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TheStreet Open House

Saturday, October 26: Today in Gold and Silver

NEW YORK ( TheStreet) -- The gold price was under quiet selling pressure during the Far East trading session on their Friday, and that continued right up until 1:10 p.m. BST in London, which proved to the be the low price tick of the day.  From that point, the gold price rallied quietly for almost the entire Comex session when it opened 10 minutes later.   The rally ended/got capped shortly after 1 p.m. EDT, and about 20 minutes before the Comex close.  After that, gold didn't do much.

According to the CME, the low and high ticks were $1,335.30 and $1,356.40 in the December contract.

Gold closed at $1,352.90 spot, which was up $5.60 from Thursday's close.  It would have obviously closed higher if it hadn't run into 'interference' a couple of times during the Comex session, especially the rally into the Comex close.  Volume, net of October and November, was light at 127,000 contracts.

Here's the New York Spot Gold [Bid] chart on its own so you can see the Comex price action in more detail.

The price pressure in silver, as I pointed out in The Wrap in yesterday's column, was much more intense.  And the sell-off grew even more intense as the day wore on in London.  Like gold, the low tick came at 1:10 p.m. BST, and the subsequent rally got dealt with by a seller of last resort shortly after the Comex open.

The silver price also peaked out at the same time as gold, which was 1:10 p.m. EDT, about 20 minutes before the Comex close.  The silver price then chopped sideways into the 5:15 p.m. close of electronic trading.

The CME recorded the low and high ticks as $22.26 and $22.755 in the December contract.

Silver finished the Friday trading session at $22.595 spot, down 12.5 cents from Thursday's close.  Volume, net of October and November, was pretty decent at 39,500 contracts, but not surprising considering the price range that silver "traded' in.

Platinum and palladium followed similar paths, but palladium got beaten up the worst.  When all was said and done, platinum finished up a bit, and palladium finished down a bit.  Here are the charts.

The dollar index closed late on Thursday afternoon in New York at 79.21, and then did nothing until a few minutes before noon Hong Kong time.  Then it fell off a 20+ basis point cliff, hitting its low of the day [79.025] by half-past lunchtime over there.  This was another more-than-obvious case of a buyer of last resort catching the proverbial falling knife, the third instance in 48 hours.  The subsequent rally up to its "high" of the day [79.32] came about 8:15 a.m. EDT, which was five minutes after the low tick in gold and silver, and five minutes before the Comex open.  After that, the index chopped lower into the New York close.  It finished the Friday session at 79.21, which was unchanged from Thursday's close.

Here's the five-day dollar index chart so you can see the times where the buyer of last resort made an appearance as the dollar index was about to disappear below the 79.00 mark.  All three occurred in Far East trading, and almost 24 hours apart.

The gold stocks opened down about a percent yesterday morning in New York, and then they chopped sideways until the sudden rally began just before the Comex close.  The equities shot into positive territory immediately, and then traded sideways into the close.  The HUI finished up 0.86%.

Not surprisingly, the silver stocks followed an identical pattern.  Nick's Intraday Silver Sentiment Index closed up 0.87%.

The CME's Daily Delivery Report was a very quiet affair on Friday, as only one gold and five silver contracts were posted for delivery on Tuesday.  As I mentioned a week or more ago, there was little left to deliver during October, and with the month winding down to its last few delivery days, this lack of activity should come as no surprise.

Another day, and another withdrawal from GLD.  This time it was 144,772 troy ounces.  Based on the price action, gold should be moving into this ETF, not out.  If you're looking for answers, the only one I have is that the gold was needed elsewhere.  Maybe Ted Butler will have a better explanation in his weekly commentary to his paying subscribers later today.  If he does, I'll let you know.  And as of 10:13 p.m. EDT yesterday evening, there were no reported changes in SLV.

The U.S. Mint had another tiny sales report yesterday.  The sold 1,500 troy ounces of gold eagles, and that was it.  Month-to-date the mint has sold 40,500 ounces of gold eagles; 15,000 one-ounce 24K gold buffaloes; and 2,386,000 silver eagles.  Based on these sales, the silver/gold sales ratio is 43 to 1.

There was no activity in gold in the Comex-approved depositories on Thursday.

As it always is, things were quite different in silver.  These same depositories received 596,236 troy ounces of the stuff, and shipped 448,125 troy ounces out the door for parts unknown.  The link to that activity is here.

The Commitment of Traders Report was for positions held at the close of trading on Tuesday, October 1, 2013.  I was expecting the report to contain a greater time span than this, as this COT Report only covers the first reporting week of the government shut-down.  There's still three weeks worth of data that's not here, because if the report was current, it would show that it was for positions held at the close of trading on Tuesday, October 22, 2013.  The CFTC says that it will take until the COT Report on Friday, November 8, 2013 before they're all caught up, which is a lifetime away.  As I said yesterday, this COT report, when released, was already yesterday's news and that's what it is.

It showed that the Commercial net short position in silver declined by a very decent 2,976 contracts.  The Commercial net short position [as of October 1] sits at 83.2 million troy ounces.  It's not a record low, but it's a very low amount.  Ted says that JPMorgan holds about 60 million ounces of that amount, and on a percentage basis net of spreads, holds a short-side corner of about 12% of the entire Comex futures market in silver.

It was a somewhat different story in gold, as the Commercial net short position actually increased by 6,591 contracts, or 659,100 troy ounces.  Ted says this had to do with the fact that as JPMorgan was covering short position in gold [just like they were doing in silver at the same time] the traders selling their long positions were other Commercial traders, and was not the usual technical fund selling that normally takes place on the engineered price decline that was going on during that reporting week.  Ted said that JPMorgan's long-side corner in the gold market now sits at 7.0 million troy ounces, and represents about 22% of the entire Comex  futures market in gold on a net basis.

The Bank Participation Report [BPR], even though a month old, is still an amazing sight.  Don't forget that this data is extracted from the COT Report data above, so for this one day a month the Comex futures contracts held by the banks is laid bare for all to see.

In gold, it shows that 4 U.S. banks are net long 58,007 Comex gold contracts, an increase of a hair more than 13,000 contracts from the September BPR, or 1.3 million ounces of gold.

Don't forget that Ted Butler estimates JPMorgan's long-side corner in gold at around 70,000 contracts, so the 3 remaining banks in this category have to be mega short the market, and they are to the tune of 22,368 contracts according to the BPR.  I'm guessing that these other two banks are HSBC USA and Citigroup, and I believe that I'm on pretty safe ground with that guess.

It also shows that 20 non-U.S. banks are net short 33,369 Comex gold contracts, an improvement from the 36,724 Comex gold contracts they were short in the September BPR.  It's my opinion that the lion's share of this short position held by the non-U.S. banks is held by Canada's Bank of Nova Scotia.  If that is indeed the case, then the short positions held by the remaining 19 non-U.S. banks are immaterial when you divide what's left more or less equally between those banks.  Here's Nick Laird's chart, and it's charts #3,4 and #5 that are the main ones you should focus on.

In silver, the BPR shows that '3 or less' U.S. banks are net short 18,906 Comex contracts.  That's an improvement from the September BPR when these same banks were net short 23,675 Comex silver contracts.  Ted says that JPMorgan holds about 12,000 contracts of the October BPR short position all by itself.  If I had to bet money, I'd say the other two banks are the same two banks holding the short positions in gold mentioned above.

In silver in the non-U.S. bank category, there are 12 banks that hold 17,437 Comex contracts short.  Once gain I'd guess that Canada's Bank of Nova Scotia holds the lion's share of this amount as well, so what remains spread out over the remaining 11 banks, is immaterial as well.

There weren't a lot of changes in either platinum or palladium between the September and October BPRs.  The only change worth noting is that the 14 non-U.S. banks decreased their short position in platinum by about 1,800 contracts.  But here's what the BPR showed for these two precious metals.  They're getting the full treatment this month, which is the first time I've ever done it.  The reason I'm doing it is because the short positions held by these banks [especially the U.S. banks] is obscene beyond description.

In platinum, 4 U.S. banks are net short 14,069 Comex contracts.  That represents 23.5% of the entire Comex futures market in platinum.  And here's the grotesque part, these four U.S. banks hold 14,772 Comex contracts short, against 703 long contracts.  The "difference" between the two is the "net" position shown above.

There are 14 non-U.S. banks holding Comex futures contracts in platinum.  Their net short position is only 2,926 contracts, and even if Canada's Bank of Nova Scotia holds the bulk of it, their position [along with the other 13 banks] is basically immaterial.

But the real travesty exists in the palladium futures market.

In it, '3 or less' U.S. banks are short [notice I didn't say "net" short] 11,271 Comex futures contracts in palladium.  And the reason that I didn't say "net" short, is because these '3 or less' U.S. banks don't hold any long positions at all; zero, nada, none!  These '3 or less' U.S. banks are short 31.6% of the entire palladium futures market.

There are 12 non-U.S. banks that hold Comex futures contracts in palladium, and their net short position is 4,299 Comex contracts.  I'm sure that Scotiabank is the tallest hog at this trough as well, but it's immaterial in the grand scheme of things.  But having said that, these twelve non-U.S. banks in total are net short 12.1% of the entire Comex futures market in palladium.  Add up all 15 banks, and they are net short 43.6% of the Comex futures market in palladium.  You couldn't make this stuff up.

What these Bank Participation Report charts show is that the price management scheme in all four precious metals is virtually 100% "Made in the U.S.A.", with Canada's Bank of Nova Scotia giving it an international [but almost immaterial] flavour.  We're lucky that the CFTC provides the data that shows JPMorgan and two other U.S. banks pretty much guilty as charged.

I have a pretty decent number of stories for you today, and I hope you have time in what's left of your weekend to spend the time on the ones that interest you the most.

¤ The Wrap

The only surprise is that the asset class largely thought to be the most sensitive to excessive monetary stimulus, the precious metals, has not only failed to rise, but in fact has suffered its largest historical price decline in history over the past year. True, gold and silver prices are higher than when the aggressive monetary expansion started around 2008, but the severe take-down in 2013 should have any reasonable person scratching his or her head about why the price collapsed this year in gold and silver, as all other asset classes still responded with higher price levels.

The answer to this puzzle comes easy to those who are convinced of the price manipulation by JPMorgan on the Comex. Government data indicate record buying by the bank on the price decline of the equivalent of 15 million oz of gold and more than 100 million oz of silver; it is not possible such a feat could be achieved without a series of manipulative schemes and devices on the decline. Now that JPMorgan has sharply reduced its short market corner in Comex silver and actually flipped from a short market corner to a long corner in Comex gold, the stage is set for a sharp rebound in prices. - Silver analyst Ted Butler: 23 October 2013

Today's pop "blast from the past" dates from 1990, and was one of the last big hits of this American pop group that needs no introduction.  The link is here.

Today's classical "blast from the past" is Brahms Symphony No. 3 in F major.  Johannes Brahms composed it in the summer of 1883, and its premiere performance with the Vienna Philharmonic Orchestra was on December 2 of the same year.  This particular performance is by the Chamber Orchestra of Europe, and took place at the Royal Albert Hall in London in August of 2011.  Bernard Haitink conducts.  The link is here.

I was happy to see silver and gold end the week on a positive note, but it was obvious again on Friday that both metals were held in check during the Comex trading session.

I'd sure like to think that the coast is clear, and that JPMorgan et al are going to allow prices to rise in all precious metals.  I'm more than interested in what transpires at the FOMC meeting coming up on Tuesday and Wednesday of next week.  There is no way out of this money printing trap that now engulfs the entire planet, and it only remains to be seen how long it takes the U.S. to up the ante.

And as I pointed out in my comments on the dollar index further up in this column, there has been a buyer of last resort showing up every 24 hours in the Far East market to catch the index before it plunged below the 79.00 mark.  It's obvious that if the powers that be weren't buying up the dollar, it would have crashed and burned this week.

I've mentioned it many times in this space over the years that if "da boyz" weren't propping up everything that wanted to crash and burn, and suppress the prices of everything that wanted to explode to the outer edges of the known universe, the world's economic, financial and monetary system would be a smouldering ruin within five business days.  That's what they're desperate to prevent.

And as Peter Warburton said in excellent essay more than 12 years ago: " The debasement of world currency: It is inflation, but not as we know it"

"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

"It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.

"Central banks, and particularly the U.S. Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.

I posted these three paragraphs just recently, but they're worth reading again.  Based on what Warburton said here, we're at the end of the line right now.

Before heading off to bed, I'd like to remind you one last time that Casey Research is offering its Casey OnePass subscription service for an extremely limited time.  The deal includes subscriptions to nine of CR's subscriptions all rolled into one [very] cheap price.  If you have any interest, you find out more by clicking here, and it doesn't cost a thing to check it out.  Naturally, Casey Research's 90-day risk-free policy applies in full.

That's it for the day, and the week.

See you on Tuesday.

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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