Saturday, November 22: Today in Gold and Silver

NEW YORK ( TheStreet) -- The gold price didn't do a lot until the London open---and things got a bit more interesting from point onward.  The activity that counted was the rally that began at 1 p.m. GMT in London, which got capped less than 20 minutes later---and minutes before the COMEX open---as gold headed above the $1,200 spot price mark with a vengeance and touched its 50-day moving average in the process.  Then the HFT boyz and their algorithms worked their magic at 11:40 a.m. EST---and within 15 minutes had the gold price down about $12.  From there it chopped quietly higher for the remainder of the the COMEX and electronic trading session, managing to close above the $1,200 spot price mark without further incident.

The low and high ticks were reported by the CME Group as $1,186.10 and $1,207.60 in the December contract.

Gold finished the Friday session at $1,202.10 spot, up $7.60 from Thursday's close.  Gross volume was way over 200,000 contracts once again, but netted out to only 155,000 contracts---which is still a huge amount.

It was more or less the same chart pattern in silver but, looking at the Kitco silver chart below, it was even more obvious that the price wanted to fly---and it took the usual judicious interference by the not-for-profit sellers to prevent that from happening.

The low and high ticks were recorded as $16.095 and $16.60 in the December contract---and intraday move of more than 3%.

Silver finished the day at $16.445 spot, up 19.5 cents from Thursday's close---and if left to its own devices, could just as easily have closed up $19.50---or more.  Gross volume was a hair under 100,000 contracts, but netted out at 46,000 contracts, which is still a chunky number.

Platinum traded pretty flat, but with a positive bias, until an hour before Zurich opened.  Then it rallied another $12 or so until it got sold down with the gold price starting just before lunch in New York---and after 1 p.m. EST, it traded ruler flat into the 5:15 p.m. close of electronic trading.  Platinum closed up $18 on the day.

The palladium chart was somewhat similar, but the rally that developed an hour before the Zurich open really had some legs until a thoughtful seller put an end to it all at 9 a.m. EST in New York.  It had another spike higher starting around 12:30 p.m.---but that got hammered flat starting at 1 p.m. in New York---and after 2 p.m. it traded flat before popping a few bucks right at the close.  Palladium closed up $22, but would have taken the $800 spot price out with ease if it had been allowed to do so.

The dollar index closed late on Thursday afternoon in New York at 87.70---and hit its 87.46 low tick around 10:30 a.m. Hong Kong time.  From there it struggled upward until minutes after the London open---and then blasted higher.  It hit its 88.37 high tick shortly after 1 p.m. in New York---and then gave up a handful of basis points going into the close, as the index finished the Friday session at 88.265---up 56 basis points from Thursday's close.

You should carefully note that the huge rally in the dollar index had no impact on what was happening in the precious metal market yesterday.

Here's the six-month US Dollar Index chart--and my previous comments that the dollar rally was very long in the tooth got blown out of the water by yesterday's action.

The gold stocks gapped up---and had some decent gains in the bag until the HFT boyz showed up in the gold market around 11:30 a.m. EST---and the HUI only finished up 0.78%.  It was was up 3% at one point.

With some obvious variations, the silver equities followed a similar path---and Nick Laird's Intraday Silver Sentiment Indicator closed up 1.04%.

The CME Daily Delivery Report showed that four 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's November open interest dropped by 8 contracts---and is now down to 20 contracts---minus the 4 contracts mentioned in the prior paragraph, of course.  Silver's November o.i. continues to sit there unchanged at 88 contracts.

There were no reported changes in GLD yesterday---and as of 8:33 p.m. EST yesterday evening, there were no reported changes in SLV, either.

There was a tiny sales report from the US Mint.  They sold 34,000 silver eagles---and that was all.

Month to date, the Mint has sold 49,000 troy ounces of gold eagles---11,000 one-ounce 24K gold buffaloes---and 2,669,500 silver eagles.

Over at the Comex-approved depositories on Thursday, there was no gold reported received, but a very large withdrawal of 163,324 troy ounces was made out of the Scotiabank depository---and the link to that activity is here.

In silver, there were 50,000 troy ounces deposited---and 111,580 troy ounces reported shipped out.  All of the activity was at Brink's, Inc.---and the link that action is here.

Even though I had no preconceived opinion of what might be in yesterday's Commitment of Traders Report, I was still somewhat disappointed by what the report showed.

In silver, the headline number showed that the Commercial net short position increased by 755 contracts, or 3.8 million ounces, which wasn't a lot.  The Commercial net short position now stands at 90.9 million troy ounces.  In the Managed Money category of the Disaggregated COT Report, another 2,388 short contracts (Ted Butler's 'rocket fuel' for the next rally in silver) were covered at enormous profits.  Ted says that the raptors (the Commercial traders other than the Big 8) sold about 2,600 long contracts---contracts that can't be sold to suppress the price on the next big rally, so that's a positive.

Once again the Big 8 traders on the short side used the opportunity to cover as many short positions that they could.  Ted says that they covered about 1,800 contracts worth---1,000 by JPMorgan and the balance in the '5 through 8' category.  Ted also said that JPMorgan's short position appears to be something under 7,000 contracts.  He also added that it's entirely possible that JPMorgan is no longer in the Big 4 category---and could be in the '5 through 8' category by now.

In this COT Report, the 'Big 4' are net short 32,018 COMEX silver contracts.  In the November Bank Participation Report, there were '11 or more' non-US banks that were net short 19,225 COMEX silver contracts---and I estimated that at a minimum, Canada's Scotiabank held 17,000 of those contract all by themselves.  This made Scotiabank the 'King Silver Short' on the COMEX by a country mile---and the only bank left in the 'Big 8' category other than JPMorgan.  JPMorgan is the only silver short in the '3 or less' US banks that held COMEX silver contracts in the November Bank Participation Report, as the remaining two banks [or perhaps only one bank] in that category are [is] net long.

Since the remaining six traders in the 'Big 8' category aren't banks, US or foreign, then that leaves the investment houses, plus maybe the BIS and the US Exchange Stabilization Fund, as the only candidates left that hold title to these six spots.  I'd bet $10 that one of them might be Morgan Stanley---but as for the others, I haven't a clue.

In gold, the Commercial net short position increased by a very chunky 20,973 contracts, or 2.10 million troy ounces.  The Commercial net short position in gold now stands at 7.10 million troy ounces.  Ted says that the traders in the 'Big 8' category went short 8,000 contracts during the reporting week---and that it appeared that JPMorgan decreased their long-side corner in the COMEX gold market by 3,000 contracts---and is now down to around 18,000 contracts.

Under the hood in the Disaggregated COT Report, it was mostly the Managed Money on the other side of the Commercial traders, as they went long to the tune of 9,088 contracts---and covered an additional 8,697 short contracts.

Most of the activity contained in this COT Report in both metals is centered around the Friday, November 14 trading day, as little happened on any of the other days during the reporting week.

Here's Nick's " Days of World Production to Cover COMEX Short Positions" chart for all physical commodities traded there and, with the exception of the semipermanent position of cocoa, all four precious metals remain pinned to the far right-hand side of this chart, as they have been for the last 15 years.

My back-of-the-envelope calculation shows that Scotiabank and JPMorgan combined are short about 55 days of world silver production---almost half of the 115 days of world silver production that the 'Big 8' are short in Friday's COT Report, which is the green bar on the far-right side of the above chart.  That leaves the six remaining traders in the 'Big 8' category short the remaining 60 days between them.

Well, the Shanghai Gold Exchange posted their activity for the week ending on Friday, November 14---and they showed a 52.260 tonne withdrawal.  Here's Nick's most excellent chart showing the change.

Since it's the weekend, I always look forward to emptying out my inbox and letting you pick through them.

¤ The Wrap

In the 1990s, gold loans, despite their inherent wackiness and fraud, blossomed into a market involving upwards of 150 million oz, or two to three years of world mine production. What enabled gold loans to grow to such enormous levels was that Wall Street (the bullion banks, like JPMorgan) were able to convince the world’s gold miners to participate in the ill-fated scheme - to the miners eventual regret. In the end, two gold miners, Barrick and AngloGold, cost shareholders more than $10 billion each by falling for the gold loan/forward selling scam. More than one gold miner went bankrupt as a result of gold loans/forward sales.

The way the cockeyed scheme worked was like this – the Wall Street banks convinced central banks to physically release great amounts of gold (sitting fallow in CB vaults for eons) to the banks in return for a below market interest rate. The Wall Street banks then sold the gold on the open market (depressing prices) and lent the money to gold miners for expansion and capital projects, with the banks receiving fees and interest rate differentials galore. The miners agreed to pay back physical gold as their mine production increased. It all sounded great on paper (and worked that way for years) until gold prices went up. Then, it became increasingly clear that the gold miners had been tricked into establishing a giant short position in gold that nearly destroyed them.

Gold loans are fraudulent through and through, because the real owners don’t get the proceeds when the sale is made and the collateral ends up with an unrelated third party who has no obligation to return the metal. But because they appeared to work for a while, otherwise intelligent people overlooked the obvious fraud and collected the benefits while they were available. Today, those tracking gold loans report the amounts of these loans outstanding are down 95% from levels at the peak around the year 2000. For me, I can’t figure out how even 5% of these loans could still be in existence. - Silver analyst Ted Butler: 19 November 2014

Today's pop 'blasts from the past' are by a group that was part of the American pop scene back in the mid-to-late 1960s.  They didn't last long, but their two hits are classics.  It's a group called The Left Banke---and their two biggest hits are linked here and here; and unfortunately, I remember them like it was yesterday, except 'yesterday' was almost 50 years ago.  Where the %$*& has the time gone, I wonder?  It reminds me of the old saying that goes like this---" Life is like a roll of toilet paper.  The closer to the end you get, the faster it goes."  Ain't that the truth.

Today's classical 'blast from the past' is a virtuoso piece for violin and orchestra that was composed by Camille Saint-Saëns back in 1863 for Spanish violin virtuoso Pablo de Sarasate.  It's the Introduction and Rondo Capriccioso in A minor, Op. 28---a show piece of the first order of magnitude.  This performance  features the gifted Dutch violinist Janine Jansen---whom I just love to pieces!  It was recorded at an outdoor concert with the Berlin Philharmonic in the summer of 2006---all under the direction of Estonian-born conductor Maestro Neeme Järvi.  The link is here.

Friday was another day where the HFT traders and their algorithms were active in both gold and silver, as their footprints were obvious by the price action.  All the precious metals wanted to rally, but weren't allowed to.  Also note that the gold price touched its 50-day moving average moments before the Comex open, but got sold down the moment it happened---and then got sold down some more going into the New York lunch hour.  But the gold price managed to crawl back above the $1,200 spot price mark---and was allowed to close there.

As I said in yesterday's column, the last week going into the options and futures expiry for the December contract could be interesting---and that's proving to be the case.

Here are the six-month charts for all four precious metals.

Despite the deterioration in the Commercial net short positions in both gold and silver recently, the setups in both still remain very bullish---and the fact that the 'Big 8' shorts in silver are still attempting to reduce their positions in this metal, is a sign that [hopefully] this is all going to end sooner rather that later.

"Later" for me means sometime before the end of the year---but that will only occur if the powers-that-be want it to happen.

But as I and many others have said over the years, the gold card is the only card that the world's central bankers, along with the IMF, have left to play if they want to create an inflationary environment.  But will they play it---and if so, when?

So we wait some more.

With all monetary caution scattered in the wind with announcements out of China and Europe yesterday, it's obvious that the world's central banks have now moved "all in" in this global monetary experiment that will only end in tears at some point.  Only the timing of the ultimate denouement is unknown.

As Doug Noland stated in his Credit Bubble Bulletin commentary yesterday evening:

The stage had been set for very serious problems. When the 2007/2008 down cycle’s contagion eventually arrived at the “Core,” key intermediation processes faltered – leaving a highly inflated system extremely vulnerable to a crisis of confidence and Credit collapse. Importantly, when it comes to Bubbles, the sooner they come to an end the better. Systemic risk grows exponentially, a harsh reality that central bankers refuse to acknowledge.

The scope of today’s “global government finance Bubble” dwarfs the 2007’s mortgage finance Bubble. There’s a lot more to lose in this international Bubble and so much more to worry about. Instead of “subprime,” today’s “Periphery” includes tens of Trillions of vulnerable debt encompassing many countries and billions of people. Instead of U.S. prime mortgages and corporate debt, today’s “Core” includes central bank Credit and the greatest securities Bubble the world has ever experienced.

From the 1986 horror film The Fly comes the quote "Be afraid. Be very afraid."

And along with the Ukraine/Russia debacle, that's probably good advice at this point in history.

See you on Tuesday.

Ed Steer

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