Everything was swell in gold and silver when I went to bed early on Friday morning. I was hoping that when I got up four hours later, that both metals would be much higher in New York trading. They were…until 8:40 a.m…and that was that. From there, gold and silver basically closed on their lows of the day. And for whatever reason, gold was not allowed to close above $940 again. That’s the third day in a row. Silver however, closed above $14 by a magnificent seven cents!

From the start of the trading day on Friday morning in the Far East…and until noon in New York…the dollar lost about 70 basis points. And from the start of precious metals trading in the Far East, gold and silver basically rose as the dollar fell. That relationship ended almost as soon as the New York bullion banks showed up for work.

The lousy price ‘action’ in gold and silver…coupled with the lousy action in the general equity markets…was all that was needed to keep the HUI and XAU in the red for the day. But, all things considered, it could have been worse.

Open interest changes for Thursday showed that gold o.i. rose 1,585 contracts to 380,283…on volume of 82,790 contracts. In silver, o.i. fell 1,085 contracts to 103,642…on volume of 39,284 lots.

The Commitment of Traders report [for positions held at the close of Tuesday's trading] showed just about what was expected. In silver, the bullion banks decreased their net short position by 3,609 contracts, but are still net short 210 million ounces of silver. The full-colour silver COT report is linked here. In gold, the bullion banks reduced their net short position by 12,938 contracts…which left them with a net short position of 19.44 million ounces. That’s still a very large number. The gold COT chart is here.

That was the good news. The bad news is as follows. In the three business days since the Tuesday cut-off for this COT report, the bullion banks have increased their short position by about the same number of contracts as they improved the entire previous week…so we’re basically back to where we were on Tuesday, June 16th…when the bullion banks were net short 20.7 million ounces. In silver, Ted Butler figures that since this Tuesday’s cut-off, the bullion banks have put back on about 1,000 short contracts of the 3,609 that they took off in the prior week. So nothing has changed at all…and we’re still well into the danger zone in both metals…particularly in gold. Check those COT graphs linked in the previous paragraph and you’ll see what I mean.

Here’s Ted Butler’s graph of what the ‘2 or 3′ U.S. bullion banks’ short positions are in the Comex gold and silver market…versus all the other commodities. Ted says that if all the spread trades were taken out [which they should be...in order to give a true net reading], these percentage figures would be 50% higher than shown on this graph.

Yesterday’s Comex Delivery Report showed that 129 gold contracts and zero silver contracts were delivered. Monday is the last day for delivery into the June contract. There are less than 100 gold contracts and a handful of silver contracts left. There were no changes in SLV yesterday, and I’m not sure about GLD, as I had trouble accessing their website. There were no changes at the U.S. Mint…and over at the Comex-approved warehouses, a smallish 67,977 ounces of silver were withdrawn.

There was nothing worth noting as far as gold and silver news yesterday. However, the two senior precious metals portfolio managers at Sprott Asset Management in Toronto were interviewed over at theaureport.com…and it’s worth the read. It’s entitled “Keep the Faith—Higher Gold Price Will Come”…and I thank Brad Robertson for sending it along. The link is here.

Before I get into the stories…here’s a very quick read from Karl Denninger over at market-ticker.com. Karl is commenting on a story that showed up at marketwatch.com…which is linked in his commentary. It appears that “Dresdner Kleinwort Securities has withdrawn from the Federal Reserve’s primary U.S. government security dealers.” The Denninger commentary is entitled “SEVERELY Bearish Treasury Development”…and I thank Craig McCarty for sending it along. The link is here.

Today’s first real story is from The Times in London. It was a surprise to read the headline…and an education to read the article. The headline reads “Japan on verge of sub-prime mortgage crisis as summer bonuses plunge”. I stole this story from yesterday’s King Report and the link is here.

The litany of woes within the U.S. real estate market just got a little larger. Here’s a story that comes from the Christian Science Monitor. The headline reads “Are low appraisals slowing US home sales?” As a 27-year veteran of the residential real estate market in Alberta, I got a déjà vu feeling when I read it. The link is here.

The next item is from the Economist.com. The title pretty much indicates what the topic is…”Ageing in the rich world: The end of retirement” and it’s highly recommended reading. I thank P.S. for sending me the story and the link is here.

Lastly, is a second offering from Sprott Asset Management. In their latest “Markets at a Glance” commentary, Eric Sprott and David Franklin conclude that…”the future solvency of the United States as a nation state is currently in jeopardy. It is in far deeper trouble than the mainstream press cares to admit. There are simply not enough new buyers of debt on this planet to support the spending programs of the United States government – and it appears that current holders of debt are beginning to sell.” It’s wonderfully researched…and if you read nothing else I’ve linked…this is the article you should read. It’s entitled “The Solution…is the Problem”…To access it, first go here. Then on the “Manager Insights” drop-down, select Eric Sprott. Click on the May/June link.

If the bureaucracy is not checked, it will tend to build…in the name of peace…a defense against every conceivable contingency; so much ’security’ that ‘the secured’ are without resources…helpless and hopeless. – Leonard E. Read

Today’s ‘blast from the past’ is from 1970. I remember spinning this ‘45 on CHAR radio in Alert, N.W.T. way back then..almost 40 years ago now! Everyone knows it, so turn up your speakers and click here.

There’s two more business days to the end of the second quarter…half of 2009 shot! What the hell happened to it? I’ve discovered, as I age, that life is sort of like a roll of toilet paper…the closer to the end you get, the faster it goes.

So what’s next for gold? Are we going to have a spectacular upside breakout in this reverse head and shoulders pattern that’s been building for the last year or so…or will it be something more unpleasant? I’d much prefer the former…but because of the COT…I fear the latter, at least in the short term.

That’s food for thought while you enjoy what’s left of your weekend…and I’ll see you here bright and early on Tuesday morning.

Source: And Then There’s This…Monday, June 29th, 2009