$200 Silver and a 5-Digit Gold Price

Gold worked its way ten dollars higher by 2:00 p.m. Hong Kong time during their Monday afternoon...and then held steady until about 12:30 p.m. London time, before the not-for-profit sellers showed up. Whether this early trading action was new buying...or short covering...won't be known until the final open interest numbers are posted on the CME's website later this morning.

I believe that London was closed on Monday...and pretty much all the overseas trading yesterday involved the New York-based bullion banks buying and selling on the Globex trading system...which they have access to anytime that the Comex is not open. They can enter the market any time they wish...and they were sure out stomping about yesterday.

Anyway, gold was only down about five dollars from its peak going into the Comex open...and at precisely 9:30 a.m. Eastern, when the equity markets had just opened in New York, they pulled their bids...and the rest, as they say, is history.

As soon as the selling pressure stopped, buying took gold back up above $1,510...but that number didn't hold...and silver sold off another five bucks going into the close. Gold closed down a hair from Thursday.

But it was silver that JPMorgan et al were after...and did they ever do a number on it. Both Ted and I agree that the big rise in silver during the first seven hours of trading in the Far East was probably a short covering rally...especially the two dollar jump shortly after midnight New York time. Then it appeared that the usual not-for-profit seller was there to sell silver down below forty-nine dollars...and from there it stayed pretty steady until precisely 9:30 a.m. Eastern when it, along with gold, were trashed.

Silver got smacked for almost $3.50 before the bottom was in...and although silver recovered nicely from there...it only closed up about 40 cents on the day...instead of the $2.50 it would have closed up if 'da boyz' hadn't pulled their bids.

If silver had closed up that $2.50...there would have been around $1 billion dollars worth of margin calls going out to the Comex short holders this morning. That was prevented from happening...and that's not the first time the bullion banks have pulled that stunt during the last week of trading.

The dollar fell below 74 cents shortly after Monday trading began in the Far East...but, once again, there was someone there to catch a falling knife...and the dollar gained 30 basis points in no time...hitting its high of the day late in the morning in the Far East, before rolling over and falling to its low of the day around 7:15 a.m. Eastern time.

Then the dollar rallied another 30 basis points, before rolling over once again...closing the New York trading day a hair above the 74 cent mark.

As I mentioned, there were two smallish 30 basis point rallies during the Monday trading day. The first had no impact on the gold and silver prices...but the second one is where gold and silver got it in the neck. If you can spot a pattern here, please let me know.

The big pounding of the day that both gold and silver took, began at precisely 9:30 a.m. when the equity markets opened, which really doesn't pass the smell test. The equity markets had been showing a down opening all night long...and I guess it only stands to reason that if you're going to pick a time to smash the metals, it would be at the open of trading. You wouldn't want the precious metals shares to outperform the rest of the equity markets, now would you?

The gold shares were down the whole day...and the HUI closed down 2.59%...and the silver shares, with the odd exception, did poorly as well...even though the silver price finished solidly in positive territory. Everybody is trading like the top for the bull market in gold and silver is in...and nothing could be further from the truth.

The CME Daily Delivery Report showed that 212 gold, along with 21 silver contract, were posted for delivery tomorrow. The biggest issuer and stopper in gold was JPMorgan...160 contracts issued, along with 144 contracts stopped. They were also the biggest issuer in silver as well. The link to all this activity is here.

There was no change in the GLD ETF yesterday...but there was a huge addition to SLV...as 7,708,583 troy ounces were added. This is, without doubt, the largest daily addition that I can remember...and the total ounces of silver now held by SLV is at a new record high. Ted Butler feels that, based on the price action lately, the SLV ETF is owed anywhere between ten and twenty million more ounces.

There was no report from the U.S. Mint yesterday.

The Comex-approved depositories showed that no silver was added to their collective inventories on Thursday...but 757,190 ounces of silver were shipped out the door. With May deliveries coming up in less than five business days, one would think that they would be adding silver in preparation for delivering physical metal, but so far that has not been the case. The link to Thursday's action is here.

I wasn't overly enthralled with Friday's Commitment of Traders report which came out on Friday. In silver, the Commercial net short position actually increased by 1,413 contracts, which is not what either Ted nor I were expecting...because it was obvious from the price action and the daily open interest numbers that the price rise was due to short covering.

But Ted's explanation, once he had looked deep under the hood, was far more reassuring. The '4 or less' traders [read JPMorgan] had actually reduced their net short position by around 1,200 contracts...and the '5 through 8' bullion banks had reduced their short position by 1,100 contracts...for a total improvement of 2,300 contracts. But, as Ted pointed out, the reason the total net commercial short position rose by 1,413 contracts is because the raptors [the smaller commercials aside from the 'big 8'] sold 3,700 long contracts, erasing their previous 2,200 contract long position...and leaving the raptors short 1,500 contracts.

The total net commercial short position in silver now sits at 263.5 million ounces. The '4 or less' traders are short 203.0 million ounces...and the '8 or less' traders are short 255.9 million ounces. These are the lowest short positions held by these traders in years...so it's obvious that the bullion banks are covering.

The Commercial net short position in gold rose 12,860 contracts. The bullion banks are increasing their short positions in gold, at the same time as they're covering their short positions in silver. This is the first time that I've observed this dichotomy...and it's been going on for a while now. Under 'normal' circumstances, the open interest in both metals rise and decline together. It looks like they're controlling the rise in the gold price on one front...and trying to get out from under their silver short position on the other.

The Commercial net short position in gold has now risen to 26.7 million ounces. The '4 or less' bullion banks are short 16.1 million ounces...and the '8 or less' bullion banks are short 23.6 million ounces. This is not a happy number...but I've seen worse. Will 'da boyz' pull the plug in gold? They can if they want to...but will they?

How all this will work out in the end remains to be seen...but it's amazing to watch.

Since last Tuesday's cut-off for last Friday's COT report, the action has been wild and woolly...both up and down. Today is the cut-off for this Friday's COT report...and Friday's report should be a sight to see.

Here's Ted Butler's "Days to Cover Short Positions" graph that's courtesy of Nick Laird over at sharelynx.com. The decline in open interest in silver, along with the increase in open interest in gold, shows that gold o.i. is now 'catching up' with silver's open interest.

Before I get into my stories, here's one paragraph from Ted Butler's weekly review to subscribers on Saturday..."Here's another observation [about the silver market]. Those traders that we normally associate as being the 'hot, speculative money' are usually those in the managed money category [of the disaggregated COT report]...and in the small traders category. For the past two COTs, as the silver price rose by almost $5 an ounce, these traders were not net buyers, but net sellers. So all those stories about silver being driven higher by hot speculative buying were just that---stories. The buyers were primarily the big concentrated shorts. The good news is that these big shorts still have plenty to buy back."

Here's a graph that Nick Laird sent me over the weekend. It's titled "Gold/Silver vs. 50 Historical Bubbles". You can see that the current bubbles in gold and silver hardly rate...especially when considered against the gold and silver 'bubbles' back in 1980. Use the 'click to enlarge' feature...and give the graph a quick look.

With no column on Saturday, I have quite a few stories to post today.

¤ Critical Reads

China should cap forex reserves at 1.3 trillion U.S. dollars: China banker

Here's a story that was making the rounds over the weekend. It's another in what seems to be a never-ending series of stories that China is going to diversify out of the dollar. When are they actually going to do something about it, one wonders.

The story is posted over at xinhuanet.com...and was filed from Beijing on Saturday...and I thank reader 'Charleston Voice' for sending it along...and the link is here.

View full GSD edition

How the Fed Bailed Out Super-rich Bankers' Wives

Here's a neat 6-minute interview that was posted over at rollingstone.com late last week. Matt Taibbi had a fun sit-down with Eliot Spitzer the other night...and talked about the "Housewives" story. Matt says that Eliot is probably his favorite interview on the finance stuff because he knows this material so well, and always has interesting things to add.

I thank reader Randall Reinwasser for sending along this cnn.com video clip...and the link is here.

View full GSD edition

EU poised for Greece crisis talks

A delegation of leading European and international monetary officials are planning a crisis summit in Athens in May amid growing fears that Greece may default on its sovereign debt. George Papandreou, the Greek prime minister, and other Greek officials have this weekend strongly denied rumours that Greece may be forced to restructure its debt imminently – possibly as early as this weekend.

This story from The Telegraph on the weekend was courtesy of reader Roy Stephens...and the link is here.

View full GSD edition

Toyota Says No Full Production Until Year’s End

Toyota Motor will not return to pre-disaster production levels until the end of the year, the president of the Japanese automaker said Friday. Though Toyota’s 17 plants in Japan escaped the disaster relatively unscathed, factory lines are working at only half volume here and at 40 percent overseas, as vital suppliers in Japan’s worst-hit areas struggle to restart operations.

I thank reader Phil Barlett for sending me this story out last Friday's edition of The New York Times...and the link is here.

View full GSD edition

UK nears Swiss tax deal

United Kingdom citizens will have to hand over millions of pounds in backdated taxes on secret bank accounts, after it emerged that the Government is close to signing a disclosure deal with Switzerland. Any deal is likely to include a withholding tax, taken by the bank on dividend and interest payments, and a levy on previously untaxed income.

This is another Roy Stephens offering...this one from the Sunday edition of The Telegraph...and the link is here.

View full GSD edition

Syria on the Edge of the Abyss: Assad's Regime Escalates Crackdown on Protesters

Roy Stephens' last offering of the day is from the German website spiegel.de...and was posted yesterday.

Syrian President Bashar Assad missed the opportunity to legitimize his rule with genuine reforms and is now fighting for survival. The authorities' crackdown on protests entered a new, even more brutal level on Monday as tanks rolled into Daraa. The whole region is looking on with concern as the country slides into chaos.

It's not an overly long read...and the link is here.

View full GSD edition

Gold Rush II: It's sell, sell, sell as prices hit record high, but this time it's because America's broke!

My first gold-related story today is courtesy of reader George Findlay, who found this story posted over at the dailymail.co.uk website on Saturday...and the headline pretty much says it all.

For many Americans struggling to make ends meet, the gold boom has meant a heart-breaking trip to the pawn shop, selling off jewelry to pay the bills. The link is here.

View full GSD edition

$200 Silver and a 5-Digit Gold Price

Here's another offering from George Findlay...this is a 8:49 cnbc.com video, which I think is out of the Far East. They talk about the ETFs vs. the real metal itself...and the effect that this week's FOMC meeting and QE3 may have on precious metal prices. One of the guests is talking $60 silver within the next 18 months...and any dips should be bought. He's expecting $200 silver long term...and a 5-digit gold price to go with it. Only the first five minutes is on gold and silver...and then they switch to talking about oil. The whole clip is worth your time...and the link is here.

View full GSD edition

Interview with Two Johns

Eric King over at King World News was a busy boy on the weekend, as he normally is. Here are two new interviews...one with John Embry of Sprott Asset Management that's linked here...and the other is with John Hathaway over at Tocqueville...and the link to that one is here. Both are must listens.

View full GSD edition

Sierra Nevada: Geologists explore hills for gold

This next rather interesting gold story is courtesy of reader John Steinke...and it was posted in yesterday's edition of the San Francisco Chronicle.

With a little luck and some mechanical help, a gold rush will explode next month in the Sierra Nevada foothills. Actually, it'll be a mini-rush - specifically for the 180-acre plot of land where the biggest Sierra gold nugget [8.2 lbs] in existence was recently dug up.

If you don't read the article, you should at least look at the picture...and the link is here.

View full GSD edition

APMEX offers big premiums to purchase gold and silver eagles

Here's a zerohedge.com story that was sent to me by reader 'David in California'. It ended up as a GATA release late in the day...and that's the version that's linked here, as Chris Powell has already done the heavy lifting...and I don't have to write a preamble of any kind.

The headline says it all...and the link is here.

View full GSD edition

Despite doubling in 3 months, silver still in backwardation, Turk says

As a result, Turk said, any declines in silver's price should be brief. Meanwhile, according to Turk, the gold chart looks ready for an explosion. The short blog, which is posted over at King World News, is a must read...and the link is here.

View full GSD edition

Richard Russell [Finally] Endorses Gold Manipulation Thesis

Well, it's better a decade late, than never...as Chris Powell commented yesterday when he posted this marketwatch.com piece.

Russell is a long-time gold bug, but for traditional inflationary reasons. He resisted the new argument, developed by writers associated with Bill Murphy’s Le Metropole Cafe website, that the gold price is manipulated by a Washington-Wall Street alliance. But in his Thursday post last week, the 'R' Man changed his mind.

What Richard had to say is a must read...and the link to the story is here.

View full GSD edition

Debunking Anti-Gold Propaganda

As usual, I try to save the best/most interesting precious metal-related story until the end of my column...and today is no exception. Here's Casey Research's Chairman, Doug Casey, letting it all hang out in his usual inimitable manner.

This is a long read...but it's worth every minute of your time...and the link is here.

View full GSD edition

According to a poll just released today, President Obama's approval rating is at an all-time low. He's so unpopular right now, the people in Kenya are accusing him of being born in the United States. -- Jay Leno

Gold volume yesterday wasn't overly heavy...and even though the scale of the Kitco gold chart above shows rather frantic action...it all occurred within a one percent price range, which is really a tempest in a teapot when you really look at it objectively. Volume, net of all roll-overs, was a bit over 115,000 contracts...and the preliminary open interest number is only up 5,249 contracts...subject to revision later this morning. Needless to say, I'll be very interested in that number when it's finally posted.

Thursday's final open interest number in gold was pretty much as expected...it showed a fairly large decline of 6,264 contracts. I had mentioned in my Friday column that the preliminary o.i. number of -334 was a positive indication that the final number was going to be a good one...and it was.

Silver had its biggest volume day in history yesterday...a fact that should surprise no one with the way the price action unfolded. Net of all roll-overs, silver traded 134,000 contracts yesterday...the first time that it has traded more contracts than gold...ever. But the preliminary open interest number showed a very disconcerting increase of 12,192 contracts.

And I was not a happy camper with Thursday's final open interest number in silver, either. It showed a huge increase of 5,598 contracts. If you remember, Thursday's preliminary o.i. number was an eye-watering 12,340 contracts...a number as big as yesterday's preliminary o.i. number in silver. The final number was down by more than 50%...but still huge nonetheless. Taken at face value, this means that Thursday's big rise in the price of silver was all new speculative long buying...with the bullion banks piling in on the short side.

But that flies in the face of the fact that the bullion banks have been covering their short positions for the last two week, Ted Butler didn't know what to make of it. We'll have to wait until Friday's Commitment of Traders report to see if that was the case or not.

Silver's final open interest number, when published later this morning on the CME's website, will be worth looking at as well. One thing is for certain from yesterday's trading...is that the bullion banks were short covering on a massive scale on the big down-draft in the silver price that they themselves manufactured. All of Monday's action should be in Friday's COT report as well.

The other real surprise was the increase in May's silver open interest. As you may be aware, we are in the final stages of roll-over from the front month, which is May...into the next big delivery month, which is July...and beyond. By Thursday, all futures contract holders must sell, roll into a future month...or stand for delivery on Friday...which is first day notice for delivery into the May silver contract.

Normally the May open interest would be falling precipitously at this point, as contract holders roll over...but that didn't show up in the preliminary numbers. What showed up was an increase of 5,625 contracts, which brought May's open interest up to a staggering 48,795 contracts still open, with only three days of trading left in the week. I would expect that this number will be adjusted dramatically lower when the final open interest numbers are posted on the CME's website later this morning...but the preliminary number was still a surprise.

The other tiny surprise, which Ted Butler pointed out to me yesterday, was the small, but continuing rise in silver contracts that are standing for delivery in April...which is a not a traditional delivery month. It increased up to 79 in the preliminary report. The CME Daily Delivery Report, which I posted further up in this column, showed that 21 silver contracts were posted for delivery tomorrow. Another 13 contracts were added yesterday. Someone doesn't want to wait for the May delivery month...which is only days away now. One might be tempted to ask why that's the case.

The backwardation in silver as reported in the CME's Silver Futures Settlements page shows that the situation is basically unchanged from Thursday. Ted says that what he sees in this report shows no signs that there will be delivery problems in the May contract...and we'll find out soon enough.

Here's another chart that Nick Laird over at sharelynx.com slid into my in-box in the wee hours of this morning. It's the "Total PMs Pool". It's at new all-time highs in both value and in troy ounces held. This, amongst other things, should tell you all you need to know about this bull market. The total ounces are in black...and the total US$ value is in blue.

With the FOMC meeting today and tomorrow...and May delivery in silver only days away...I wouldn't even attempt to read anything into either the gold and silver markets between now and the beginning of May.

Yes, I suppose we could get sold off from here, but the bullion banks would have to use gold as the hammer against silver...because there are few speculative silver longs left now, as they've been selling out to the shorts in great numbers over the last couple of weeks, so there isn't a lot of low-hanging fruit for the bullion banks to harvest even if they did beat the crap out of the prices of both metals. Then the question must be asked...how low could they get the prices...and even more importantly...how long would they stay down. My guess is: not very far...and not for very long.

In Far East trading earlier today, both gold and silver got pounded pretty good...with silver hit for another $2.50...but has gained about $1.50 of that back going into the London open. Gold volume is a bit heavier than normal...but I've seen worse. Silver's volume is pretty chunky...which should be no surprise to anyone. With the new lows that were set during the Far East trading session [mostly all of the action coming from the New York bullion banks trading on the Globex], there was probably significant long liquidation in silver and decent liquidation in gold. But, as I said earlier...in silver, it's now at the stage where it's like trying to get blood out of a stone.

Without doubt, Tuesday's trading day...along with Wednesday's and Thursday's...should be educational. Good luck trying to trade this market...and even better luck trying to pick a bottom.

I'm a 'buy and hold' investor. Always have been...always will be...and I'm still 'all in'.

See you on Wednesday.