Record Silver Backwardation Spells Danger for US Dollar - James Turk

Gold's low price on Thursday came early in the trading day in the Far East...and was up about twenty bucks from that low by the time the London p.m. gold fix was in shortly after 10:00 a.m. in New York. That $1,440.80 spot price at the fix proved to be the high tick of the day...and gold got sold off a bit going into the close of electronic trading at 5:15 p.m. Eastern...but was still up seven bucks on the day.

The silver price made many valiant attempts to rally yesterday...but just couldn't make it far above the $37.80 spot mark...except minutes after 10:00 a.m. in New York where it touched $38.00 spot for an instant before retreating into the close.

The dollar hit its low of the day around 75.68 just minutes after 10:00 a.m. in London trading...and then spent the rest of Thursday climbing back to close a hair above 76 cents...which was basically flat on the day. A cursory glance at the both the dollar chart and the gold chart indicates that there was little, if any, co-relation between the two yesterday.

The gold stocks were up about a percent for most of the day...and, like the rest of the equity markets, got sold off a hair during the last half hour of trading. The HUI finished up 0.85%. And, with some notable exceptions, the silver stocks did much better than their golden cousins.

The CME's Delivery Report showed that 422 gold, along with 9 silver contracts, were posted for delivery on Monday. JPMorgan was the big issuer with 329 contracts...and also the biggest stopper with 240 contracts, although the Bank of Nova Scotia wasn't too far behind at 168 contracts. The link to the action, which is worth a glance, is here.

The GLD ETF showed a smallish decline of 19,493 ounces...and there was no report from SLV once again.

The U.S. Mint had no sales report yesterday.

The Comex-approved depositories received 1,100,822 troy ounces of silver on Wednesday...and only shipped out 43,621 ounces, for a net gain of 1,057,201 ounces. I would suspect that this silver was brought in by the shorts who had to deliver to the longs before the March delivery month came to an end. The link to the action is here.

I didn't get very much response to my comments on what I had to say about the Perth Mint the last couple of days. However one reader took great umbrage with what I had to say...and told me so in no uncertain terms. Attached to her e-mail was an e-mail from John Durham, who is the manger of Depository Services at the Perth Mint...and I'm only too happy to post his e-mail in its entirety.

Dear Ms. xxxx..."Some US commentators have made claims that The Perth Mint doesnot have the silver that it is holding on behalf of its Perth Mint Depository clients. This allegation is entirely unfounded. The guidelines approved by the Board of the Perth Mint do not permit the Mint to run short metal positions, as all metal sales to clients are matched ounce-for-ounce with purchases made from counterparties. [Emphais mine - Ed]

At no time have the Perth Mint’s silver liabilities to Depository clients exceeded its silver assets. The Perth Mint is audited annually by the Auditor-General of Western Australia as well as its internal auditors, PriceWaterhouse Coopers. Both sets of auditors have regularly reviewed this matter in the past and neither has found any reason for concern.

A number of articles regarding this situation and offering clarification can be found on The Perth Mint's blog. The link to the blog is here.

Please be aware that we do not sell ‘paper silver’. The commentators that make such claims do not have an understanding of our business nor an understanding of the products we offer.

Your unallocated metal can be fabricated and delivered to you in Sydney. However, please be aware that this cannot be achieved overnight. Our standard fabrication time is 10 working days – this is a working Mint with production schedules for many products. The Mint is not a courier and employs the services of third party freight companies such as Brinks. These companies maintain their own terms & conditions and some, for security purposes, will not deliver to your home. Some will only deliver to an office and some will allow collection from their depot. Should you wish to fabricate and take delivery of your metal please contact this office and we will be happy to arrange a quote for you which will detail cost and the services available.

Please do not hesitate to contact me should you have any further queries.

Regards, John Durham, Depository Services, Perth Mint

I will be communicating with John early next week...but based on what he said, it's possible that what I said in my column over the last few days was not entirely factual. But I do have some questions...and I will have an update for you after I've spoken with him.

Here's a chart that Australian reader Wesley Legrand sent me late last night. It shows the gold price bouncing off the 150-day moving average on a regular basis ever since the debacle in 2008. These lows are reached when the bullion banks have flushed out every technical long that they can force to sell...and covered as many of their own short positions as they can. In a way, this chart has basically been 'painted' by JPMorgan et al.

¤ Critical Reads

Gross Echoes Buffett Saying Treasuries Have ‘Little Value’ on Debt, Dollar

President Barack Obama’s government has increased the U.S. publicly traded debt to a record $9.05 trillion, leading Gross to compare the nation to Greece, which had its credit ratings cut two steps by Standard & Poor's on March 29th. “We are out-Greeking the Greeks,” he wrote.

I thank reader Scott Pluschau for this Bloomberg story...and the link is here.

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Wal-Mart CEO Bill Simon expects inflation

Inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate." I wonder if 'Helicopter' Ben read this piece?

I thank Washington state reader S.A. for sending it along...and the link to the story and the 4-minute video clip, is here.

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Marc Faber Interview on Fed Policy, Investment Strategy

Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for a third round of quantitative easing from the Federal Reserve, his investment strategy and the outlook for global stock and commodity markets.

The Bloomberg video clip runs about eighteen minutes...and I thank Alberta reader B.E.O. for sharing it with us. It's well worth your time, if you have it...and the link is here.

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Irish banks need €24bn more to survive economic shocks

Here's a story that showed up at The Telegraph late in their afternoon yesterday...and it's courtesy of reader Roy Stephens.

In a recent 'stress test'...which requires the banks to remain above a minimum core Tier 1 capital ratio of 6pc...Allied Irish Banks needs an additional €13.3bn, Bank of Ireland needs €5.2bn, EBS building society needs €1.5bn and Irish Life & Permanent needs €4bn. The new figure will take the final bill for bailing out Ireland's banks to €70bn.

Ireland will be in debt for generations...and the link to the story is here.

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France’s Finances Are ‘No Better’ Than Spain’s, O'Neill Says

“Their debt position is no better than Spain and possibly worse,” Goldman Sachs' O’Neill said today in a Bloomberg Television interview in Nanjing, China, where he was attending a meeting on global monetary issues sponsored by the Group of 20 nations.

His comments underscored the urgency for French President Nicolas Sarkozy to curb a gross debt load that the IMF predicts will climb to 86.4 percent of gross domestic product this year. Spain’s debt will be 68.4 percent, according to IMF projections published in January.

The story is courtesy of Washington state reader S.A...and the link is here.

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European Inflation Unexpectedly Accelerates to Fastest Since October 2008

Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the fastest since October 2008 and exceeds the ECB’s 2 percent limit for a fourth month.

I would expect, like any other government, that the E.U.'s inflation figures understate the real inflation rate by quite a bit. Reader Scott Pluschau sent me this story...and the link is here.

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Gold through $1,500 by year end as key drivers remain in place - Walker

The following interview, posted over mineweb.com, was sent to me by Australian reader Nick Laird. It's an interview with Gold Field Mineral Services CEO, Paul Walker...and I think his $1,500 price target is a little on the conservative side. It's a longish read...and the link is here.

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Central Fund of Canada Announces Proposed Offering

On March 29th the Central Fund announced an offering which closed on March 30th. 16,150,000 shares were purchased for net proceeds of $360 million. A back-of-the-envelope calculation shows that this Central Fund offering translates into about 4.1 million ounces of silver...and approximately 132,000 ounces of gold. The link to the CEF press release is here...and I thank Washington state reader S.A. for sharing it with us.

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Record Silver Backwardation Spells Danger for US Dollar - James Turk

Here's a James Turk blog that was posted over at King World News yesterday evening. James states that...“We’re now at a record backwardation in silver in terms of length of time. I think what we need to do is compare what is happening now to 2009 when silver was in backwardation the last time. Over a period of just about two months silver rose 40% from approximately $10 to $14, and that rise in price eliminated the backwardation.”

This blog is a must read...and the link is here.

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Net volume in gold yesterday was a bit over 115,000 contracts...which isn't particularly heavy. But the preliminary open interest number is a very chunky 10,485 contracts which, considering the price action, is a really big number. I'm hoping that it will be reduced substantially when the final number is posted later this morning.

Gold's final open interest change for Wednesday showed another decline. This time it was 4,947 contracts which, considering the fact that Wednesday was a big roll-over day, was probably mostly spread related.

Silver's volume yesterday was not very heavy...something less than 50,000 contracts net...and the preliminary open interest number is 2,497 contracts. It will be interesting to see what the final number is.

Silver's final open interest number for Wednesday's trading day showed a decline of 874 contracts.

The backwardation in silver is still there, but now there's still a premium all the way out until the September 2012 delivery month. The maximum premium during that period of time has now risen to seven cents the ounce...and the backwardation from April 2011 out to December 2015 is seventy-two cents.

Gold and silver prices didn't do much during Far East and early London trading today so far...and volume in both metals is not particularly heavy...which is no surprise considering the lack of any price action, either up or down.

The Commitment of Traders Report, for positions held at the close of trading on Tuesday, will be released at 3:30 p.m. sharp Eastern time today...and when that time arrives, you can click here to check out the activity for the week that was.

I have no idea what kind of price action to expect during the New York trading session today, as the overnight action is certainly not giving any clues as to what might lie ahead.

There's still time left 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.

I hope you have a great weekend...and I'll see you here on Saturday.