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Message: from ed steer

from ed steer

posted on Oct 08, 2008 07:21AM

this is from ed steer of casey research. i think the most important point is not only that the central bonkers are no longer lending out their gold, but why they aren't willing to do it. they're afraid they won't get it back. they are concerned about the creditworthiness of the bullion banks. if jp morgan or barclays is the next big bank to blow up, their claim on that leased bullion becomes just that, another claim. this could have something to do with why lease rates have just spiked higher. we will find out soon enough.

"Open interest numbers for Monday are in...and they are more than worth noting. On Monday's huge rally in gold...and big loss in silver...gold o.i. dropped another 3,054 contracts. Silver's o.i. fell as well, down 1,060 contracts. The tech funds and small traders are still pitching longs...and the '2 or 3' bullion banks (Ted thinks it's just one...JPMorgan...and I'm not arguing the point) covered more shorts. Why I said the open interest numbers were worth noting is because, in all likelihood, the gold rally on Monday was of the short-covering variety. One would hope that all these numbers will be in the COT on Friday.

I note that gold lease rates are starting to show signs of life...which shows that there's a little stress out there. The rates will have to get quite a bit higher than this before it spells big trouble. However, with the way things are going right now, that could occur at any time...and with no warning at all. There was a story in the Financial Times out of London yesterday about this very thing entitled "Central banks all but stop lending bullion". Gee...I wonder if this has anything to do with counterparty risk? The story is well worth the read, and the link is here.

I also note that the US Mint announced that they will no longer be making the half and quarter ounce gold eagles for the balance of 2008...and will stop the tenth ounce gold eagles mintings as soon as blank supplies are depleted. Something stinks to high heaven here. About three weeks ago Nick Laird over at sharelynx.com came up with this graph of gold eagle sales for the last 15 years. The mint says that they can't handle the orders this year. That's a pile of crap! Take a look at 1998/99 when they were cranking out between 150-230,000 one ounce gold eagles per month. There were no shortages then. One ounce gold eagle sales for all of 2008 (and I'll throw in the 24K gold buffaloes as a bonus) are just under 600,000 so far...which isn't even 70,000/month. Something does not compute here. Is the US Mint deliberately withholding retail gold and silver products from the public? I don't know...I'm just asking."

http://caseyresearch.com/displayDrp....

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