And Then There’s This…Friday, May 16th, 2008
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All was quiet in the Far East and Europe in gold and silver trading yesterday morning. Then the boys in New York showed up for work…and away went the prices to the upside.
Whether it was frantic buying or frantic short covering is unknown. But once the 20-day moving averages for both metals were significantly challenged, someone decided that that was enough…and both metals started down the moment that London closed for the day. Volume was pretty decent in both metals.
Wednesday’s open interest numbers are as follows. Gold o.i. rose 1,594 contracts and…once again…silver did the opposite, with o.i. down 670 contracts. This won’t be in the COT until May 23rd.
I’ve talked a fair amount about the 20- and 50-day moving averages the last week or so. Sooner or later, they will be broken to the upside by a substantial amount, and the tech funds will come pouring back in…and away we will go again. But before you start cheering, you need to keep the following in mind. The price of both gold and silver have always been a dance between the tech funds in the Non-Commercial category and the bullion banks in the Commercial category…always. At this moment, near the lows in price (and the 200-day moving averages), these same bullion banks are still short (as of the last COT) a knee-wobbling 79% of the entire Comex gold and silver market…not just the Commercial category where they reside. As these previously mentioned tech funds go long…who is going to take the short side of their long transaction? If it isn’t going to be the bullion banks, it certainly isn’t going to be anyone else, as all but 21% of the rest of the traders are LONG gold and silver. What happens then will determine whether prices explode to the upside (because no one wants to take on any more short positions), or the bullion banks go even shorter…and more concentrated. That time is getting very close.
I see a couple of days ago that banking analyst Meredith Whitney blasted Citigroup’s turnaround plan saying the financial giant “is so deep in a black hole that even renowned physicist Stephen Hawking could not help the ailing company.” Not too many shades of grey in that comment.
And in the King Report last night, there was this Freddie Mac answer to an analyst’s question…”No it’s not, Paul. We made a determination in the first quarter that given how widely the pricing we were getting on the ABS (Asset Backed Security) portfolio, that it no longer made sense to leave that in Level 2, so we essentially moved the entire ABS portfolio into Level 3. We were still using the mean pricing that we were getting from the dealers. So we’re not using a model price.” Freddie Mac now has an eye-watering Level 3 (mark to myth) portfolio of $157 billion. Everything is fine.
Two stories today. The first is from chief investment strategist John Embry over at Sprott Asset Management in Toronto. It’s his latest commentary posted in Investor’s Digest of Canada and is entitled “Last Chance to Board Gold Train at under US$1,000″. The pdf file is linked here.
The second article is from Ambrose Evans-Pritchard from the The Telegraph in London. It is more than worth the read because there is clear evidence of serious conflict boiling up inside the EU, and there is quite a discussion about it. The article is entitled “OECD Warning as Stagflation Goes Global” and is linked here.
Between two evils, I always pick the one I never tried before. - Mae West
The President’s Working Group on Financial Markets must be in a frenzy about now. How they keep the markets levitated in the face of total economic disintegration is beyond me. Today’s activity will probably be another circus…Fridays always are…and we at Casey’s Daily Resource Plus will be here to report on it on Saturday. Have a great weekend.
Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.
Source: And Then There’s this…Friday, May 16th, 2008
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