Saturday, June 6: Today in Gold and Silver

NEW YORK ( TheStreet) -- The gold price traded flat until it developed a slight negative bias starting at 2 p.m. Hong Kong time on their Friday afternoon---and by the time the COMEX opened, the price was down about three bucks.  "Da boyz" showed up at 8:30 a.m. as expected, as they ran the precious metals down---and the dollar index up.  The low tick came at precisely 9:30 a.m. EDT.  Gold chopped quietly higher for the remainder of the New York trading session, closing almost back at the COMEX opening price.

The high and low ticks were recorded by the CME Group as $1,178.00 and $1,162.10 in the August contract.

The gold price closed at $1,172.30 spot, down $4.10 from Thursday's close.  Net volume was very decent at 138,000 contracts.

Here's the 5-minute gold chart courtesy of Brad Robertson once again.  The big volume spike at 8:30 a.m. EDT was pretty impressive at close to 20,000 contracts---and after that, the volume fell off in a hurry.  The dark gray line is midnight Thursday---and add two hours for EDT.  Don't forget the ' click to enlarge' feature.

The silver price followed a similar, but surprisingly muted price path compared to gold.  The low in that metal came at, or shortly after, the London p.m. gold fix.  At that point it promptly rallied back above unchanged before getting sold down in the 1:30 p.m. EDT COMEX close.  From there it quietly rallied back into positive territory---and closed on its high tick of the day.

The low and high were recorded as $16.925 and $16.16 in the July contract.

Silver finished the Friday session in New York at $16.125 spot, up a nickel from Thursday's close.  Net volume was almost the same as Thursday's at 46,500 contracts.

Platinum traded very flat until 2 p.m. Zurich time on their Friday afternoon, which was twenty minutes before the COMEX open.  Then down it went as well, with the low coming more or less at the London p.m. gold fix  and, like silver and gold, rallied mostly higher as the Friday session drew to a close.  Platinum finished the session at $1,095 spot, down 3 bucks on the day.

Palladium, as usual, was a mini version of the platinum price pattern---and it closed on Friday at $750 spot, also down 3 dollars on the day as well.

The dollar index closed late on Thursday afternoon in New York at 95.58---and began to slide quietly lower from there, hitting its 95.36 low tick shortly before 9 a.m. BST in London.  It began creeping higher from there---and then blasted higher when the HFT boyz spun their algorithms at 8:30 a.m. EDT.  The 96.91 high tick came moments before the equity markets opened in New York.  The index fell down to around 96.30 an hour later---and after that it didn't do a lot, closing at 96.31---up 73 basis points on the day.

And here's the 6-month chart to put yesterday's dollar index action in a longer-term perspective.

The gold stocks gapped down about 2 percent at the open, hitting their lows when gold bullion hit its low, which was at the London p.m. gold fix.  Like gold, the shares rallied off their lows for the next forty minutes before falling back a bit---and then trading flat for the remainder of the day, despite the fact that gold rallied for the remainder of the Friday session.  The HUI finished down another 1.87 percent.

The silver equities followed a similar path, but the rally off their 9:40 a.m. lows was far more substantial---and blasted the stocks back into positive territory.  Then, like gold, they sold off a bit from there before trading very flat for the remainder of the Friday session.  And, like the gold shares, they did not respond to the subsequent rally in the metal itself, or to the fact that it finished in the black.  Nick Laird's Intraday Silver Sentiment Index closed up 0.17 percent.

The CME Daily Delivery Report showed that only 1 gold and 6 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  Nothing to see here for the second day in a row.

The CME Preliminary Report for the Friday trading session showed that June open interest in gold continues to fall.  Yesterday o.i. dropped by another 166 contracts, leaving 1,097 still open.  June o.i. in silver increased by 1 to 41 contracts.

Another day---and another withdrawal from GLD.  This time an authorized participant took out 38,357 troy ounces.  And as of 9:49 p.m. EDT yesterday evening, there were no reported changes in SLV.

There was another sales report from the U.S. Mint.  They sold 6,500 troy ounces of gold eagles---1,500 one-ounce 24K gold buffaloes---and 50,000 silver eagles.

Month-to-date the mint has sold 12,000 troy ounces of gold eagles---3,000 one-ounce 24K gold buffaloes---and 975,000 silver eagles.  Based on these numbers, the silver/gold sales ratio works out to 65 to 1.

There wasn't a lot of action in gold at the COMEX-approved depositories on Thursday.  But for the second day in a row there was a transfer from Canada's Scotiabank's depository to HSBC USA.  This time it was 10,023 troy ounces.

However, it was a big 'out' day in silver as only 35,915 troy ounces were received---and a chunky 1,204,482 troy ounces were shipped out the door.  The two big 'out' movements were at Canada's Scotiabank and the CNT depository---with one truckload apiece.   The link to the silver action is here.

Over at the COMEX-approved kilobar depositories in Hong Kong on their Thursday, they reported receiving 3,288 kilobars---and shipped out 4,622 kilobars.  The link to that activity, in troy ounces, is here.

The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday showed a pretty decent improvement in the Commercial net short position in silver---and almost no change in gold.

In silver, the Commercial net short position declined by 3,933 contracts, or 19.67 million troy ounces.  This reduced the total Commercial net short position down to 287.8 million troy ounces.  To be anywhere close to 'normal' at a bottom, the Commercial net short position should be a hair over 200 million troy ounces lower than it currently is.  That's how grotesque this situation is---and Keith Neumeyer had ever right to bitch and scream at the CFTC about it.  More companies should be doing the same thing---and for the same reason.  Another company did---and I have that info posted in the The Wrap.

Ted said that the short position of the Big 4 remained unchanged---and with the new numbers from the latest Bank Participation Report in hand, he pegs JPMorgan's short position at 20,000 contracts, up only a thousand from his guesstimate last week.  The '5 through 8' traders added 2,600 short contracts to their 6-year record high short position---and the raptors, the commercial traders other than the Big 8, bought 6,300 new longs.

Under the hood in the Disaggregated COT Report, the Managed Money traders, like the Pavlovian dogs they are, sold 4,324 long contracts---and purchased 1,324 short contracts.

As I said earlier, there wasn't much change in the Commercial net short position in gold, as it only decreased by a tiny 1,570 contracts, leaving the new Commercial net short position at 10.82 million troy ounces, which is almost unchanged on the week.

The Big 4 traders only covered 500 short contracts, but the '5 through 8' actually added 2,400 new short contracts to their positions---and the raptors added 3,400 long contracts.  Not much to see here.

But, of course, the engineered price decline began anew the day after the cut-off for yesterday's report which, as I pointed on in yesterday's column is a trick of theirs when they want to keep things hidden from public view as long as possible.

Without doubt, there's been very large improvements in the short positions in both gold and silver since Wednesday, but there is still more down-side work to do in both metals---and from a contract perspective, it's ugliest in silver.

Here's Nick Laird's most excellent and rightfully famous " Days of World Production to Cover COMEX Short Positions" for all physically-traded commodities on the COMEX.  The short position of the Big 8 in silver is the most grotesque it has ever been.  As Ted said above, the short position of the '5 through 8' traders [The Big 4 minus the Big 8] is at a 6-year high.  And not to be forgotten in all of this is that JPMorgan and Scotiabank are short about 90 days of world silver production between them---about 80 percent of the red bar.

Riddle me this, dear reader.  What would the silver price be if these two banks were forced to cover these short positions?  Whatever the price paid to accomplish that task, it would bankrupt both firms---just like it did Bear Stearns back in 2008.

Along with yesterday's Commitment of Traders Report came the companion Bank Participation Report [ BPR] for June, for positions held in May.  And as I've said in the past---" This is data extracted directly from the above COT Report, which shows the COMEX futures contracts, both long and short, that are held by the U.S. and non-U.S. banks as of Tuesday's cut-off."

In gold, '3 or less' U.S. banks are net short 36,844 COMEX gold contracts. In the May BPR, these same banks were net short 22,885 gold contracts, so the COMEX short position in gold by the U.S. banks has increased by 61 percent in one month.  It would be a relatively safe bet to assume that if there are three U.S. banks involved, they are JPMorgan, HSBC USA and Citigroup.

Also in gold, '18 or more' non-U.S. banks were net short 48,106 COMEX gold contracts, an increase of 42 percent since the May BPR.  A goodly chunk of this amount, something under 50 percent, is most likely owned by Canada's Scotiabank, so the remainder of the 48,106 contracts split up between '17 or more' non-U.S. banks are more or less immaterial---unless they're all trading as a group, but I don't think that that's the case at all.

Here's Nick's chart of the Bank Participation Report for gold going back to 2000.  Charts #4 and #5 are the key ones here.  Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank's COMEX gold positions [both long and short] were outed in October of 2012.

In silver, '3 or less' U.S. banks are net short 18,459 COMEX silver contracts.  That's an increase of about 34 percent since the May BPR.  Since Ted pegs JPMorgan's short position at 20,000 COMEX contracts, that means that the remaining two U.S. banks [or maybe just one] has to be net long the COMEX silver market by around 1,500 contracts to make these numbers work out properly.  It also proves that JPMorgan is the only U.S. bank that's short the COMEX silver market.  If there are two other banks involved, they would be HSBC USA and Citigroup---and if only one, it would be HSBC USA.

Also in silver, '14 or more' non-U.S. banks are net short 29,703 COMEX contracts.  That's an increase of 49 percent from the May BPR.  As in gold, the biggest non-U.S. bank short in silver is Canada's Scotiabank.  I would estimate that between 75 and 80 percent of those 29,703 contracts are owned by Canada's Scotiabank, which makes the short positions of the remaining '13 or more' non-U.S. banks pretty much immaterial.

Here's the BPR chart for silver.  Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold.  Also note August 2008 when JPMorgan took over the silver short position of Bear Stearns---the red bars.  It's very noticeable in Chart #4---and really stands out like the proverbial sore thumb in chart #5.

I estimate that between JPMorgan and Scotiabank, they are currently net short about 43,000 COMEX silver contracts between the two of them.

In platinum, '3 or less' U.S. banks are net short 7,699 COMEX contracts, an increase of only 7 percent from the May Bank Participation Report, which isn't a big change.  I'd guess that JPM is short well over half this amount by itself---and maybe only HSBC USA is short the rest.  Citi would be a small player, if they are at all.

Also in platinum, '17 or more' non-U.S. banks are net short 9,464 COMEX contracts, which is a small decrease [-2.2%] from the May BPR.  If there is a large player in platinum amongst the non-U.S. banks, I wouldn't know which one it is, but 17 divided into 9,464 contracts isn't a lot anyway, unless they're all operating in collusion---which I doubt.  But from the numbers it's easy to see that the platinum price management is an American show as well.

Here's the BPR chart for platinum---and please note that the banks were never a factor in platinum until mid 2009.  Now look at them!  If you want to know why the platinum price isn't going anywhere, despite the supply/demand fundamentals, look at the total long positions the banks have vs. their collective short positions.  Palladium too!  That tells you all you need to know.  The banks are net short about 22 percent of the entire COMEX futures market in platinum.

In palladium, '3 or less' U.S. banks are net short 6,285 COMEX contracts, which is a decrease of 20 percent from the May BPR.

Also in palladium, '11 or more' non-U.S. banks are net short 2,646 COMEX contracts which is a 16 percent improvement from the May BPR.

Here's the BPR chart for palladium updated with the June BPR data.  Like platinum above, just look at the long positions vs. the short positions held by the U.S. banks in Chart #5.  You couldn't make this stuff up!  You should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this metal until the middle of 2007---and they became the predominant and controlling factor by the end of Q1 of 2013, where they remain today.  I would bet, that like platinum, JPMorgan holds the vast majority of the U.S. banks' short position in palladium---and maybe all of it.  And just as matter of interest, the banks, in total, are net short about 30 percent of the entire COMEX futures market in palladium, but it's the '3 or less' U.S. banks that are calling the shots in this metal---and in the other three precious metals as well.

As I say every month at this time, along with the odd Wall Street investment house such as Morgan Stanley and maybe Goldman Sachs, these are "da boyz'---the sellers of last resort---and you can call them what you like.  Until they decide, or are instructed to stand back, the prices of all four precious metals are going nowhere---supply and demand fundamentals be damned!

As Jim Rickards so correctly put it, the price management scheme is now so obvious they should be embarrassed about it.

But they obviously aren't.

Before heading into the stories, here's Nick's chart showing the withdrawals from the Shanghai Gold Exchange for the week ending May 29.  During that week, they reported a withdrawal of 37.082 tonnes.

Here are two more charts courtesy of Nick Laird over at sharelynx.com.  The first shows India's gold imports in March---and the second, their silver imports in March.  These are big numbers.

I have a lot of stories today, along with quite a few I've been saving for length or content reasons---and I hope you can find time in what's left of your weekend to read the ones that interest you the most.  But as is always the case, the final edit is up to you.

¤ The Wrap

Since  [last] Saturday, there have been several articles published highlighting the large number of June gold contracts still open and, while not stating explicitly that there would be a delivery default, described how such a default was possible; particularly since the amount of “registered” gold in the COMEX warehouse inventories was so low (around 370,000 oz) compared to the 550,000 equivalent ounces still open in the June contract.

A failure to deliver physical metal, in COMEX gold or silver or in any other commodity or on any other exchange, to a holder of a long position qualified to take delivery would not only be a delivery default, it would also most likely result in the closing of trading in that commodity and perhaps the closing of the exchange involved. It is the most serious issue possible from a contract and an exchange perspective and should not be referred to as just another thing. And there is no such thing as a minor or major default – any delivery default would be catastrophic for the exchange involved.

While I did note that conditions in the June COMEX gold delivery did look tighter than usual, due to tightening spread premiums and the level of remaining open interest, I generally avoid focusing on the registered vs. eligible categories of COMEX warehouse inventories, preferring to stick to the combined total warehouse inventories. The reason I do so is because the difference between registered and eligible gold and silver in the COMEX warehouses is strictly a matter of paper work. That appeared to be the case in delivery and warehouse developments this [past] week. -- Silver analyst Ted Butler: 03 June 2015

Today's pop 'blast from the past' was an easy choice today.  I've posted this before, but it's been a year or two---and it's one of my favourite pop/rock songs of all time.  It's Richard Harris 'singing' MacArthur Park---and the link is here.  There's a 3:14 minute tribute to this work---and it's linked here.  If you love the song, this youtube.com video is worth your while as well.

Today's classical 'blast from the past' was pretty easy too.  This year is the 150th anniversary of the birth of Jean Sibelius---and not a week goes by without hearing something on CBC FM by this Finnish composer.  Here's his violin concerto in D minor Op. 47---and South Korean violin prodigy Soyoung Yoon does the honours.  Her playing and interpretation is as good as it gets, as is the audio track---but the video quality is not quite what one would expect from a modern recording, but it's OK for the close ups.  The link is here.

I must admit that I was expecting JPMorgan et al to hit gold and silver harder than they did on the jobs numbers yesterday.  What the Friday session turned out looking like was just another slice off all four precious metal salamis.  Just eyeballing the charts below, I'd guess that we've got another $25 or so in gold left to the downside---and maybe 75 cents in silver, if these engineered price declines unfold as they have in the past.  But, as Ted keeps saying---and I mentioned in yesterday's column, it's the number of contracts and not the price that's important.

Here are the 6-month charts for all four precious metals, so you can see how "da boyz" are progressing, as we await the final washouts to the downside.

And before I forget, I'd like to mention that another company has sent off a letter to the CFTC about the goings-on the COMEX futures market in silver---and that came courtesy of CEO Jason Reid over at Gold Resource Corporation.  The amazing thing about his letter is that it's posted on the SEC's website---and the link to that is here.

Let's hope that there are lots more of these letters to come.

As for precious metal prices going forward, I certainly don't want to put a stake in the ground at this juncture.  For the moment JPMorgan et al, which certainly includes the BIS, have an iron grip on prices---and as I always say, until that changes, nothing changes.

Sure, there are lots of economic, financial and political black swans out there, but that matters not at the moment.

Some of the stories about gold coming from the China and Russia lately have all the appearance of rattling the cages of the Western financial system---and it remains to be seen if anything comes of it.  But as I've said on many occasions, if push really becomes shove, nothing would surprise me on this front.

The world is certainly going to hell in the proverbial hand basket---and it's now obvious in all quarters that the current financial and monetary system is floating off the rails.  That's been going on for years now, but the process appears to be accelerating on all fronts---and one has to wonder how long things can last before everything either blows up or melts down.

Will precious metals save us?  One hopes so, as I've pretty much bet the ranch on that outcome.  But, as I and others have said before, we should be careful what we wish for, as the world that emerges from the other side of whatever Armageddon awaits us ain't going to be pretty.

That's all I have for the day---and the week.

Ed Steer
This is an abbreviated version of Gold at $64,000—Bloomberg's ‘China Gold Price’, from 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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