Tidal Wave Of Short Covering Ahead: James Turk

The gold price jumped up a few bucks the moment that trading began at 6:00 p.m. in New York on Sunday night. Not much happened after that...and gold was only up a few dollars by the time trading began on the Comex on Monday morning.

From there it got sold off for five bucks, but shortly after 10:30 a.m. Eastern, the gold price jumped over the $1,600 dollar price level...and stayed there for the rest of the New York trading session, closing at $1,605.10 spot...up $11.00 from Friday's close. Volume was pretty decent for a Monday in summer.

The silver price jumped up about fifty cents to $39.75 spot at the open Sunday night. It traded pretty close to that price until the London open at 8:00 a.m. BST, which was 3:00 a.m. in New York.

From there, the price rose more or less steadily until its high of the day, which came shortly after 11:00 a.m. Eastern time. It got sold off about sixty cents from there, but shortly after the electronic New York Access Market opened at 1:30 p.m. Eastern, the price began to rise again...and closed reasonably close to its previous high. Silver was up another $1.28 on the day...and volume was pretty heavy.

The world's 'reserve' currency gapped up a bit at the open on Sunday night in New York...and then rose in fits and starts until it's high of the day...which came minutes before 11:00 a.m. Eastern in New York.

From that high, the dollar went into a steep decline...and closed the day up about 25 basis points from its Friday close. Gold has been rising no matter what the dollar has been doing lately...and Monday's trading action was no different. It's obvious, at least to me, that gold has now become more of a reserve currency than the dollar...or any other fiat currency for that matter. I expect that trend to continue.

Despite the fact that the Dow was down hard at the open, the gold stocks gapped up...and pretty much followed the gold price action for the rest of the New York trading session...with the HUI up a respectable 1.62% when all was said and done. The gold stocks probably would have done even better if the Dow had been up on the day.

As has been the case of late, the silver shares have been doing much better than their golden brethren, but some of the key stocks that make up Nick Laird's Silver Sentiment Index only had a so-so day yesterday, so that put a drag on the index to a certain extent, but it still closed up a very decent 3.20%. We'll take it...and be thankful.

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There wasn't much activity in the CME's Daily Delivery Report Yesterday, as only ten silver contracts were posted for delivery tomorrow. The link to what little action there was, is here.

Both GLD and SLV had big days yesterday, as GLD reported taking in another big stack of gold bars. This time it was 428,565 troy ounces. Since the July 1st low, the GLD ETF has taken in a cool 1.4 million ounces. And that, dear reader, is a lot!

The SLV ETF reported receiving another 1,266,985 ounces of silver. Since the beginning of the month, SLV has taken in about 4.4 million ounces...and Ted Butler figures that they are owed at least 10 million more ounces based on the volumes being traded in SLV shares.

The U.S. Mint had another sales report again. They sold another 2,000 one-ounce 24K gold buffaloes, along with another 508,500 silver eagles. Silver eagles sales month-to-date now sit at 1,969,500...with another nine business days left to go in July.

The Comex-approved depositories reported shipping another 536,922 ounces of silver out the door on Friday...but didn't report receiving any. The link to that action is here.

Here are a couple of paragraphs that I stole from silver analyst Ted Butler's weekly commentary to clients on Saturday. It's a more in-depth looks at Friday's Commitment of Traders in gold.

"Of the 42,200 contracts sold net by the commercials, the gold raptors (the smaller commercials) accounted for 30,500 (72%) of the total, swinging them from a net long position of 12,500 to a net short position of 18,000 contracts. This is as of Tuesday...and the gold raptors must have sold more since then. It’s generally not good for the gold price when the gold raptors build a big short position. While the big 4 gold shorts added more than 9,000 contracts to their short position, that position is still not large by recent historical readings. I get the feeling that the gold raptors have more control of the gold price than the big commercials currently."

"Certainly, this is not a spectacularly bullish COT change, nor is gold any longer in a bullish COT structure. The gold COT structure is now neutral at best. Does this mean gold will decline sharply? Not necessarily, but there is much more risk than there was 2 weeks ago. Gold is not at extremely bearish COT readings, but will be quickly if current trends continue. I have always found it easier to identify price bottoms with COT analysis, compared to tops. I’m not a “gold guy” and have never recommended gold because I always found silver more attractive. I’m not about to start offering broad gold pronouncements now. On a strict COT basis, gold is not the low-risk buy it was as recently as two weeks ago, although it can still move higher...perhaps sharply. My main concern with gold (aside from providing COT analysis to subscribers who request it) is how it may impact silver. A recurring thought of mine is how will a gold sell-off impact silver?"

My bullion dealer had a huge day yesterday. He came within a few hundred ounces of selling more silver on Monday than then all of July up to that date.

Since today is Tuesday, I've got a fair number of stories, but I've tried to cut them to the bare minimum through ruthless editing...but the final edit, as it always does, remains with you.

¤ Critical Reads

America destroying itself from within: Rex Murphy

One of Canada's most respected political commentators is Rex Murphy. He's been around for as long as I can remember. This commentary appeared in the Saturday edition of Canada's National Post. His writing style is the same as his speaking style...and if you want to hear him at the top of his game, you can check out this video here.

Saturday's commentary in the National Post was sent to me by reader Roy Stephens...and the link to that is here.

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Jim Grant still can't figure out why the dollar has held up so long

Here's a story that appeared in this weekend's edition of The Wall Street Journal. It was subscriber protected, so Chris Powell had to post it inside a GATA release. His preamble is extensive as well. The link to both is here...and it's well worth your time.

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Markets tumble on eurozone debt crisis fears

Mounting fears that politicians will fail to resolve the eurozone's debt crisis sent markets sliding...and Spain and Italy's borrowing costs nearing the "point of no return".

"If we reach 7pc on Spain and Italy, we are probably approaching very quickly the point of no return," said Nicola Marinelli, a fund manager at Glendevon King Asset Management. "Once the market is shut, it is shut for good. The examples of Greece, Portugal and Ireland are clear."

This story from The Telegraph late last night is also courtesy of Roy Stephens...and the link is here.

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The Sweet Poison of Berlusconi: Italy's Downward Spiral Accelerates

International financial markets have lost their faith in Italy...and Italians have lost their faith in their leader. Prime Minister Silvio Berlusconi has led his country into the economic doldrums and the moral abyss. And he has shown no interest in solving any of the myriad problems which plague the country.

Here's Roy's third offering in a row, this one from Saturday...and posted over at the spiegel.de website. It's a short read...and the graphs in the left side-bar are well worth the trip on their own. The link is here.

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The True Elephant In The Room Appears: Trillions In Commercial And Industrial Loans To Europe's Insolvent Countries

All this debt is over and above the sovereign debt that each country has. A lot of this debt will crash and burn as well. It quickly adds up to situation that there is no way that the European banks can be bailed out once you throw both piles of debt together.

This story is posted over at zerohedge.com...and I'll throw this one in the must read category. The graph is worth the trip as well...and I thank reader U.D. for sending it along. The link is here.

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Deutsche Bank: Stocks Could Plummet 35% On EU Contagion

Here's another story from reader U.D. This very short piece was posted over at businessinsider.com last Friday.

According to Deutsche Bank, European Union leaders do not look unified enough to quell the fears of investors.

From their report this morning: "We believe that a continuation of this trend is the primary risk that could see world stocks (the MSCI World index) lose up to 35% of their value if the situation deteriorates into a full-blown financial crisis on the scale of the fallout from the collapse of Lehman Brothers in 2008."

You've already read half the story...and the rest is posted here.

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'I fear we're on the brink of another financial crisis' - Nick Clegg

Britain's Deputy Prime Minister said he was concerned the crisis in the eurozone could spread to Britain and have a “direct impact” on jobs.

The admission is the first time that a senior British politician has suggested that the problems in Greece, Spain and Italy could affect Britain.

Here's another politician with a keen grasp of the obvious. This very short must read is courtesy of reader Mike Smith...and was in yesterday's edition of The Telegraph...and the link is here.

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European Union won't survive without QE: Alasdair Macleod

The European Central Bank's rules may forbid "quantitative easing" but the European Union won't survive without it, economist and former banker Alasdair Macleod writes in new commentary at GoldMoney's research section. He adds that European-style QE will be great for the precious metals. Macleod's commentary is headlined "ECB to Say Yes to QE?"

I stole this story from a GATA release that came out on Sunday...and I feel it's well worth the read. The link is here.

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Walker's World: It looks like 1914 again

PARIS, July 18 (UPI) -- This is how it must have felt in late July 1914 as Europe careened blindly into a war that would shatter its wealth and its culture and nobody knew how to stop it.

The world we have known since the end World War II, of ever-broadening economic prosperity, is poised for implosion. The global economy has proved over the past three years to be a resilient beast but even it cannot survive the simultaneous collapse of Europe and the United States, its two dominant components.

If I had to pick just one non-precious metal related story for you to read today...this would definitely be it. I thank Roy Stephens once again...and the link to this must read item is here.

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Gold reaches record high as markets stressed by banks and eurozone worries

The spot price reached an all-time high of $1,603.40 at 12.50pm in London, as Italian and Spanish ten year bond yields also ticked-up back towards levels that forced Greece, Ireland and Portugal to ask for help.

Italian and Spanish 10-year bond yields climbed above 6pc, edging closer to the 7pc mark that prompted its smaller euro partners to seek bailouts.

This story from yesterday's edition of The Telegraph yesterday is Roy Stephens final offering of the day. The photo alone makes it worth the trip...and the link is here.

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Gold Market is Saying Bernanke to Print Money: Richard Russell

Here's a King World News blog that Eric King sent me yesterday. Here's a snippet from the blog..."Recently Professor Bernanke was asked “if gold was money.” His answer was “NO.” In that answer we can capture the essence of Dr. Bernanke. In his heart, he is a Fed advocate and an advocate of fiat (Fed-created currency). On his answer alone, I would agree with Presidential candidate Dr. Ron Paul -- “Get rid of the Federal Reserve and everybody even remotely connected with it.”

The link to this worthwhile read is here.

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Silver 'biscuits' - the booming new Indian gifting option

It is a custom in India to give silver coins as gifts. They are not very expensive, they come in handy for every festive occasion and are a sure-fire winner as a give-away present at the birth of a child or on any small occasion. In a bid to tap the increasing demand for silver coins, bullion dealers in India have gone a step further and are bringing in innovation and creativity.

For the first time in the country, bullion dealers have introduced a 1-kilo silver biscuit, on the lines of the gold biscuit, with a .999 fineness. High denomination currency notes, made out of silver, are also the flavour of the season, say traders.

This story, filed from Mumbai last Friday, was posted over at the mineweb.com. I thank reader John Steinke for this story, which is well worth your time...and the link is here.

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Tidal wave of short covering ahead, Turk tells King World News

Interviewed yesterday by Eric King of King World News, GoldMoney founder and GATA consultant James Turk sounds even more bullish about the precious metals than he has been -- quite accurately -- for weeks. Between the "accumulators" and the "momentum players," Turk says, gold could be driven to $2,000 and silver to $50 "very quickly." And if buyers actually take delivery of their metal? Who will care then what Ben Bernanke thinks constitutes money? An excerpt from the interview with Turk is headlined "Expect a Tidal Wave of Buying and Short Covering in Gold".

I stole the above preamble from Chris Powell's GATA release yesterday...and the link to this rather extensive must read blog is here.

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There is no plan to cut US government debt. There never has been a plan to cut US government debt. There has been no reduction in US government debt since 1960 - when the funded part totalled about 2 percent of today's total. Today, nearly half of every US Dollar spent by the federal government is borrowed. Today, the US government's annual budget is about fourteen times what its total funded debt was back in 1960. - Bill Buckler, Gold This Week...July 16, 2011

For a Monday in summer...and a new record high in the gold price...the volume was around 118,000 contracts net of all roll-overs, which is pretty decent. The preliminary open interest number showed a shockingly high increase of 17,367 contracts. This number will be much reduced later this morning, but it's obvious that the U.S. bullion banks are the short sellers of last resort once again.

Friday's open interest number in gold was reduced all the way to an increase of only 3,860 contracts. I was expecting much worse. Maybe Monday's activity will make up for it.

Silver's net volume yesterday was a very chunky 60,000 contracts...but the preliminary open interest number was only up 2,825 contracts. I would guess that there was a fair amount of short covering going on yesterday...and I would also guess the final open interest number will show close to a zero increase when it's posted on the CME's website later this morning.

As I mentioned in my Saturday column, I was hoping/praying that silver's final open interest number for the Friday trading day would show a smallish decline in open interest. It did, as open interest was down 123 contracts, which is better than the alternative.

Ted Butler feels that maybe something is going on under the hood in the silver market that the bullion banks [read JPMorgan] might be attempting to hide, as the increase in open interest in silver is very muted [or negative, like Friday's] compared to what's happening with gold's open interest...especially since last Tuesday's cut-off. Ted's hopeful that this Friday's Commitment of Traders report will shed some light on this.

With less eight business days left in the July delivery month, silver's open interest has now declined down to 384 contracts. It will be interesting to see who the issuers and stoppers [shorts and longs] are that deliver/receive these last remaining contracts before the end of next Thursday's trading day.

Here's the 1-year gold chart showing yesterday's record high...plus the very bottom of the move from late July 2010. You can see that the RSI [Relative Strength Indicator] has poked its nose into overbought territory. How long we continue higher from here is entirely up to JPMorgan...but you can see from this chart that the overbought condition can exist for quite some time before the bullion banks put their heads together to engineer a decline...and ring the cash register yet again.

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The JPMorgan et al continue to massively short against all the new technical fund longs that are pouring into the gold market...and while the possibility exists that they could get over-run and be forced into a short-covering panic like I mentioned on Saturday, there's no sign of it at the moment.

Today is the cut-off for Friday's COT report, so [hopefully] all of today's volume activity will show up in it.

Here's the 1-year chart for silver. The RSI is getting up there, but it's not quite in overbought territory just yet. And, as Ted Butler mentioned a few paragraphs ago that, under the surface, things may not be as they appear on this graph...so we'll just have to wait it out and see what Friday's COT brings.

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Both silver and gold got sold off in early Tuesday trading in the Far East...but were back in the black before London opened. But once the price spikes were stopped in their tracks, both metals got sold off below their respective Monday closes...so it remains to be seen how the rest of the trading day goes from here. Volume in gold is getting up there...and its obvious that JPMorgan's high frequency traders are doing their thing in the silver market, as volume is already pretty decent.

The dollar peaked at precisely 2:00 a.m. Eastern time this morning...and then fell 50 basis points, all the way down to a whisker above the 75 cent mark, before ticking upwards two and a half hours later at 4:30 a.m. I doubt that the precise timing of that 2:00 a.m. top was a random market event...and I also doubt that the sell-offs in gold and silver that came shortly after the London open, were free-market events, either.

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As GATA's secretary treasurer Chris Powell said several years back..."There are no markets anymore...only interventions."

It's a good bet that it will be another interesting trading day for both gold and silver...and the action has already started. I expect that the New York trading session will be interesting as well...either up, or down.

I'm still 'all in'.

See you tomorrow.