankly, I don't think I have witnessed a more blatant manipulative takedown as what occurred on the Comex on Thursday evening and into Friday morning [Eastern time]. The vicious sell-off for no economic justification was simply outrageous. So outrageous, that I don't know how it could not be judged as manipulative by any level of regulatory standard. I know many of you observed the same thing...and felt the same way. I want to be very careful about not overstating what I observed, but it was clearly a deliberate case of disruptive trading when liquidity conditions were thin. This disruptive trading was also clearly intended to induce as much speculative long liquidation as possible."

I'm sure Ted will have much the same thing to say to me on the phone this morning, when we discuss what went on in the forty-five minute period between 11:30 p.m. and 12:15 a.m. Eastern time last night and this morning...which is 12:30 p.m. to 1:15 p.m. Hong Kong time in their Tuesday afternoon. I would bet serious dollars that JPMorgan was at the center of that bid-pulling scenario...just as they were last Friday.

Of course they hit gold as well...but it was the speculative silver longs that the bullion banks were really after...and they got them pretty good. There was big volume in both metals over that time period.

¤ Critical Reads

Paul's committee hearing will link monetary policy with rising prices

U.S. Rep. Ron Paul, R-Texas, chairman of the Domestic Monetary Policy and Technology Subcommittee, announced yesterday that the subcommittee will hold a hearing to examine the relationship between monetary policy and rising prices, with a particular focus on food and energy prices.

"It is unconscionable that published government statistics mislead Americans regarding the true rate of price inflation, which is much higher than commonly-reported Consumer Price Index numbers," Paul stated. "It is also unconscionable that Federal Reserve Bank officials continue to deny the effects of their monetary expansion on consumer prices. The link is here.

View full GSD edition

Dollar Depressed by OPEC Slashing Treasury Holdings 9% as Oil Profits Rise

Here's a Bloomberg story from yesterday that was sent to me by reader Scott Pluschau.

Treasuries owned by oil producers and institutions such as U.K. banks that are proxies for Middle East nations fell 9 percent in the second half of 2010 to $654.6 billion, the first decline in the final six months of a year since the Treasury Department began compiling the data in 2006. The sales may continue, if history is any guide, because Barclays Plc says Middle East petroleum exporting nations have traditionally placed only 25 percent of their savings in dollar-based assets. The link is here.

View full GSD edition

Total German triumph as EU minnows subjugated

Here's an Ambrose Evans-Pritchard offering from Sunday's edition of The Telegraph...and I thank Roy Stephens for sharing it with us.

The Iron Chancellor of Germany could not have been clearer. "Whoever wants credit must fulfill our conditions". These conditions are capitulation by three vulnerable states on core policies, and partial loss of sovereignty for the rest of the eurozone. This does not restore solvency. Greece’s debt spiral is too far advanced. The debt load will approach 150pc of GDP this year, and debt service costs are 14.4pc of tax revenue.

What is clear is that sovereign states are being forced to cut wages and dismantle parts of their welfare state under foreign diktat, with a gun held to their heads. This will not be forgotten lightly. The character of the European Project has changed utterly. This is a must read...and the link is here.

View full GSD edition

Dimon, Pandit, Blankfein, Ackermann Join Kremlin Advisory Board

Here's a Bloomberg story from last week that arrived in my in-box yesterday...and I thank Washington state reader S.A. for sending it along. After getting raped by the west after the fall of the Soviet Union, the Wall Street bankers [plus others] are back in Moscow once again.

Wall Street bankers including JPMorgan's Jamie Dimon, Citigroup's Vikram Pandit and Goldman Sachs' Lloyd Blankfein are advising the Kremlin on how to turn Moscow into a global financial center.

“We believe it is very important to participate in the committees advising President Medvedev on how to transform Moscow into a financial center,” said Dimitri Agishev, a Deutsche Bank spokesman, in an e-mailed statement. Russia continues to be a key market with ample opportunities.” I consider this story worth the read...and the link is here.

View full GSD edition

Saudi Arabian forces prepare to enter Bahrain after day of clashes

Here's another story from Washington reader S.A. This is from The Guardian on Monday. The Crown Prince of Bahrain is expected to formally invite security forces from Saudi Arabia into his country today, as part of a request for support from other members of the six-member Gulf Co-operation Council. Needless to say the Shia Muslims in Bahrain are not amused...and the link is here.

View full GSD edition

Japan shuts down as economic fears grow

Here is my first of three Japan-related stories for you today. I'm only posting the latest new items, as the situation over there is changing by the hour. Here's a story out of this weekend's edition of The Telegraph that was sent to me by reader Roy Stephens. Japan's giant car industry has announced a major shutdown as fears grow over the economic impact of Friday’s devastating earthquake and subsequent tsunami which has crippled much of the north-east of the country. It's a rather short story...and the link is here.

View full GSD edition

BOJ injects record 7 trillion yen to soothe markets

This next item is a two-paragraph Reuters story that was sent to me by Washington state reader S.A. The Bank of Japan on Monday injected a hefty 7 trillion yen ($85 billion) into the money market in a same-day market operation aimed at soothing market jitters after a massive earthquake and tsunami hit northeastern Japan.

This was the central bank's first so-called same-day operation since last May, when the Greek debt crisis roiled the global financial markets. The link is here.

View full GSD edition

New blasts, fire escalate Japan's nuke crisis

Casey Research's own Bud Conrad sent out this story in the wee hours of this morning. It's a piece that was posted over at The Sydney Morning Herald website late Tuesday afternoon. Japan's nuclear crisis escalated today as two more blasts and a fire rocked a quake-stricken atomic power plant, sending radiation up to dangerous levels. Radiation around the Fukushima No.1 plant on the eastern coast had "risen considerably", Prime Minister Naoto Kan said, and his chief spokesman announced the level was now high enough to endanger human health. The link is here.

View full GSD edition

Buy Gold: It's a Safe Haven and Inflation Hedge

Washington's state reader S.A. has our first gold story of the today. Author Janet Briaud is a certified financial planner...and a partner at Briaud Financial Advisors in Bryan, Texas. She states that..."We're far from bubble territory. Gold, which is currently above $1,400 an ounce, would need to top $2,000 to match its all-time high, adjusted for inflation. Indeed, gold is still something of a contrarian investment. Ten years ago, gold was almost universally hated as an investment. I know firsthand because people thought I was crazy for buying it. Today, gold is still eyed with suspicion by most.

She has a keen grasp of the obvious...but it's always nice to see a gold-positive story show up in The Wall Street Journal, even if it's only in the online version. The link is here.

View full GSD edition

Rocket Launch in gold Will Shock the Markets

Here's a story from a GATA release yesterday. I'm just going to steal Chris Powell's title...and all of his preamble...and claim it as my own. Interviewed by King World News yesterday, GoldMoney founder and GATA consultant James Turk stuck his neck out and remarked that the consolidations in gold and silver are ending and the precious metals likely will resume their moves up soon. The link to Turk's blog is here...and it's worth the read.

View full GSD edition

Market manipulation cited in Gold Report's interview with Eric and Larisa Sprott

This next story showed up as a GATA release yesterday...and I'm going to post it as it is. The headline over at The Gold Report reads "The Sprotts Expect Silver to Keep on Sizzling"...and the link to the GATA release is here...and it's definitely a must read.

View full GSD edition

Debunking the Gold Bubble Myth

Well, it has turned into an Eric Sprott double header today. My last item is Eric Sprott's monthly MARKETS AT A GLANCE commentary. This one runs three pages and a bit...and like every other commentary that come from either Eric Sprott or John Embry...it's a must read...and the link is here.

View full GSD edition

If we do sell off in silver, it will be for one reason only...the commercial crooks on the Comex rigged the price lower. Considering the damage that has accrued to the commercials for being on the wrong side of the market for so long, the makes them weaker, not stronger. It increases the odds they will break ranks and panic to the upside. So we have to be prepared for volatility, continued commercial dirty tricks...and the deplorable lack of regulatory relief.- silver analyst Ted Butler, 13 March 2011

Gold volume yesterday, net of all roll-overs was around 90,000 contracts...which is very light. Most of the significant volumes occurring during Sunday night trading in New York...which was early Monday morning in the Far East. That's when the bullion banks showed up to squash the rallies in both metals...as you can tell by looking at the gold and silver charts at the top of this column.

The preliminary open interest number for gold is a very small 2,636 contracts...which I expect to see reduced considerably when the final number is posted later this morning.

Silver volume was pretty decent...just under 50,000 contracts net...but nothing like the volume that accompanied the smash-down on Friday. With the bullion banks pulling their bids in the thinly-traded Far East market earlier today, volume was very heavy during that time period as well. The preliminary open interest number for Monday's trading day was a rather small amount, so I'm hoping that the final number posted today will show a net decline in silver's o.i.

Friday's final open interest number in gold showed a small decline of 665 contract...but silver's open interest soared by a discouraging 4,300 contracts. Ted doesn't know what to make of that...and we won't get a clear picture of what went on until Friday's Commitment of Traders report.

Also in Friday's report will be the action that we witnessed earlier this morning...and hopefully everything that happens during Comex trading today...as Tuesday [today] is the cut-off for Friday's COT report.

There are still 1,309 silver contract open in March, but that number will decline by the 188 contracts that are to be delivered tomorrow. I mentioned that number in the CME's Daily Delivery Report elsewhere in this column.

As far as the silver backwardation issue is concerned. The spreads for most of the 2011 delivery months widened out to about two cents...the highest in many weeks. Silver doesn't slip into full backwardation until the March 2012 delivery month...but the backwardation from March 2011 to December 2015 still sits at $1.05.

As of 5:10 a.m. Eastern time, both metals are now well off their Far East lows, but are getting smacked again now that London has been open for just over an hour. It remains to be seen what the bullion banks have in store for us during Comex trading hours in New York this morning...but it isn't looking good at the moment.

Without doubt it will have been another interesting trading day to report on when I write my column for tomorrow...and I'll see you then.