Saturday, December 6: Today in Gold and Silver

NEW YORK ( TheStreet) -- Like on Thursday, gold got gently sold down in early Far East trading on their Friday, with the low of the day in the Far East coming shortly after 1 p.m. Hong Kong.  The price rallied a few dollars from there, until about an hour before the London open---and then it got sold down again into the noon London silver fix.  The rally off that low began about 12:45 p.m. GMT---and then the price got hammered at the 8:30 a.m. EST release of the job numbers in U.S.---an event that I'd completely forgotten about.

After a precipitous decline of just under twenty bucks, the price rallied back to the $1,200 spot price mark where it ran into a not-for-profit seller once again---and got quietly sold down until 1 p.m. EDT, before rallying a few bucks into the close.

The high and low ticks were reported by the CME Group as $1,208.50 and $1,186.40 in the February contract.

Gold closed in New York yesterday at $1,193.10 spot, down $13.40 from Thursday's close.  Net volume was 164,000 contracts.

Brad Robertson sent me the 5-minute tick chart for gold---and you can see the price action, plus the big blow-out in volume that started at 8:30 a.m. EST.  Other than that engineered sell-off, it was a very quiet trading day.  Don't forget to add 2 hours for EST---and the 'click to enlarge' feature really helps here.

With no exceptions, the silver price moved in tandem with the gold price---and the high and low were recorded as $16.56 and $16.22 in the March contract.

Silver finished the trading day yesterday at $16.285 spot, down 20 cents from Thursday's close.  Net volume was around 41,000 contracts.

Platinum followed a similar price path---and it was closed at $1,218.00 spot, down $17 on the day.  As usual, palladium followed its own drummer yesterday, finishing the Friday session at $801.00 spot, up 5 bucks on the day.  Here are the charts.

The dollar index closed in New York late on Thursday afternoon at 88.60---and then climbed as high as 88.90 by the noon London silver fix.  Then it blasted off on the release of the jobs numbers---and the 89.46 high tick came at the 10 a.m. EST London p.m. gold fix.  It got sold down a bit from there, before chopping sideways into the close.  The dollar index closed 89.36---up 76 basis points on the day.

Not surprisingly, the gold stocks gapped down at the open, but rallied to their highs shortly before 11 a.m. EST, before they got turned over in the usual manner in which we've become accustomed to lately.  The gold stocks never got a sniff of positive territory  The HUI finished  down 2.61%.

Although the silver equities gapped down as well, they rallied strongly---and into positive territory, before a seller showed up at noon Eastern time---and they were solidly back in negative territory forty minutes later.  From there they chopped sideways into the close.  Nick Laird's Intraday Silver Sentiment Index closed down 1.48%.

The CME Daily Delivery Report showed that 2 gold and 1 silver contract were posted for delivery within the COMEX-approved depositories on Tuesday.  I was underwhelmed!

The CME Preliminary Report for the Friday trading session showed that December gold open interest only declined by 12 contracts, down to 1,963 contracts still open.  In silver, December o.i. actually rose by 43 contracts, putting the remaining December open interest up to 616 contracts.  And as I said in the previous paragraph, I'm underwhelmed by the slowdown in December deliveries.  It was just gold before, now it's both metals.

There was a small deposit in GLD yesterday, as an authorized participant added 28,825 troy ounces.  And as of 7:04 p.m. EST yesterday evening, there were no reported changes in SLV.

I forgot all about the weekly changes in SLV inventory in my column yesterday, so I shall make amends here.

Joshua Gibbons, the " Guru of the SLV Bar List" updates his website with what happened over at Internet site for the reporting week ending Wednesday, December 3---and this is what he had to say.

" Analysis of the 03 December 2014 bar list, and comparison to the previous week's list: 2,059,257.9 troy oz were added (all to Brinks London), no bars were removed or had serial number changes. About 90% of the bars added were new bars, about 10% had been in SLV before."

" The bars added were from Solar Applied Materials (0.9M oz), Kazakhmys (0.8M oz), Korea Zinc (0.1M oz), and 6 others.  The overallocation cannot be calculated this week, due to the removal of bars for expenses."

" There was a withdrawal of 2,730,964.9oz on Tuesday, and a withdrawal of 2,203,395.4oz on Wednesday, that are not yet reflected on the bar list."

There was a sales report from the U.S. Mint yesterday.  They sold 1,500 troy ounces of gold eagles---1,000 one-ounce 24K gold buffaloes---and another 159,000 silver eagles.

Month-to-date the mint has sold 16,500 troy ounces of gold eagles---2,500 one-ounce 24K gold buffaloes---and 821,500 silver eagles.  Based on these sales, the silver/gold ratio works out to 43 to 1---but it's based on only five days worth of sales, which is a pretty small sampling.

It was a monster day in both gold and silver over at the COMEX-approved depositories on Thursday.  In gold, there was 19,901 troy ounces reported received---and 153,400 troy ounces shipped out.  The link to that activity is here.

In silver, there was 1,243,579 troy ounces reported received---an 831,807 troy ounces shipped out the door for parts unknown.  The link to that action is here.

Yesterday's Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, December 2, wasn't quite what I was hoping to see---but the numbers are what they are.

In silver, the Commercial net short position increased by a very chunky 4,543 contracts, or 22.7 million troy ounces which, by the way, is equal to at least ten days of world silver production.  The Commercial net short position is now back up to 132.9 million troy ounces.

During the reporting week, the Raptors sold 3,000 of their long positions for huge loses---and the Big 8 went short 1,500 additional contracts; 600 more for JPMorgan, and 900 more contracts short for the '5 through 8' traders.

Under the hood in the Managed Money category of the Disaggregated COT Report, the technical funds covered another 7,245 of their short contracts for very large profits---and the 'non-blinking' non-technical fund longs in the same category sold 1,510 contracts of their huge long position.

Of course Ted isn't happy to see all this short covering in this category, as it was potential rocket fuel for the next silver rally.  But whether he's happy or not doesn't change the fact that these technical funds have rung the cash register to the tune of $400 million in the last month---and almost all of the 22,000 short contracts/$400 million worth that they've covered during that time has come out of the trading/banking accounts of the Raptors---the Commercial traders other than the Big 8.  Ted says that this trading behaviour is absolutely unprecedented---and I'm not disagreeing with him, as I've not seen it before either.

Ted also said that JPMorgan's short position is around 7,500 contracts, give or take 500 contracts---and he again pointed out that JPMorgan is no longer the big short in the COMEX silver market---and I pointed out that the 'King Short' in silver was Canada's Scotiabank---and they have been for quite some time now.  I'll have more to say about that in the Bank Participation Report posted below.

In gold, the Commercial net short position blew out by 20,923 contracts, or 2.09 million troy ounces---and that puts the new Commercial net short position up to 8.94 million troy ounces.  Ted puts JPMorgan's long position in the COMEX gold market somewhere between 12 and 14,000 contracts.

The 'Big 8' traders covered 11,500 short contracts during the reporting week---6,000 for the 'Big 4', and 5,500 for the '5 through 8'.  Ted says that these are very decent numbers, considering the price action.

Under the hood in the Managed Money category, the technical funds covered 10,379 contracts of their short position at big profits---and the 'unblinking' non-technical funds in the Managed Money category actually increased their long position to the tune of 3,805 contracts.

Almost all the selling to cover this came out of the hides/bank accounts of the Commercial traders other than the 'Big 8'---Ted Butler's raptors.

With this kind of deterioration since the lows of a month ago, it leaves the door wide open for JPMorgan et al to engineer a price decline to rectify this situation---if they can, want to, or even have to.  Since the raptors have had their heads handed to them lately, they may be in no financial position to do it themselves in either metal.

The December Bank Participation Report [BPR] also put in an appearance yesterday.  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 at this time, they're always up to quite a bit.

In gold, '3 or less' U.S. banks are net short 8,616 COMEX gold contracts, compared to the November BPR, where the net short position in gold for these same U.S. banks was 3,511 contracts.  Since Ted pegs JPMorgan's net long position at around 13,000 contracts, that means that the '2 or less' remaining U.S. banks must be net short the difference between them.  In this case it's around the 21,600 contract mark, in order to make the numbers work out.  The two other U.S. banks would be HSBC USA and Citigroup.

Also in gold, '18 or more' non U.S. banks are net short 51,991 Comex gold contracts, compared to the 54,811 COMEX gold contracts they were short in the November BPR.

Ever since the CFTC 'outed' a 'non-U.S.' bank back in October 2012, which I always suspected to be Canada's Scotiabank---along with it's 100 percent owned Scotia Mocatta subsidiary---it's been my opinion that around 40% of the non-U.S. bank short position is held by them.  Based on that, about 21,000 contracts of this non-U.S. bank short position is held by Scotiabank, leaving the other 30,000 contracts to be divided up between the '17 or more' non-U.S. banks that remain.  And no matter how you slice or dice that 30,000 contract number, their positions divided up equally between the remaining U.S. banks 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.

[ NOTE: Because I didn't advise Nick Laird in enough time, these Bank Participation Charts don't include the December report.  The updated charts will be posted later today sometime and, if you're interested, you can check back then. - Ed]

In silver, '3 or less' U.S. banks were net short the COMEX silver market to the tune of 10,240 contracts in the December BPR.  The November BPR showed these same '3 or less' U.S. banks net short only 6,159 contracts, so there's been a pretty chunky increase in the net short position over the reporting month.  Since Ted Butler puts JPMorgan's short position around the 7,500 contract mark, that means that the remaining '2 or less' U.S. banks have to be short an additional 2,700 contracts to make the numbers work.  These '2 or less' banks would be HSBC USA and/or Citigroup as well.

Also in silver, '13 or more' non-U.S. banks are net short 18,046 silver contracts---and since October 2012, I'm of the opinion that at least 90 percent of this short position is held by Canada's Scotiabank.  This means that their short position in the COMEX silver market is a bit north of 16,000 contracts---and the balance of the contracts, split up between the remaining '12 or more' non-U.S. banks, are immaterial.  A quick glance at the chart below will prove that to be the case, as before that date, the foreign banks [blue bars, Chart #4] were basically market neutral in silver.

In platinum, '3 or less' U.S. banks were net short 4,188 COMEX contracts, which is basically unchanged from the 4,202 COMEX contracts they were net short in the November BPR.  Nothing to see here.

Also in platinum, '16 or more' non-U.S. banks were net short 6,260 COMEX contracts, which is a huge deterioration from the November BPR when they were short 3,268 COMEX contracts.  Some of that big difference may come from the fact that there were 12 non-U.S. banks reporting a short position in platinum in the November BPR, vs. '16 or more' non-U.S. banks in the latest [December] BPR.

In palladium, '3 or less' U.S. banks were net short 8,376 COMEX contracts, which wasn't much change from the November BPR when these same banks were net short 8,231 COMEX contracts.  Nothing to see here, either.

Also in palladium, '13 or more' non-U.S. banks were net short 3,010 COMEX palladium contracts, compared to the 3,856 COMEX contracts that '12 or more' non-U.S. banks were short in the November BPR.

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.

I have a lot of stories for your reading 'pleasure' today---and several that have been sitting in my in-box all week waiting for my Saturday column.  I hope you have enough time in what's left of your weekend to read the ones that interest you.

¤ The Wrap

The only plausible explanation for the counterintuitive deposits and withdrawals in SLV that comes to my mind is that a large entity has been buying on both weakness and strength whenever there is heavy trading volume. Because the identity of this entity would be revealed as soon as its share holdings exceeded 5% of total shares outstanding, because of SEC reporting requirements, the big buyer quickly transferred shares into metal which results in a withdrawal. Of course, the withdrawal does not represent an actual disposal of metal, it just appears that way, as the real intent is to camouflage a large entity’s accumulation of physical silver.

There are only a few entities as powerful and well-connected as JPMorgan which could pull off such a massive accumulation of physical silver (including Silver Eagles and metal in the SLV), so why not revert to the duck analogy – if it looks, quacks and walks like a duck, it has to be JPMorgan. Add in that the bank has probably finally allowed the CFTC to adopt position limits and the picture would seem to be complete. - Silver analyst Ted Butler: 03 December 2014

Today's pop 'blast from the past' came from the U.K. 50 years ago---late 1964.  Everyone knows the singer---and the tune.  The link is here.

Today's classical 'blast from the past' is Russian composer Sergei Rachmaninov's " Rhapsody on a Theme of Paganini" Op. 43 for piano and orchestra---which he composed in six weeks in the summer of 1934.  It has now become a staple of the classical repertoire.  Here is British pianist Steven Hough doing the honours with the BBC Symphony Orchestra at the First Night of the Proms back in 2013.  Sakari Oramo conducts.  The video is HD---and the audio track is terrific.  So put it on full screen, crank up the volume---and enjoy!  The link is here.

I'd forgotten completely about the jobs report coming out yesterday---and it wasn't until I checked my e-mails that I realized why the precious metals 'reacted' the way they did at 8:30 a.m. EST yesterday morning.  Based on past job numbers, this price action should have come as no surprise to anyone.

Here are the 6-month charts for all four precious metals, plus WTIC, which closed at a 5-year low yesterday.

Not that I want to be presumptuous here, but looking at the gold and silver charts, it's entirely possible that their respective prices could get turned over next week.  As I mentioned in my COT Report comments, the increase in the Commercial net short positions over the past few weeks is not something I wanted to see.

But, on the other hand, there's nothing [except JPMorgan et al] preventing the price from blasting higher as well.

On Tuesday the CFTC is having its position limit meeting---and as Ted said in his quote above, the fact that this meeting is happening at all means that JPMorgan is finally on side with the idea.

Here, one more time, is what silver analyst Ted Butler had to say about all this in one of the two quotes that appeared in my Thursday column.

" Long-time readers know that the issue of speculative position limits in COMEX silver has been a signature issue of mine for decades. They will remember me suddenly singing the praises of former CFTC Chairman Gary Gensler for resurrecting the matter when he first came into office in May 2009 and before Dodd-Frank was even conceived. Quite frankly, in trying to summarize all that has transpired concerning position limits for silver over the past five years, I am overwhelmed by the number of articles I’ve written on the issue to the point of being incapable of providing any links at this time because there are too many.

As it turned out, however, the issue of position limits in COMEX silver was even more important than I suggested (if that was possible).  [Speculative] position limits were fought by JPMorgan over the past five years because such an enactment would have been a disaster for the bank, which held a massively concentrated short position in COMEX silver during this time.  If JPMorgan was forced to buy back its silver short positions in excess of proposed limits, or even if the bank were prevented from adding new shorts to cap the price, the price of silver would have soared. Now that JPMorgan no longer holds a massive concentrated short position in COMEX silver---as I hope I have conveyed---the enactment of position limits could very well benefit the bank (if I am anywhere near close on how much physical silver the bank has acquired).

And as I mentioned in Thursday's missive, the only things unknown are how long it will take to reach the agreement, what the news position limits will be in each commodity and, most importantly, how far down the road is the start date for any agreed limits.

Hopefully, we should get answers of some sort at that time.

That's all I have for today.  Enjoy what's left of your weekend---and I'll see you here on Tuesday.

Ed Steer

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