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TheStreet Open House

Wednesday, October 2: Today in Gold and Silver

Stock quotes in this article: GLD, SLV

NEW YORK ( TheStreet) -- All was calm in Far East trading on their Tuesday.  That state of affairs lasted until the dollar index dropped below the 80.00 mark shortly before the London open. The tiny rally that resulted from that, turned out to be the high of the day, and the gold price drifted quietly lower until precisely 1 p.m. BST in London, which was 20 minutes before the Comex open in New York.

The then high-frequency traders spun prices lower and the roof immediately caved in as sell stops were hit.  Most of the damage was done by within the first 40 minutes, but gold continued to sell off slowly from there, hitting its low tick [$1,281.70 spot] at 12:45 p.m. EDT.  The subsequent rally, such as it was, didn't get far.

Gold closed at $1,287.50 spot, down $40.40 on the day.  Net volume was very heavy at 220,000 contracts, with 90 percent of that occurring after the London open.

Here's the New York Spot Gold [Bid] chart on its own.

Of course silver, JPMorgan's biggest problem child, wasn't spared either.  After getting turned back at the $22 spot level once again going into the London open, the silver price got the same treatment as gold, although silver's low tick of $20.63 in the December contract came at 10:45 a.m. EDT, and not at 12:45 p.m EDT as it did for gold.

The silver price didn't do much after that until gold began to rally at 12:45 p.m., and then away silver went to the upside.  The rally into the 1:30 p.m. Comex close had all the hallmarks of a short covering rally, and after that close, silver drifted higher, but then got sold down into the 5:15 p.m. electronic close just like gold.

Silver had an intraday moved of around $1.35, over five percent.

Silver finished the Tuesday trading session at $21.165 spot, which was down 54 cents from Monday, but well off its low.  Net volume was was on the heavy side at 56,000 contracts.  I was expecting a bigger volume number than that.

Here's the New York Spot Silver [Bid] chart on its own.

The platinum and palladium price charts look similar, so I'll spare you the details, which you already know.

The dollar index closed on Monday afternoon in New York at 80.22; and minutes after 10 a.m. Hong Kong time on their Tuesday morning, had reached its high of 80.31, and it was all down hill into the London open.  The low tick of 79.87 came about ten minutes before London began trading, and after that the dollar index chopped higher into the New York close.  The index finished the day at 80.18 which was down 4 basis points from Monday's close.

Of course there was no correlation between the dollar index and the precious metal prices once again.  Normally there certainly would be some if there was a free market, but neither the dollar index nor the precious metals exist in that sort of pricing environment.

The gold stocks gapped down over 2 percent at the open, and then chopped sideways for the remainder of the day.  The HUI finished down 2.46%.

It was the same for the silver stocks, and Nick Laird's Intraday Silver Sentiment Index closed down 2.56%.

The CME's Daily Delivery Report for "Day 3" of the October delivery month showed that 59 gold and 2 silver contracts were posted for delivery tomorrow within the Comex-approved depositories.  In gold, it was Canada's Bank of Nova Scotia that issued 47 contracts, and HSBC USA and JPMorgan stopped 42 and 17 contacts respectively.  The link to yesterday's Issuers and Stoppers Report is here.

There were no reported changes in GLD yesterday, and as of 10:07 p.m. EDT, there were no reported changes in SLV either.

Surprisingly enough, the U.S. Mint had another sales report.  They sold 500 ounces of gold eagles; 1,500 one-ounce 24K gold buffaloes; and 187,000 silver eagles.

Monday was the third day in a row where there was very little in/out activity at the Comex-approved depositories.  In gold, there were 3,215 troy ounces shipped out, and in silver they reported shipping out 130,780 troy ounces of the stuff.  Nothing was reported received in either metal.

I've got a couple of very interesting charts that Nick Laird sent my way after David Franklin wrote about palladium in Sprott's Thoughts yesterday.  This is the actual data that Nick uses to compute his "Days to Cover Short Positions" chart that I post in my column on Saturdays, and the monthly "Bank Participation Report".

Here's this "Days to Cover" chart from last week's Commitment of Traders Report, and the data for platinum and palladium in this particular chart, represent the last data points on the far right of the platinum and palladium charts posted further down.

This first chart is a 13-year "Days to Cover Short Positions" for palladium, and shows the palladium price [in black] against the short positions of the Big 4 and Big 8 traders in the Comex futures market over the same time period.  The short positions of each group are shown in two shades of blue.  Up until mid-2003 a short position of 10 days of world palladium production by the Big 4 and Big 8 short traders combined was a rarity, and look what the price was doing at the time.  That's called a free market in action.

But look what has happened since.  To prevent prices from rising as the speculators wishing to go long enter the market driving prices higher, they are now met by the sellers of last resort/not-for-profit sellers, and that has prevented a repeat of the big price rally we had in 2000/01.  This situation has become more grotesque as the years have gone by.  But starting in late 2012, the situation has gone from simply grotesque to the obscene.

It is a recognized and acknowledged fact both inside and outside the platinum and palladium industry [read the Sprott piece linked above] that these metals are going to be in a deficit position for years, if not decades, to come.  So the speculators, both small and large, are piling in on the long side, only to be met by the Commercial traders as short sellers of last resort; in this case the major New York bullion banks and Wall Street investment firms, including Canada's beloved Bank of Nova Scotia.

About a year ago, the Big 8 were short about 45 days of world palladium production.  As of last Friday's COT Report they were now short 127 days of world production.

Here's the platinum "Days to Cover Short Positions" going back 13 years as well.  As of last Friday's COT Report, the Big 4 and Big 8 were short 73 and 103 days of world platinum production respectively, the last data point on the right side of this chart.

I'll have the corresponding charts for gold and silver in tomorrow's missive.

I have a decent number of stories today, but quite a few less than yesterday, so I hope you can find the time to read the ones that interest you the most.

¤ The Wrap

There are no market anymore, only interventions. - Chris Powell, GATA

So, welcome to October.  You don't need me to paint a picture of what happened yesterday, as I've described this sort of chart pattern before on many occasions.  As Ted Butler said on the phone yesterday, it was the high-frequency traders setting prices lower and watching the sell stops get hit as long holders puked up their positions, or went short.

Waiting to buy everything that fell off the table was JPMorgan Chase, the raptors, along with any other Commercial trader that wanted to cover a short position or go long.

Ted pointed out that there are a limited number of long positions left to liquidate in either the Non-Commercial or Nonreportable category, and he figures that a lot of the price pressure came from new short positions being put on.

If all of Tuesday's trading data is reported in a timely manner, it should show up in Friday's Commitment of Traders Report, if there is a report that is.  I checked the SEC's website just now [3:35 a.m. EDT] and it has been updated with yesterday's preliminary trading volumes, so this government department is still on the job at the moment.  Not only is there a COT Report on Friday, we also get the October Bank Participation Report as well, and hopefully all of yesterday's trading data will be included in them.  What I'm not sure about is the CFTC, as it's their website where both reports will be posted.  We'll find out in due course.

Not much of anything happened in Far East trading on their Wednesday.  There was a bit of downdraft in all four precious metals that occurred shortly after 8 a.m. Hong Kong time, but prices quickly recovered.  London has been open about an hour as I type this paragraph, and not much is going on there, either.  Gold volume is pretty decent at around 29,000 contracts, but silver's volume is extremely light at around 4,500 contracts.  I can tell that virtually all of it is of the high-frequency trading variety.

The dollar index isn't doing a thing, but as you already know, what it's doing means nothing in the grand scheme of things.  But on the odd occasion that it does enter into the picture, it's usually a fig leaf that JPMorgan et al are hiding behind as the do the dirty to the precious metals.

And as I hit the "send" button on today's column at 5:15 a.m. EDT, all four precious metals have moved into positive territory in the last twenty minutes.  Gold's volume is now at 37,000 contracts, silver's volume is at 5,600 contracts, and the dollar index is down a handful of basis points.

After yesterday's bear raid, I have no idea what today's price action will bring as the Wednesday trading day continues to unfold in both London and New York.  Nothing will surprise me, and it shouldn't surprise you, either.

Enjoy your day as much as you can, 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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