Saturday, November 8: Today in Gold and Silver

NEW YORK ( TheStreet) -- The gold price did zip in early Far East trading, but the HFT boyz set a new low tick minutes after 1 p.m. Hong Kong time.  Then an hour or so later, the gold price rallied back to a few dollars back above unchanged shortly before the London open.  From there it traded flat until ten or so minutes before the Comex open.  Then a rally began that continued through the rest of the New York session---including electronic trading after the 1:30 p.m. EST Comex close.  I was amazed to see that gold closed on its absolute high tick of the day.

The low and high were reported by the CME Group as $1,130.40 and $1,179.00 in the December contract, an intraday move of 4.3%, which is huge for gold.

Gold closed on Friday in New York at $1,178.50 spot, up $37.20 on the day.  Net volume was enormous at 267,000 contracts, so it's obvious that this rally was not going unopposed.

Silver was under selling pressure right from the open in New York at 6 p.m. EST on Thursday evening, culminating in the HFT-sponsored new low tick, which came around 2:30 p.m. in Hong Kong on their Friday afternoon.  From there the price rallied until 9 a.m. in London---and then didn't do a lot until minutes before the 8:20 a.m. EST open.  The spike at the 8:30 a.m. EST jobs report got spiked---and after that silver rallied in a choppy fashion for the remainder of the day.  Like gold, silver also closed on its high tick of the day.

The low and high were recorded as $15.04 and $15.88 in the December contract, an intraday move of 5.6%.

Silver finished the Friday session at $15.83 spot, up 40.5 cents.  Net volume was huge in this metal as well---61,000 contracts.

Platinum and palladium had similarly engineered price declines at 2:30 p.m. Hong Kong time, but the ensuing rallies in both these metals appeared to get capped around 2 p.m. EST in New York.  They both closed off their highs, with platinum up 22 dollars, and palladium 19 dollars.  Here are the charts.

The dollar index closed late on Thursday afternoon in New York at 88.07.  The 88.17 high tick came minutes before 1 p.m. in Hong Kong on their Friday afternoon---and it headed quietly lower from there.  But that decline accelerated shortly after the jobs report---and the index closed down 50 basis points, finishing the Friday session at 87.57.

The gold stocks were up 5 percent within thirty minutes of the open in New York on Friday morning.  By 1:45 p.m. EST, they were up 7 percent or so, before fading a hair until 3:30 p.m.  Then, in the last thirty minutes of trading, the shares staged a mini rally into the close, as the HUI finished up a very impressive 7.88%.

The trading pattern for the silver equities was very similar to their golden brethren, complete with the mini rally into the close.  Nick Laird's Intraday Silver Sentiment Index closed up 8.34%.

The CME Daily Delivery Report was a bust, as it showed that zero gold and zero silver contracts were posted for delivery within the Comex-approved depositories on Tuesday.

The CME Preliminary Report for the Friday trading session showed that gold open interest for November dropped down to 43 contracts from 61 in Thursday's report---and silver's November o.i. is basically unchanged from Thursday, down 1 contract to 101 contracts.

There was another withdrawal from GLD yesterday---and it was pretty big, as an authorized participant withdrew 182,612 troy ounces.  And as unbelievable as it may sound, an authorized participant actually added 1,437,510 troy ounces to SLV yesterday.

So not only are unknown entities buying up every share of the SLV that the panicked public has been selling for the last year or so, but they've also been depositing physical silver like mad as well.  Whoever these 'buyers' are, they're obviously expecting silver to trade at a materially higher price somewhere in the [probably] not-too-distant future.

There was a tiny sales report from the U.S. Mint yesterday.  They only sold 2,000 troy ounces of gold eagles---and that was all.

In the first week of November, the mint has sold 32,500 troy ounces of gold eagles---6,000 one-ounce 24K gold buffaloes---and 1,260,000 silver eagles.  That works out to a silver/gold sales ratio of 33 to 1.  But that ratio is probably far off the mark considering the fact that the mint stopped selling silver eagles until further notice a few days ago.

It was another decent day for in/out activity in both gold and silver at the Comex-approved depositories on Thursday.  In gold, there was 130,426 troy ounces shipped in, but only 225 troy ounces shipped out.  All the 'in' activity was at Canada's Scotiabank---and the link to that is here.

In silver, there was 336,892 troy ounces reported received---and 707,949 troy ounces shipped out the door.  The link to that action is here.

The Shanghai Gold Exchange reported their gold withdrawal for the week ending October 31, 2014---and the magic number was 47.449 tonnes.  Here's Nick's most excellent chart showing that.

The Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday, showed a small improvement in silver---and a monster improvement in gold.

In silver, considering the size of the price decline, the Commercial net short position only improved by a smallish 1,745 contracts, or 8.7 million troy ounces.  The Commercial net short position is now down to 62.0 million troy ounces which, I believe, is a new record low, at least in 'modern' times.  Ted will rap my knuckles in his weekly commentary later today if I guessed wrong about this.

The small traders [holding less than 150 Comex contracts] were the big sellers during the reporting week, dumping 733 long contacts. and going short another 2,024 contracts.   The short holders in the Managed Money category of the Commitment of Traders Report actually covered 1,894 short contracts, ringing the cash register on some very decent profits.  I'm sure that JPMorgan et al weren't happy to see this 'leakage' as the silver price continued to get hammered to the downside.  But the big surprise---and what I was most interested in---was the 'unblinking' non-technical longs in the same category, as they added another 2,361 contracts to what was already a record long position.  Who are they---and what do they know that we don't?  I would guess that they know that Substantially higher silver prices are in our future.

Ted says that JPMorgan's short position in silver is down to the 8-9,000 contract range---and he speculated, correctly in my opinion, that JPMorgan is no longer the big silver short on the COMEX.  I would be prepared to bet a fair chunk of change that the title has now passed over to Canada's very own Scotiabank.  I estimate [based on the data in yesterday's Bank Participation Report] that they are short about 16,000 COMEX contracts, or 80 million troy ounces of silver.

The big improvement was in gold---and I could hardly believe the numbers when I first saw them.  The Commercial net short position in gold was almost cut in half, as it improved to the tune of 43,557 contracts, or 4.36 million troy ounces.  Ted said that it was one of the biggest one-week improvements in COMEX history.  The Commercial net short position is now down to 5.53 million troy ounces.

That 43,557 contract improvement came from the small traders in the Nonreportable category going net short 6,043 contracts during the reporting week---and the traders in the Non-Commercial category selling 18,986 long contracts, plus they added 18,528 short contracts as well.

The technical funds in the Managed Money category sold 15,096 long contracts and added 6,166 contracts to their short position.  The 'Managed Money' category in the Disaggregated Commitment of Traders Report is a sub-set of the traders inside the Non-Commercial category in the legacy COT Report.  The total numbers are the same in both reports, they're just broken down differently.

After dumping 15,096 long positions, the remaining long holders in the Managed Money category are virtually all of the 'non-blinking' non-technical fund variety waiting for the day that gold sports a permanently higher price.  As of yesterday's report, these 'traders' held 113,324 long contracts, or 11.33 million troy ounces.

Armed with the new Bank Participation Report, Ted says that JPMorgan's long-side corner in the COMEX gold market is around 20,000 contracts, a 2,000 contract increase from the prior reporting week.

Here's Nick Laird's " Days of World Production to Cover COMEX Short Positions" graph showing the short positions of the 4 and 8 largest traders in each physical commodity traded on the COMEX.

In silver in the above chart, it's my opinion that the combined short positions of JPMorgan and Canada's Scotiabank represents about 58 days of world production.

And now for the November Bank Participation Report, or BPR.  These are the COMEX long and short positions that are all held by the world's banks.  The report comes out once a month---and the data is extracted directly from the current COT Report discussed above.  For this one day a month we get to see what the banks are up to in all four precious metals and, as I say every month, they're always up to quite a bit.

Even thought there was an up/down movement in gold during the October trading month---and the metal finished lower by a decent amount, the world's banks actually increased their overall COMEX short positions in that precious metal.  In a declining price environment, the banks are almost always buying longs and covering shorts but, for whatever reason, that didn't happen in gold in October.

In gold, '3 or less' U.S. banks are net short 3,511 COMEX gold contracts, which is 878 contracts more short than these same three banks were short in the October BPR.  Since Ted pegs JPMorgan's long position at 20,000 contracts, this means that the '2 or less' U.S. banks that are left must, in total, hold a COMEX short position of about 23,500 contracts to make the total 'net short' position work out.  The '2 or less' U.S. bullion banks would be HSBC USA and Citigroup.

Also in gold, '20 or more' non-U.S. banks are net short 54,811 COMEX contracts, an increase of 4,924 contracts from the October BPR.  I'd bet serious money that just under half of this amount is held short by one foreign bank---and that would be Canada's Scotiabank.  If you subtract about 25,000 contracts from the total net short number, that leaves about 30,000 COMEX contracts held net short by '19 or more' non-U.S. banks---and divided up more or less equally, the remaining short positions don't mean much.

Below is Nick Laird's BPR chart for gold going back to 2000.  Note the blow-out in the short position in gold in the U.S. banks [red bars on Charts 4 and 5] in August of 2008.  This is when JPMorgan took over the COMEX short positions of Bear Stearns.  Also note the blow-out in gold in the non-U.S. banks [the blue bars on Chart #4] when Scotiabank got 'outed' in October of 2012.  The net COMEX short position there blew out by almost double.  The net long position also increased.  The 'click to enlarge' feature really helps here.

In silver, '3 or less' U.S. banks were net short 6,159 COMEX contracts in the November BPR.  That's down more than a third from the 9,867 COMEX contracts these same '3 or less' banks held short in the October BPR---and a big improvement.  Ted feels that JPMorgan's short position is around 8,500 contracts, so the '2 or less' U.S. bullion banks have to be net long to the tune of 2,300 contracts or so to make the numbers work.  These '2 or less' banks, if there are two---as it could just as easily be one, are also HSBC USA and Citigroup.

Also in silver, '11 or more' non-U.S. banks are net short 19,225 COMEX contracts, which is down only 360 contracts from the short positions they held in the October BPR, only a 2 percent decline, which is barely a rounding error.  I would bet serious money that Canada's Scotiabank is probably short 90 percent [if not more] of that amount.  Look at the blue bars [the non-U.S. banks] on Chart #4 below---both before and after Scotiabank was 'outed' in October 2012.  The foreign banks were basically market neutral before that date.  That's why I have no trouble stating that Scotiabank is now the 'King Short' in the COMEX silver market.

Below is the BPR chart for silver and, once again, cast your eyes on the events of August 2008 on charts #4 and #5---and October 2012 in chart #4---to see where JPMorgan took over the silver short position once held by Bear Stearns---and where Canada's Scotiabank was 'outed' by the CFTC.  Both events stand out like the proverbial sore thumbs that they are.

In platinum, '3 or less' U.S. bullion banks are net short 4,202 COMEX contracts in the November BPR, which is down sharply from the 6,196 COMEX contracts they were net short in the October BPR.

Also in platinum, '12 or more' non-U.S. bullion banks are net short 3,268 COMEX contracts, which is down a bit more that 25 percent from the net short position they held in October's BPR.  Divided up more or less equally, the short positions of the non-U.S. banks are irrelevant.

In palladium, '3 or less' U.S. bullion banks are net short 8,231 COMEX contracts in the November BPR, down a bit more than 5 percent from the positions they held in the October report, which is not a big change.  But these '3 or less' U.S. banks are net short more than 20 percent of the entire COMEX palladium market.

Also in palladium, '12 or more' non-U.S. banks are net short 3,856 COMEX contracts in the November BPR, which is up 91 contracts from the collective short positions they held in the prior BPR.  Unless all these foreign banks are acting in collusion with the U.S. banks, the individual short positions of these banks don't mean much, either.

Although JPMorgan, HSBC USA and Citigroup are the key U.S. bullion banks that are active in the COMEX futures market in the precious metals, it's becoming more and more obvious that Scotiabank's monster short positions in both gold and silver---but particularly silver---may put the bank in jeopardy at some point  That is, of course, unless they've got themselves covered in other markets like JPMorgan appears to have done in silver.

We do live in interesting times.

It's Saturday---and I have a lot of stories for you again today, including quite a number that I've been saving all week, so I hope you have the time to read all the ones that interest you in what's left of your weekend.

¤ The Wrap

In addition to the firm knowledge that the technical funds have sold the outrageous amounts certified in the COT reports, driving silver prices below the cost of production---and any free market price level, another certainty exists - all of the short silver contracts added by the technical funds since July must be bought back at some point.  Short (and long) positions in COMEX futures contracts must be closed out at some point by delivery or by an offsetting purchase (or sale). In the case of the technical funds’ short positions, the delivery option does not exist since the technical funds are not capable of delivery of any meaningful amount of physical silver.

Please allow me to state categorically that there is no “cash settlement” option on any COMEX futures contract where the long holder of any silver contract demands delivery and puts up the necessary funds. If a long futures contract holder advances the money, the physical delivery must occur; otherwise a contract default will occur. Such a delivery default would, in effect, lead to an abandonment of trust in the COMEX as a viable venue for any type of trading and lead to litigation and the ultimate closing of the exchange. They don’t call them futures “contracts” for nothing. - Silver analyst Ted Butler: 05 November 2014

Today's pop 'blast from the past' is one I discovered when I was looking for something else.  I'd forgotten that I'd even known this song from 1969.  The group was basically a 'one hit wonder'---but what a hit it was---and the link is here.  I was 22 years young back then.  Where has the time gone?

Today's classical 'blast from the past' is the Symphony No. 3 in C minor, Op. 78 by French composer  Camille Saint Saëns which he tossed together in 1886.  It's more popularly knows as the Organ Symphony.  Maestro Paavo Järvi conducts the Orchestre de Paris---and the organist is Thierry Escaich.  The link is here.

I was more than happy to see the big rallies in all four precious metals yesterday---and JPMorgan et al painted key reversals to the upside in all of them.  No T.A. person could have possibly missed it.  'Da boyz' have done that before---and it was all for naught in the end, so it remains to be seen whether it's different this time.

One thing that I wasn't happy about was the huge volume in both gold and silver yesterday and, presumably, in platinum and palladium as well.  But with the key moving averages, 50 and 200-day, still intact across the board, it's doubtful if there was meaningful short covering by the technical funds in the Managed Money category.

But, having said that, Ted Butler is of the opinion that all of the improvements in the COT Report that were the result of the big down-side spike in all four precious metals on Wednesday, vanished after yesterday's trading activity.

Here are the 6-month charts for the four precious metals, plus the U.S. dollar index

I'm still amazed by the internal goings-on within the silver market.  The mystery buyer in silver eagles for the last couple of years, the continuing manic in/out movement at the Comex-approved depositories for almost four years now---along with the counterintuitive deposits into SLV during this latest engineered price decline, the latest deposit occurring yesterday.  And not to be forgotten are the 'unblinking' non-technical fund longs in the Managed Money category that increased their record long position by another 2,361 contracts during the latest reporting week.

This has all the hallmarks of a silver market that's hand-to-mouth---and within spitting distance of a serious physical shortage.  This will result in phenomenally higher prices at some point---and those that control the silver price and know the actual supply/demand fundamentals are positioning themselves for that day, and have been for several years now.

Ted Butler has been going on about this for a long time---and it's beyond my understanding why other commentators aren't even mentioning these historic happenings, even if they have to steal this research without accreditation.

And as Doug Noland said in the opening paragraphs of his weekly Credit Bubble Bulletin posted in the Critical Reads section further up, nothing has changed for the better in the economic, financial or monetary arena---as all the signs point to some sort of denouement dead ahead.

I haven't put my fingers in my ears quite yet, but that day of reckoning isn't far off.

See you on Tuesday.

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