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Friday, September 13: Today in Gold and Silver

Stocks in this article: GLDSLV

NEW YORK ( TheStreet) -- I really shouldn't have to paint you a picture of what happened yesterday, as it was the same drill we've been looking at for years.  The price came under pressure in the thinly-traded Far East market, and then the high-frequency traders really smacked the gold price just a few minutes before the London open, which was something I pointed out in The Wrap section of yesterday's column. [See the must read Zero Hedge story about this in the Critical Reads section further down]

After that, it became a self-fulfilling prophecy, as once the sell stops got hit, JPMorgan et al just sat there and bought every long the technical funds and small traders puked up, and were as equally happy to go long against anyone stupid enough to go short.  The selling pressure even continued into electronic trading after the Comex close.

The gold price finished the Thursday session at $1,321.00 spot, down $44.80 from Wednesday's close, and precisely one dollar off its low tick of the day.  Net volume was pretty heavy at 192,000 contracts.

It was virtually the same story in silver, and it closed at $21.735 spot, right on its low tick of the day, and down $1.48 from Wednesday's close in New York.  Net volume was pretty hefty at 53,000 contracts.

Platinum got in the neck as well, as it closed down $34 from the prior day's close, but palladium finished the Thursday session only down three bucks.  Here are the charts.

The dollar index closed in New York late Wednesday afternoon at 81.53 and traded in a tight 20 basis point range for the entire Thursday session.  It closed basically unchanged at 81.52.  Nothing to see here, and it's just another day where the precious metal price action was not driven by what was happening in the currency market.  Anyone who says that the precious metal prices follow the dollar index, hasn't looked at a 40-year chart gold chart superimposed on a 40-year dollar index chart.

The gold stocks gapped down about 4 percent at the open, rallied a bit until about 10:30 a.m. EDT, which was the New York "high" after the London p.m. gold fix, and it was all down hill from there.  The HUI closed down an eye-watering 5.69%.

Although the silver price got clocked for 6 percent yesterday, Nick Laird's Intraday Silver Sentiment Index closed down "only" 5.24%.  Should we be happy about this?

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 31 gold and 4 silver contracts were posted for delivery within the Comex-approved depositories on Monday.  In gold, ABN Amro issued 30 contracts, and JPM and HSBC USA stopped 13 contracts apiece. The link to yesterday's Issuers and Stoppers Report is here.

There were no reported changes in GLD; and as of 9:32 p.m. EDT yesterday evening, there no reported changes in SLV, either.

Joshua Gibbons, the "Guru of the SLV Bar List" updated with the latest in/out data for the SLV accounting week, which ended on Wednesday; and here, in part, is what he had to say:  "Analysis of the 11 September 2013 bar list, and comparison to the previous week's list, "131,734.0 troy ounces were removed (all from Brinks London), 3,030.7 ounces was added (all to JPM London V), and no bars had a serial number change.  The bars removed were from: Nordeutsche (0.1M oz.), Solar Applied Materials (0.1M oz.), and 2 others."

"There was a deposit of 964,058.0 troy ounces on Tuesday that has not yet been reflected on the bar list, and that should appear on the next bar list (as it normally takes a day or two for the bar list to get updated)."

The U.S. Mint had a tiny sales report yesterday.  They sold 1,000 ounces of gold eagles, and that was it.

Over at the Comex-approved depositories on Wednesday, there was no in/out activity in gold at all.  However, it was a different story in silver.  They reported receiving 1,152,048 troy ounces, and shipped out 741,939 troy ounces.  The link to that action is here.

Yesterday I was going on about the fact that there should be no shorting of funds that hold physical metal, of which GLD and SLV are the prime culprits.  I insinuated that CEF and P SLV were above reproach, which they are.

However, my rant on this issue drew a comment from Bron Suchecki over at The Perth Mint, and here is what he had to say.

"If you type in PHYS or CEF there is also short interest in them, but much smaller."

"Many investors hold shares in “street name”. This means that the shares are held with the Depository Trust Corporation in the name of the broker and not in the name of the investor, but they still appear to the investor as being directly held. As this article notes, brokers often then lend these shares to short sellers and earn a return (which they often keep for themselves and don’t give to the investor)."

"Most investors are not aware what “street name” means or that “their” shares can be lent without their knowledge when they agreed with their broker to hold their shares in this way. Nor are they aware that this means they are exposed to their broker, which is why Jim Sinclair recommends investors do not hold shares in street name."

"It is worth noting that at the end of this SEC webpage they mention the Securities Investor Protection Corporation and how “your securities and money held at your broker-dealer are protected up to $500,000 with a $100,000 limit for cash”.  Are you comfortable that the SIPC will be able to make good in the face of an extensive market failure?"  Regards, Bron

It was another fairly quiet day for news, and all the stories that I thought worthy of posting are below.

¤ The Wrap

If the commercials succeed in causing technical traders and other momentum type traders to sell, then the commercials will likely continue to rig prices lower so that they (the commercials) can continue to buy. In retrospect, this was why we fell so steeply in the first half, namely, the technical funds not only sold and liquidated long positions, they established record or near record new short positions as well on the dramatic decline in price. Throw in the massive liquidation in GLD and that’s why we dropped so much in gold (and silver). Since the technical funds kept selling, the commercials kept lowering the price and kept buying. This is how JPMorgan came to hold a long market corner in COMEX gold futures.

The reason I’m narrowing it down to a question of new short selling by technical funds is because data from the Commitments of Traders Report indicates that there has been virtually no build up of technical fund or other speculative new long positions on the rally in gold and silver prices to over $1,400 in gold and $24 in silver There can be no selling of new long positions that don’t exist. Of course, there could be some selling from old long positions, but logic would hold not massive amounts.- Silver analyst Ted Butler, 11 September 2013

It's my opinion that everything you need to know about how this engineered price decline will unfold is contained in the Ted Butler quote above.  He's absolutely correct about this, and you don't have to look elsewhere for any other explanation, as it's all there.

Gold closed below its 50-day moving average yesterday, but silver still has a ways to go [but not much after this morning's Far East and London price action].  Here are their 6-month charts.

(Click on image to enlarge)

While I'm on the stockcharts.com Internet site, here are the 6-month charts for platinum and palladium.  You will note that platinum is also back below its 50-day moving average as of yesterday, and palladium has been there for some time.

(Click on image to enlarge)

(Click on image to enlarge)

As you are aware, this price management scheme in all four precious metals is centered around what JPMorgan does, and the reason for that is simple. They hold a long-side corner in the gold market, along with a short side corner in the other three precious metals.

I've always assumed that HSBC USA was the only other U.S. bank that was short large amounts of either gold or silver.  I've made that assumption on the basis of the data contained in "Table 9" of the quarterly derivatives report published the Office of the Comptroller of the currency.  Only JPMorgan and HSBC USA had any significant derivatives in the precious metal market.  But that was five years ago.

Ever since the forced bank mergers after the 2008/2009 financial crisis, the quarterly report from the OCC has changed quite a bit, as HSBC USA, which was the fifth largest U.S. bank in total derivatives, got bumped into 6th place, and their precious metal derivatives data disappeared from "Table 9".  Citigroup only held a very small derivatives positions in gold, and virtually nothing in silver back then.  Goldman Sachs had just become a bank, and the OCC report showed that they had zero precious metal derivatives back then.  They still don't to this day.

The latest report now shows that it is, in fact, Citigroup that holds a very significant derivatives position in gold, plus the other three precious metals as well.  Since HSBC USA no longer shows up on this report, it's impossible to tell what their current derivatives position is in the precious metals, but I'm guessing that it has dropped significantly.  I'll have to do some more research on this and report back later.

In early Far East trading on their Friday, I note that the smallish rallies in gold, silver and platinum weren't allowed to get far, and the usual not-for-profit seller showed up in late afternoon trading in Hong Kong about thirty minutes before the London open, and dropped the price of gold and silver once again.  Both have hit new lows for this move down.  $1,307.80 was the low tick in gold for the December contract, and in silver the low tick was $21.485 for the same month.  Volumes are already way up there: over 50,000 contracts in gold and 14,000 contracts in silver.  The dollar index is up about 10 basis points, but as you already know, these engineered price declines are not currency related at all.

And as I hit the send button on this morning's missive, gold is down to a new low as I write this, down fifteen bucks, and silver has just printed a new low as well at $21.39 spot, down 34 cents from Thursday's close in New York.

This afternoon we get the latest Commitment of Traders Report for positions held at the close of Comex trading on Tuesday.  As I mentioned yesterday, we should see improvements in the Commercial net short positions in both gold and silver, and it's most unfortunate that yesterday's price action won't be included, nor today's.

Considering the price action in gold and silver up to this point in the Friday trading session, I'll be ready for anything  when I switch my computer on later this morning, and you should be too.

Enjoy your weekend, or what's left of it if you live west of the International Date Line, and I'll see you here tomorrow.

This is an abbreviated version of Ed Steer's Gold & Silver Daily Sign-up to have to the complete market review delivered to your email inbox each morning for free.

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