Gold and Silver Prices Will Explode Again: John Hathaway

The gold price jumped about fifteen dollars to around $1,490 spot in early Far East trading. The price then spent the rest of the Friday trading day wandering around without much conviction within ten bucks of that price...and closed the day up about twenty three dollars from Thursday's close. Nothing much to see here folks, although the volume was pretty heavy.

Silver traded within a dollar of $35 up until shortly before noon in London. Then the price dropped down to its low of the day and this move down...$33.05 spot...which conveniently happened to occur right at the Comex open in New York at 8:20 a.m. Eastern time.

From that low, silver caught a bid...and it's high price of the day [$36.61 spot] occurred shortly after 11:00 a.m...before giving up about some of those gains as Friday trading wound down for the weekend.

I'll stick my neck out and guess that the $33.05 price print was silver's low for this move...and that the worst is now behind us.

The dollar opened around 74.10 in early Far East trading...and spent the next nineteen hours bouncing off of the 74.00 level. Then, at 12:00 noon in New York, the dollar caught a bid of sorts...and finished the Friday trading session up about 70 basis points.

A cursory glance at the gold chart above shows that the dollars activity [or its lack thereof] had no bearing whatsoever on Friday's gold price action.

The gold shares gapped up at the open, but were not overly responsive to the gold price gains after that, which I must admit that I was a bit surprised at. Friday's HUI looked more like yesterday's Dow chart, than the chart of the gold price action. The HUI finished up a meager 0.34%.

Here's the HUI chart for the week that was...and it's not very pretty. However, no matter what happens with the gold price next week, if we didn't set an important low in gold on Thursday around 3:00 p.m. Eastern time...the bottom in the gold price can't be far off, as the worst of this move is certainly already behind us.

The silver stocks had a much better time of it than their golden cousins yesterday...as there were decent percentage gains in most silver stocks. Here's Nick Laird's "Silver Sentiment Indicator" updated with Friday's change.

The CME Daily Delivery Report yesterday showed that 67 gold, along with a chunky 243 silver contracts, were posted for delivery on Tuesday. In silver, the big issuer was Barclays [241 contracts]...with the Bank of Nova Scotia [114 contracts] and Merrill [95 contracts] being the two biggest stoppers by far. The link to that action is here.

The GLD ETF had another decline yesterday...but this one was rather small, as 97,477 ounces were reported withdrawn. The SLV ETF had a smallish decline as well...down 487,772 troy ounces. Ted feels that some, if not most, of the withdrawals of the last few days from SLV were 'plain vanilla' fund liquidation.

The U.S. Mint had another sales report on Friday. They sold another 37,500 troy ounces of gold eagles, along with 1,500 one-ounce 24K gold buffaloes...but no silver eagles were reported sold. Month-to-date, gold eagle sales are 62,000 ounces [which is a lot for just five business days!]...4,500 one-ounce 24K gold buffaloes...along with 701,000 silver eagles.

There was decent action at two of the Comex-approved depositories on Thursday...as no silver was reported being received, but 562,401 troy ounces were shipped out the door. The link to that action is here.

The eagerly awaited Commitment of Traders Report [for positions held at the close of trading on Tuesday, May 3rd] was a surprise...at least in silver. Both Ted and I were expecting a huge drop in open interest...because of the 2-day $7.50 waterfall decline in the silver price that occurred on Monday and Tuesday of this past week.

What we got in this report was no change at all in the Commercial net short position. Actually it did improve by a whole 74 contracts...but in the grand scheme of things, that's not even a rounding error.

Ted and I agree that the bullion banks did not report all of Monday and Tuesday's action in a 'timely manner'...as I am wont to say from time to time. In other words, they fixed this report by withholding data so that curious eyes couldn't see what they were doing.

One thing that did change, which I never talk about in this column, is the status of the Non-Commercial category. This is where the brain-dead technical funds trade...the large traders that hold over 150 silver contracts either long or short. Their net long position is now down to a tiny 23,354 contracts.

The lowest number I've ever seen in that category is around 13,000 contracts held net long...and that was many many years ago. I'm only guessing, but after Friday's trading action, I'd say we're either back to that number...or below it. That means that there is virtually no tech fund long blood left in this stone to be squeezed out...and I would also guess that the tech funds have gone massively short as well. That's the principle reason why I think that the bottom is in for the silver price.

It was a different story in gold...as the bullion banks reduced their net short position by 8,892 contracts...which is 889,200 ounces of gold.

The Commercial net short position in gold is now down to 24.0 million ounces. The '4 or less' bullion banks are short 15.5 million ounces of that...and the '8 or less' bullion banks [which includes the '4 or less' bullion banks] are short 22.9 million ounces.

Without doubt, the bullion banks' short position in both metals has declined dramatically since the Tuesday cut-off and, along with the data they withheld from this last COT report, next Friday's report should be a sight to see...unless we get a massive rally on Monday and Tuesday of this coming week that negates all that. Time will tell.

Here's Ted Butler's "Days to Cover Short Positions" graph...courtesy of Nick Laird over at sharelynx.com.

Yesterday in 'The Wrap' section of this column I reported what I thought was the May Bank Participation Report numbers for silver...and what I ended up doing was repeating the BPR silver numbers from April's report, which I'd posted last month. Ted was kind enough to wake me out of a sound sleep at 8:00 a.m. Friday morning to tell me that, in hopes that I could change this data in my column...as it was wrong. I told him..."no, I'll just eat humble pie in my Saturday column...and move on"...which is just what I'm doing.

Here are the figures for silver from the May Bank Participation report which was issued yesterday. All the data from that is extracted from yesterday's COT report for positions held of as this past Tuesday...so we can compare apples to apples.

The report shows that 4 U.S. Banks [probably only 2 that matter...JPMorgan and HSBC] decreased their net short position by a whopping 5,757 Comex futures contracts...and are now down to 18,830 contracts held short. Ted says that this is the lowest Comex futures short position that JPMorgan has had in silver since they took over Bear Stearns' short position back in 2008.

The 12 non-U.S. banks reduced their net short position in silver by 1,157 Comex contracts...and are now down 3,608 contracts held short. I'm speculating here, by I would bet money that the bulk of these short contracts are held by just one foreign bank...and that is Canada's Bank of Nova Scotia.

Using Grade 3 arithmetic, this report shows that JPMorgan's short position [18,830 contracts] is almost five times the size of the entire short position of the 12 non-U.S. banks combined...which is 3,608 contracts. How's that for concentration?

In gold, the May Bank Participation report shows that 4 U.S. banks are net short 92,940 Comex futures contracts...which is an increase of 5,225 contracts from the April report. The 14 non-U.S. banks are short 33,832 Comex futures contracts...which is a decline of 3,446 contracts from the April report.

In a nutshell, the BPR shows that the world's bullion banks decreased their Comex short positions in silver by almost 7,000 contracts up until the close of trading on Tuesday...and increased their net short position in gold by a smallish 1,800 Comex contracts.

And, without doubt, if JPMorgan et al had provided all the data from Monday and Tuesday's trading days, not only would the COT numbers be hugely different, but the BPR report would have been much better still. And it nearly goes without saying that if you could factor in the last three days of this past week into these numbers, May's BPR would be almost unrecognizable from the numbers I just reported. This has been a down-side clean-out of biblical proportions in both silver and gold...and I would suspect the same for platinum and palladium.

Here's Nick Laird's graphic illustration of yesterday's Bank Participation Report...along with all the ones that have gone before it, so you can see the magnitude of the change in silver. The graph is a little on the busy side, but if you invest the time, the story it conveys will be clear.

My bullion dealer had his biggest sales day of 2010 yesterday. And it would have been an even bigger sales day, but he had to turn down several huge orders late in the day because, with the Comex closed, his suppliers would not lock in a silver price that late on a Friday afternoon.

¤ Critical Reads

Volcker warns of danger from U.S. deficits

Speaking before the World Affairs Council of Oregon, Volcker said that "prolonging trillion dollar deficits can't be a reality" and that the United States is on course to have its public debt exceed the size of its gross domestic product. "One way or another, we do have to return to a balanced budget," he said in prepared remarks.

I thank reader Al Conle for providing this Reuters story...and the link is here.

View full GSD edition

CEO Pay Now Exceeds Pre-Recession Levels

Here's a story from yesterday's Huffington Post that was provided by reader Roy Stephens.

In the boardroom, it's as if the Great Recession never happened. CEOs at the nation's largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today.

As Roy said in his e-mail..."the party goes on in Fantasy Land." It does indeed...and the link is here.

View full GSD edition

U.S. Regulators Face Budget Pinch as Mandates Widen

Here's a piece out of The New York Times that 'Mike from Southern California' sent me earlier this week. It's a very worthwhile read...but it is on the longish side...which is why I've saved it for my Saturday column.

Government regulators on the Wall Street beat have long been outnumbered and outspent by the companies they are supposed to police. But even after receiving budget increases from Congress last month, regulators are still falling behind.

But critics contend that the agencies don’t deserve extra money, given that they missed warning signs and failed to catch serious wrongdoing in the years leading up to the crisis. The S.E.C., too, has been accused of mismanaging its finances. The Government Accountability Office has faulted the agency’s accounting almost every year since it began producing financial statements in 2004.

As I mentioned, this piece is worth your time...and the link is here.

View full GSD edition

CFTC's Chilton cites manipulation, high-frequency trading concerns

Interviewed by CNBC yesterday, Commodity Futures Trading Commission member Bart Chilton again expressed concern about manipulation in the commodity markets as well as high-frequency and algorithmic trading. This HFT is pretty much what's been driving the silver market lately.

I stole the story...plus most of the above preamble...from a GATA release yesterday. A text account as well as the video are linked here. I would think that this piece is worth your time.

View full GSD edition

'The UK Will Need a Bailout Soon': Jim Rogers

Britain isn’t cutting its structural deficit by enough or doing it quickly enough and may need a bailout from its European partners, investor Jim Rogers told CNBC. Rogers said the UK coalition government needed to go further in order to avoid financial catastrophe.

I thank reader 'David in California' for providing this cnbc.com story...and the link is here.

View full GSD edition

The new Victorians: Families face biggest cash crunch since 1870

As a follow-on story to the Jim Rogers piece above...David also sent this story from the Tuesday edition of The Daily Mail in London.

Families face the greatest pressure on their finances for nearly 150 years, a report has warned.

Workers face a combination of inflation and low pay rises or even freezes for a fourth year in a row, according to international financial consultants Deloitte. It will be the first time since the 1870s that ‘real’ wages, the sum you earn after inflation has been taken into account, have fallen for four successive years.

The link to the story is here.

View full GSD edition

Athens Mulls Plans for New Currency: Greece Considers Exit from Euro Zone

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night. That's last night.

This is another story courtesy of reader 'David in California'...and it's a must read...and the link is here.

View full GSD edition

Osama bin Laden hideout 'worth far less than US claimed'

Location? Location? Location?

Pakistan property experts say US government description of '$1 million mansion' was way off the mark, as further exaggerations come to light.

The revelation is the latest of several erroneous descriptions about the nature of Bin Laden's hideout – and the manner of his death – which have dogged the White House in recent days. On Tuesday US officials retracted claims that Bin Laden was armed when killed, and that he had used one of his wives as a human shield.

Asked about the American estimate, property dealer Muhammad Anwar said "Maybe that's the assessment from a satellite. But here on the ground, it's $250,000 maximum in the current market."

I thank Swiss reader G.B. for sending me this story that was posted in The Guardian on Thursday. It's well worth the read...and the link is here.

View full GSD edition

Doug Casey on Obama Killing Osama

Here's another item that I left until this weekend. Any of you that subscribe to Casey Research's free weekly publication "Conversations With Casey"...will have read this already.

This is vintage Doug Casey...Doug being Doug...and I'll freely admit that I'm in full agreement with him on this issue.

If you haven't read this, I must warn you in advance that what's in here may be totally shocking...but it's no surprise to me. So just be warned in advance. It's a longish read...but a must read...and the link is here.

View full GSD edition

Lars Schall: The war on gold [and silver]

Here's a longish gold-related story that had to wait until today.

It's a GATA release regarding a GoldMoney conference in Munich last week. It contains an interview with GATA chairman Bill Murphy, GoldMoney founder James Turk...and Egon von Greyerz of Matterhorn Asset Management in Zurich. You can read the rest of the preamble...plus the link to the interview here...and it's well worth your time.

View full GSD edition

The Gold Standard is About Creating Jobs

I ran a piece by author Ralph Benko in my Wednesday column. Here's another piece he wrote as a companion to that. The essay starts out with this paragraph..."The Roosevelt Institute, a leading Progressive policy institute, is preparing a reprise of William Jennings Bryan's famous 1896 critique of gold: "you shall not press down upon the brow of labor this crown of thorns."

This short essay is posted over at thegoldstandardnow.org...and the link is here.

View full GSD edition

New York Sun: Debates on gold captivate Manhattan

Two debates about gold, held in New York City, were reported yesterday by the New York Sun's David Pietrusza, including comments by the Tocqueville Gold Fund's John Hathaway and billionaire investor Thomas Kaplan. The Sun's report is headlined "With Dollar in Turmoil, Two Debates on Gold Captivate Manhattan".

I stole the story...and Chris Powell's preamble...from a GATA release yesterday...and the link to this absolute must read story is here.

View full GSD edition

Should Portugal and Greece be told to sell their gold?

Here's a story that appeared as a subscriber-protected article in Thursday's edition of The Wall Street Journal. It's now been printed in the clear in a GATA release from yesterday. The headline says it all...and I thank reader 'Noud in Amsterdam' for originally alerting me to this story. It's a must read...and the link is here.

View full GSD edition

Interview With Rick Rule

Eric King sent me this audio interview in the wee hours of Saturday morning. I must admit that I haven't listened to it...and I have no idea how long it runs. But Eric says that it's a "Tremendous Rick Rule interview"...but he says that about everything he posts. So I'll leave it up to you to be the judge and jury on this one...and the link is here.

View full GSD edition

Soros and Paulson move in opposite directions as gold declines

Two of the world's most successful investors have gone head to head over the price of gold, with the man who broke the Bank of England baling out of the precious metal and the man who made a fortune by betting against the American housing market talking it up.

This story appeared in yesterday's edition of The Guardian...and is courtesy of Roy Stephens...and the link is here.

View full GSD edition

Gold and silver will explode again, Hathaway tells King World News

My last offering today is a GATA release regarding this audio interview. I'll let Chris Powell do the introductions...and the link to this must listen interview is here.

View full GSD edition

Today's 'blast from the past' is one that is known by everyone. They don't write music like this anymore. Too bad. Please turn up your speakers and then click here.

Gold's volume yesterday was around 230,000 contracts net of all roll-overs...and the preliminary open interest number showed a smallish increase of 3,204 contracts, which bodes well for the final o.i. number that will come out late Monday morning.

Thursday's final open interest number in gold showed another decline...this time it was 3,248 contracts, which is massive drop from the preliminary report which showed an open interest increase of 7,977 contracts.

Silver's net volume yesterday was just north of 160,000 contracts...and the preliminary o.i. number was a shocker...down 3,123 contracts. I would suspect that this number will be even larger when the final number is posted on Monday. Based on this, my previous comments that there's no more tech fund long blood coming out of this silver stone is probably accurate. The clean-out in silver has been astounding.

Silver's final open interest number for Thursday's trading day showed an increase of 4,279 contracts. I would suspect that this is a combination of possible raptor [the '9 or more' smaller traders in the Commercial category] buying, tech fund shorting...and probably some spread trades thrown in as well. This won't be known for sure until next Friday's COT report.

The CME's Silver Futures Settlements from Friday showed that the backwardation situation is at a critical juncture...as there is backwardation in every future delivery month but one...and that month is doing so at a premium of only a very small fraction of a penny.

Here's a visual representation of this backwardation courtesy of Nick Laird over at sharelynx.com. They say that a picture is worth a thousand words...and this one certainly is, as only the September 2011 delivery month is selling at a miniscule premium.

Here's the 1-year silver chart...and it sure looks like the bottom is in to me.

Here's the 1-year gold chart. If there is a fly in the ointment...this would be it. JPMorgan et al did not succeed in their attempt to break gold below its 50-day moving average, but it may not matter. We'll find out early next week if they're going to make the attempt to do that, or are they all done here as well? I don't have an answer, but it's another situation that I feel will resolve itself in pretty short order.

It was an incredible week. Everything I see out there, and I'm sure Ted Butler will say much the same thing in his Weekly Review later today, that we are basically 'locked and loaded' to the upside. Only two things are unknown...the timing, and whether JPMorgan et al will be on the sell side on the next rally. Ted figures that they'll just put their hands in their pockets and let it blow. The price action, when the next rally begins, will be all we need to watch out for.

There still may be 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.

That's it for a very eventful week. I'm off to bed.

Enjoy what's left of your weekend...and I'll see you here on Tuesday.