It’s true; gold has become noticeably less unpopular during the last few months. It is still not as popular an investment as, say, AIG or the shares of almost any other incompetent financial institution. But some investors have actually begun to admit that they’ve purchased some gold.

A couple of the most conspicuous gold-buyers – the Chinese government and hedge fund manager, John Paulson – represent quintessential examples of the “new” gold buyer. This new type of buyer does not also buy ammunition, bottled water and Lynyrd Skynyrd tank tops. Nor does this new gold buyer spend Saturday nights sipping Gallo Hearty Burgundy in his La-Z-Boy, while flipping through binders full of Walking Liberty gold coins.

These new gold buyers do not LOVE gold nearly as much as they FEAR paper. But they are buying aggressively nonetheless…and leaving their tracks everywhere.

Earlier this year, for example, Paulson & Co., the hedge-fund firm run by billionaire John Paulson, became the largest holder of the SPDR Gold Trust (NYSE: GLD), an ETF that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, as of March 31. Paulson has also taken very large stakes in several gold mining companies – in particular Gold Fields Ltd. (NYSE:GFI), Kinross Gold Corp. (NYSE:KGC) and AngloGold Ashanti Ltd. (NYSE:AU)

Paulson has lots of company among mom and pop investors who are allocating some of their capital to gold. As the nearby chart illustrates quite clearly, the SPDR Gold Trust ETF has been accumulating ever-rising quantities of gold bullion – all in response to investor demand.

Although this chart is a bit dated, the trend it illustrates remains firmly entrenched. As of September 21, this ETF controlled 1,563 tonnes of gold, making it the world’s fifth individual holder of gold. The Swiss central bank, by comparison, holds only a little more than 1,000 tonnes of gold.

Meanwhile, the Chinese doubled their official gold holdings last year, and have been making a lot of headlines with some very public gripes about the dollar. A couple weeks ago, Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party, complained, “If [the Fed] keeps printing money to buy bonds, it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies…Gold is definitely an alternative.”

No wonder rumors were running rampant last week that the 403 tonnes of gold the IMF is selling will land in a Chinese vault.

Interestingly, while investment demand for gold inexorably rises, mined production of gold inexorably declines. Apparently, the folks who coax this precious metal from the earth can’t coax as much of it as they might like.

According to Grant’s Interest Rate Observer (citing statistics from the World Gold Council), worldwide gold production has dipped over the last seven years. Gold production since 2002 has declined from 2,590 metric tons to 2,486 metric tons through June 30.

These divergent trends – demand up and supply down – do not guarantee a rising gold price, but they do suggest that a rising gold price may become the path of least resistance.

Obviously, substantial above-ground supplies of gold – in bank vaults, around fingers, in belly buttons, etc. – will find its way into the gold market if/as/when prices rise. Nevertheless, a powerful inflationary trend would produce enough investment demand for gold to easily absorb all sources of supply…and ALSO push the gold price higher.

“There is a growing distrust of paper currencies amid a deluge of massive government deficits since late 2008,” Roseman concludes. “The dollar might be the biggest drunk at the bar, but the euro and other currencies are also drinking their way to devaluation against gold.”

Source: The New Gold Buyer

It’s true; gold has become noticeably less unpopular during the last few months. It is still not as popular an investment as, say, AIG or the shares of almost any other incompetent financial institution. But some investors have actually begun to admit that they’ve purchased some gold.

A couple of the most conspicuous gold-buyers – the Chinese government and hedge fund manager, John Paulson – represent quintessential examples of the “new” gold buyer. This new type of buyer does not also buy ammunition, bottled water and Lynyrd Skynyrd tank tops. Nor does this new gold buyer spend Saturday nights sipping Gallo Hearty Burgundy in his La-Z-Boy, while flipping through binders full of Walking Liberty gold coins.

These new gold buyers do not LOVE gold nearly as much as they FEAR paper. But they are buying aggressively nonetheless…and leaving their tracks everywhere.

Earlier this year, for example, Paulson & Co., the hedge-fund firm run by billionaire John Paulson, became the largest holder of the SPDR Gold Trust (NYSE: GLD), an ETF that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, as of March 31. Paulson has also taken very large stakes in several gold mining companies – in particular Gold Fields Ltd. (NYSE:GFI), Kinross Gold Corp. (NYSE:KGC) and AngloGold Ashanti Ltd. (NYSE:AU)

Paulson has lots of company among mom and pop investors who are allocating some of their capital to gold. As the nearby chart illustrates quite clearly, the SPDR Gold Trust ETF has been accumulating ever-rising quantities of gold bullion – all in response to investor demand.

Although this chart is a bit dated, the trend it illustrates remains firmly entrenched. As of September 21, this ETF controlled 1,563 tonnes of gold, making it the world’s fifth individual holder of gold. The Swiss central bank, by comparison, holds only a little more than 1,000 tonnes of gold.

Meanwhile, the Chinese doubled their official gold holdings last year, and have been making a lot of headlines with some very public gripes about the dollar. A couple weeks ago, Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party, complained, “If [the Fed] keeps printing money to buy bonds, it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies…Gold is definitely an alternative.”

No wonder rumors were running rampant last week that the 403 tonnes of gold the IMF is selling will land in a Chinese vault.

Interestingly, while investment demand for gold inexorably rises, mined production of gold inexorably declines. Apparently, the folks who coax this precious metal from the earth can’t coax as much of it as they might like.

According to Grant’s Interest Rate Observer (citing statistics from the World Gold Council), worldwide gold production has dipped over the last seven years. Gold production since 2002 has declined from 2,590 metric tons to 2,486 metric tons through June 30.

These divergent trends – demand up and supply down – do not guarantee a rising gold price, but they do suggest that a rising gold price may become the path of least resistance.

Obviously, substantial above-ground supplies of gold – in bank vaults, around fingers, in belly buttons, etc. – will find its way into the gold market if/as/when prices rise. Nevertheless, a powerful inflationary trend would produce enough investment demand for gold to easily absorb all sources of supply…and ALSO push the gold price higher.

“There is a growing distrust of paper currencies amid a deluge of massive government deficits since late 2008,” Roseman concludes. “The dollar might be the biggest drunk at the bar, but the euro and other currencies are also drinking their way to devaluation against gold.”

Source: The New Gold Buyer

There is a buzz in the commodities markets this week. Just about anything that can be pulled from the ground is surging in value. Everything, that is, but natural gas.

Most notably, gold is just about ready to reach over the critical $1,000 level, proving that investors are looking for safety. Even without a hint of inflation, the precious metal has surged by over 5% so far this week.

The quick run means the world’s gold miners are surging in value. The more leverage packed into their balance sheets, the higher their prices are going to go.

So far, Yumana Gold (NYSE:AUY) is up by nearly 20% this week, while AngloGold Ashanti (NYSE:AU) is up by over 15%.

It is a similar situation for the silver industry. As investors search for tangible value, the silver industry is taking its investors on a wild ride.

One of the more popular ways of playing the trend, the iShares Silver Trust ETF (NYSE:SLV) was up by as much as 5%, taking the week’s gains into double-digit territory.

TFN Strategic Trader subscribers love the action. Our call options are worth 66% more this afternoon than they were this morning.

The juicy story

Now, I realize you come to TFN sight looking for more than the usual take on the day’s news. Fortunately, our friends over in Russia are creating more than enough action to feed our appetite for story material.

As if the government-centric action unfolding around the Chinese commodity market was not enough to prove my prediction and profit potential of the “Commodities Carry Trade,” the Russian government is stepping into the ring to create some action on its own.

Unable to secure a firm economic future through normal economic means, Putin is “calling” for the country’s banks to start buying Mechel’s (NYSE:MTL) debt. There are also rumors of strong tax breaks heading towards the large Russian miner.

Not only is this yet another wrinkle in my Commodity Carry Trade theory, it helps prove that the effort truly is becoming a global phenomenon.

With their economies weak and the world’s banking industry even weaker, governments are quickly turning to the commodities market for their financial security.

Why invest in paper backed by a desperate government when you can invest in a commodity the world will need no matter what happens in the coming years?

No questioning the profit potential

While there are lots of facets affecting this trade, one thing that is certain is it will be extremely bullish for the commodities market.

We are seeing a mere glimpse of things to come.

Once demand surpassed production… stand back. Prices will soar.

I have a fantastic way to take advantage of this situation, but I absolutely cannot give it away to a wide audience.

Its value was up by nearly 50% today with a trading volume of just 287 trades. Imagine what would happen if thousands of eager investors suddenly jumped in.

If you want me to email you with the trade to make, just click here.

Finally, just to prove there is an exception to every rule, natural gas prices are hitting yet another new low today, dropping the to a paltry $2.50 per million BTUs.

Could it be that foreign investors want nothing to do with an American-based economy? Or is the bearish action a result of the growing inventory glut across the globe?

Now that some of the world’s most powerful governments are getting in on the action, the commodity trade is not going anywhere anytime soon.

This is exciting stuff that is going to drastically change the commodities industry. The situation has profit opportunity written all over it.

I say we take advantage of it.

Source: Russia’s Maneuvering Boosts the Commodities Market

Gold prices may not be moving by leaps and bounds today, but savvy gold investors are seeing their stakes make a nice move.

I have always told investors if they can handle the extra risk, investing in the leading gold miners is a surefire strategy to leverage the gains made in the gold market. Today’s action from AngloGold Ashanti (NYSE:AU) proves the theory is valid.

Shares of the South African gold miner are up by about 5% after the company announced its second quarter was a record breaker. Thanks to increased production efficiency and a boost in gold prices, AngloGold increased its Q2 earnings by 11% to $167 million, or $0.47 per share.

In all, the company pulled 1.102Moz of gold from the ground during the last three months with an average cost of $472 per ounce. During last year’s corresponding quarter, the company managed to extract 1.103Moz.

While these figures prove AngloGold is doing things right and is well managed, an earnings report does little to show an investor the risk involved in taking a stake in the operation.

Gold mining, especially international gold mining, is risky business. I could list dozens of risk factors for the company, but will muzzle myself to just the top priorities.

First, and most obvious, is AngloGold’s exposure to fluctuating gold prices. While the spot market has been relatively quiet over the last two months, we all know that can change with any macroeconomic fluctuation.

While all gold miners hedge their exposure to the variability of the spot market to some degree, investors need to be aware of just how much the company’s profitability is affected by fluctuations.

Buying safety

With a 100% hedge, changes in spot prices have no impact. Any figure less than that, however, and earnings stand to move up or down, often drastically, with the market’s whims.

AngloGold is working on reducing its hedges to increase its exposure to what it obviously feels is a bullish tendency for the spot price. As of today’s report, the company’s gold hedge commitment is now 4.47Moz, down from 5.84Moz at the end of the first quarter.

According to the company’s CEO, Mark Cutifani, “The market fundamentals are extremely robust for gold, which supported our decision move aggressively sooner rather than later, to ensure we maximize our exposure to spot prices.”

Investors with the same belief that gold prices are on the rise, would back up their opinion by investing in the company.

Another risk for the company is its exposure to international currency markets. With mining operations all over the world, major moves in the world’s currencies could spell volatility for AngloGold’s earnings. With gold prices denominated in American dollars, a weak greenback would spell stronger gold prices, but could have detrimental impacts on some of the company’s international operations.

With several countries ready to “dump” the dollar in exchange for a basket of world currencies, there is some higher-than-average currency risk with AngloGold that I do not feel is reflected in share price. Fortunately, because its product is considered the ultimate currency hedge, the exposure is limited.

Finally, investors need to be aware of an entirely unpredictable risk factor, mine safety. In just the last three months, AngloGold lost eight workers to mining accidents. These deaths significantly reduce production and increase costs.

While we hope there are never any accidents, investors must be aware that any serious incident could be detrimental to share price.

As I said, there are plenty of other risk factors, but it is important to remember the markets reward us for risk.

If you are bullish on gold and want a shot at leveraging a surge in the commodity’s price, a gold miner is a great way to do it. Even with all the risks noted above, AngloGold is one of the best and most popular ways to enter the game.

Source: AngloGold Ashanti: Getting Paid for Risk

On Monday evening a more serious seller showed up in the New York access market, and by the close of Tuesday afternoon trading in Hong Kong, gold had about $17 shaved off its price. That was its low of the day, and a rally ensued in London that lasted until Comex trading began in New York at 8:15 a.m. yesterday morning, when another not-for-profit seller showed up. The New York low in gold was at precisely 9:30 a.m. Eastern Daylight Time. From there, another rally lasted until shortly after Comex trading ended.

Silver’s activity on Tuesday was nearly identical to gold’s…except for two things. The low for the day came at the London silver fix…which is noon in London…7:00 a.m. in New York. And the other difference was that silver’s high of the day came at 12:00 noon during Comex trading hours in New York.

Volume was very heavy yesterday, as it was Comex options expiry for the June contract in both gold and silver…so there were lots of every kind of activity that you can imagine. The usual N.Y. commentator mentioned that…”by 9 a.m., estimated volume was a staggering 101,893 lots”…and “total estimated [daily] volume was 226,298 contracts, the highest since March 25th.” Over the Counter [OTC] options expiry occurs today or tomorrow. First day notice for June delivery is this Friday.

Open interest changes for last Friday are as follows. Gold o.i. tacked on another hefty 5,840 contracts. Volume was a chunky 159,978 lots…but a lot of that was options expiry related, so by the time the spreads and switches were netted out, the number would be a lot less impressive. Total open interest in gold is now up to 396,763 contracts, which is the highest this year…and the highest, as the usual N.Y. commentator points out…”since September 15th last year. The stakes are getting high.” [Yes...they are indeed! - Ed] Silver o.i. rose a smallish 673 contracts, with 23,769 contract traded and o.i. now up to 96,769.

All of Friday’s trading activity [plus Tuesday's] will, hopefully, be in this Friday’s COT.

In other gold and silver news, I see that the Comex Delivery Report for Monday showed 6 gold contracts and 71 silver contracts delivered. There’s almost nothing left to deliver in May silver, so I’m not expecting any delivery problems to show up during the rest of the week. Over at the Zürcher Kantonalbank in Switzerland, last week’s additions to their gold and silver ETFs were razor-thin…or non-existent. Their gold ETF rose a very small 19,883 ounces…and silver showed no change at all…not an ounce! I thank Carl Loeb for that info. There were no changes reported by the U.S. Mint, or by GLD or SLV yesterday…although I’m sure that they’re both owed metal…especially the SLV. According to the usual N.Y. commentator…”The European Central Bank weekly statement of condition indicated a fall in ‘gold and gold receivables’ of €14 million, which ‘reflected the sale of gold by one Eurosystem central bank”. This is 0.63 tonnes at the present book value — exactly the same as last week. Clearly the ECB group does not care to be seen in the market at present….The Austrian Central bank, in its Annual Report, said it sold no gold in 2008.”

One last tidbit on gold before I head into all the stories I’ve got. The following is the third time that I’ve seen this comment pop up on the Internet in the last couple of weeks. I’ve seen no official [or even unofficial] documentation to substantiate it…that’s why I never commented on it before. But this time it appeared in The Privateer out of Australia on Saturday, where Bill Buckler commented…”Germany recently demanded that all their Gold held in ‘custodial accounts’ in the US be returned to them.” GATA consultant, James Turk, in a piece he did back almost a decade ago, came to the conclusion that the 1,900 tonnes of [supposed] U.S. Treasury gold held at West Point…which was actually classified as ‘custodial gold’ by the Treasury Department [shortly before it became 'deep storage gold']…is actually owned by the Germans, in a swap arrangement [with the U.S.A.] done a decade ago with ‘Bubba’…Germany’s Bundesbank. Is there any truth to this…fire to go with the smoke? I don’t know…but nothing [and I mean nothing] would surprise me in the super-secret gold world. Here’s Turk’s April 23, 2001 essay entitled “Behind Closed Doors”. It’s an education and a must read. The link is here.

Because of the U.S. long weekend, I have so many stories in my in-box that I’m not even going to attempt to get them all in today’s rant. My editor gives me pretty much ‘free rein’…but even I know there are limits. I’m just going to run the stories that are precious metals-related. The rest will have to wait.

The first story is one that passed through my in-box about a week ago. Its importance [at the time] went right over my head…and I deleted it…as I thought it a bit of a gimmick. However, after sober second thought, and seeing it mentioned on the Net a few times since, I’ve reconsidered. The piece, a Reuters story that showed up at yahoo.com, is entitled “German firm plans gold ATMs to meet growing demand”. I thank reader Tom Mortensen for bailing me out on this one. The link is here.

The next piece appeared as Saturday reading in The Telegraph out of London. It is, of course, from Ambrose Evans-Pritchard. It’s certainly worth the read. The article is entitled “Gold bugs at last have their perfect trinity”…and the link is here.

Next is a very special presentation. It is a rare privilege for me to put up a paper done by GATA consultant, Reg Howe. It’s commentary on the latest gold derivatives situation as reported by the Bank for International Settlements [BIS] last week. I will tell you right up front that some of it is pretty heavy reading. Don’t feel inadequate if some of this is slightly beyond you…as I’m somewhat in the same boat myself. However, it’s not overly long…and if you read it carefully a few times…you should get the ‘big picture’ feel of it, plus some of the details that are very understandable. The piece, entitled “Gold Derivatives: The Tide Turns” is contained in a GATA release, with a ‘must read’ preamble by GATA’s secretary treasurer, Chris Powell. The link is here.

In a report filed one minute after midnight on Monday morning, is this most excellent commentary by Peter Brimelow over at marketwatch.com. In it, Brimelow outlines all the bullish cases presented by a long list of precious metals commentators. He qualifies his headline “Gold on verge of historic breakout?” with a question mark…a most excellent precaution in my humble opinion. The link is here.

The next story is [Sprott Asset Management's chief investment strategist] John Embry’s latest contribution to Investor’s Digest of Canada. It’s my opinion that whatever John has to say is worth hearing…and this piece is no different. It’s entitled “China, western central banks out of sync on gold”. The link to the pdf file is here.

Next is a piece out of the business section of The Times in Johannesburg. It’s entitled “AngloGold stumbles over hedges”. I’m more than familiar with what happened to AngloGold and Ashanti Gold way back then. Not mentioned here are the obscene profits made by the bullion banks on the resulting gold carry trade…and the effect of all the forward sales on the gold price. Barrick was the biggest culprit by far, but AngloGold (NYSE:AU) was a close second. GATA was forceful in its presentation to Bobby Godsell [and all other major gold producers] that hedging would hurt their company and their industry. We were ignored…and you can read the results in this article. The link is here.

And lastly, finally, is silver analyst Ted Butler’s latest commentary. In it, Butler reviews the latest COT report and finds the usual suspects, the biggest four traders, overwhelmingly short again and never [net] long, with the total market short position overwhelmingly concentrated and the long position fully dispersed — proof again of market manipulation. Further, Butler reports that while his clamor provoked the most recent investigation of the silver market by the U.S. Commodity Futures Trading Commission, the commission has yet to interview him even as the supposed investigation is now 9 months old. Butler asks his readers for one more round of agitation with the CFTC. His commentary is headlined “Another Smoking Gun” and the link is here.

My belief is that we’re now nearing the beginning of the third speculative phase of the great gold bull market…If June gold can close above $1,003, I believe that will signal the beginning of gold’s third speculative phase. The cartel tried to knock it down under $940. June gold was down $10 at the opening, but closed down only $5.60…which I thought was impressive. Only three more trading sessions this week, and they should be exciting. – Richard Russell, 26 May 2009

From your lips, to God’s ears, Richard!!! We all [including Ted Butler and myself] desperately want to believe that “the cartel” [as even Richard Russell now calls them] are going to get blown out of the water with a monster short position on in both gold and silver. We are at the crossroads…the moment of truth right about now. Either they are…or they aren’t. Past history says that they’re going to smash prices again. One of these days, history will not repeat itself. Is it now? I don’t know…but we’ll find out soon enough.

See you on Thursday.

Source: And Then There’s This…Wednesday, May 27th, 2009

“FEAR, Mr. Bond, takes gold out of circulation and hoards it against the evil day,” as 007 learns from a Bank of England officer in Ian Fleming’s Goldfinger (1959).

So “in a period of history when every tomorrow may be the evil day, it is fair to say that a fat proportion of the gold dug out of one corner of the earth is at once buried again in another corner.”

Evil-day gold buying really motored since the credit collapse began in August 2007. Soaking up investment dollars worldwide, in fact, new allocations to the metal – whether trust fund or owned outright – swelled by 38% during the first quarter of 2009 compared with total demand between Jan. and March 2008, according to marketing-group the World Gold Council (WGC).

Within that figure, what the GFMS consultancy (who supply the WGC with its data) calls “identifiable investment” leapt 248% compared to Q1 ‘08. And gold ETFs made the headlines once more, sucking in “another quarterly record” as new inflows required 465 tonnes of metal to back them, thus dwarfing the previous record of 149 tonnes set in the third quarter of last year.

That doesn’t mean the world’s investors are now all in, however. According to the World Gold Council’s Marcus Grubb last month (using we-don’t-know-which data), current gold investment allocation stands at less than 0.6% of total global wealth.

It makes a nice pie chart, and it offers a useful snapshot of different asset classes vs. each other. But we also think the idea’s worth refining. Because this estimate both over-states liquid assets in toto and under-estimates the stock of gold available to investment flows – whether retail or wholesale.

First, note the scope for double-counting between pension, mutual and insurance funds. I’m not saying the WGC’s data trips up on that error, but you can see how likely it seems given the end-allocation categories applied. For instance, “hedge funds” are stripped out separately (as are REITs and private-equity), even though institutional allocations via funds-of-funds will be counted elsewhere under the broader “funds” title.

Similarly, but more pertinent, the outstanding quantity of “gold – investment stocks” underplays the true volume of metal held as a store of wealth. Simply counting the “investment” volume excludes fully 84% of the above-ground supply, as another chart from the WGC’s presentation shows.

Why not also include “official sector” gold hoards? Sovereign wealth funds and FX reserves were included on the other side of the ledger, after all.

More crucially still, why not include jewelry? Trying to split out the volume of trinkets held for aesthetics alone might feel easy enough to a Western analyst just back from window-shopping at Mappin & Webb. But across south-east Asia, and most particularly in India – typically the world’s No.1 destination for physical gold each year – large, chunky necklaces and bracelets make for “investment jewelry”, acting as a store of wealth in the absence of any formal banking network.

Still, the point is well made, we believe. Gold remains but a slither of investable wealth – albeit a fast-growing slither as the value of other assets has dropped.

“Gold [has] been deprecated and reduced as a financial asset,” as Jeffrey Christian of the CPM consultancy put it earlier this year. “In 1968 gold may have represented 4.5% to 5.0% of the world’s wealth…By the 1990s it was down to 0.2% of the world’s wealth. Not that gold was falling in value so much as the other wealth – stocks, bonds, paper assets, government bonds, corporate bonds, bank deposits – were exploding once the tie to gold was severed.

“In 2006 gold represented 0.2% of world wealth. At the end of 2007, it was about 0.4%. Depending on what you think about wealth destruction in 2008, it may have been 0.6%.”

That figure just about matches the WGC’s estimate of 0.7% (perhaps they used the same inputs and excluded the same volumes of central-bank and jewelry gold?). It also contrasts with our own Estimate of Gold as a Proportion of Investable Wealth at nearer 2.7% by the close of 2008.

Either way, gold is fast-attracting attention – both from nay-sayers, retail investors and new die-hard bulls amongst the professional institutions. Regulatory filings show legendary hedge-fund manager John Paulson took his position in the SPDR Gold ETF (NYSE:GLD) to 30% of his portfolio during the first quarter of 2009. Paulson & Co. now owns 8.7% of that paper – as well as significant chunks of the Gold Miners ETF (NYSE:GDX), Kinross Gold (NYSE:KGC), Gold Fields (NYSE:GFI) and AngloGold Ashanti (NYSE:AU) – if not any actual bullion itself.

Does that in itself make gold a buy? Of course not. But compared to the evil days of 1930s depression – or the fearful inflationary panic of the late 1970s – the world’s wealth remains very under-invested in metal right now.

Regards,
Adrian Ash

Source: The World Gold Council Wrong About Gold

I find it highly suspicious that the Dow hit its high of the day and the US$ hit its low of the day at precisely the same moment that the vertical gold and silver price rallies were cut off at the knees around 10:30 New York time. You can read into that whatever you want.

click to enlarge

Open interest changes for Thursday’s trading are as follows. In gold, open interest rose 1,307 contracts to 361,418. Volume [including switches] was a respectable 100,278 contracts. Silver o.i. rose another 721 contracts to 95,439. Volume was on the lighter side…15,326 contracts.

Well, the contents of Friday’s Commitment of Traders report [for positions held at the end of trading on May 12th] was no surprise, as it confirmed the price action of the last week or so. As I mentioned yesterday…it’s the ’same old, same old’ routine. Neither Ted Butler nor myself were happy about the numbers. In silver it showed that the technical funds in the Non-Commerical category had increased their net long position by 3,696 contracts…and ditto for the small traders in the Nonreportable category [those traders holding less than 150 silver contracts], as they increased their net long position by 1,432 contracts. Going short against them, as usual, were the bullion banks in the Commercial category. They increased their net short position by the same amount…the total of these two numbers…which is 5,128 contracts. Don’t forget, there has to be a short for every long. The link to the full-colour graphics-intensive silver COT chart is here.

It was basically the same in gold. The technical funds in the Non-Commercial category increased their net long position by 8,886 contracts…while the small traders in the Nonreportable category increased their net long position by 1,849 contracts. The bullion banks in the Commercial category took the short side of all those trades to the tune of 10,735 contracts. The gold COT graph is linked here.

Even though the net short position in silver by the Cartel is deteriorating, it’s still pretty low when you look at past history. But what concerns me the most, as I’ve been harping on for the last couple of months, is the large [and growing] short position in gold by the same crooks. Right now in gold, the Gold Cartel is net short 17.1 million ounces in the Commercial category of the COT. During the last twelve months or so, the Gold Cartel’s net short position has varied between 6.9 million ounces when the gold price was at its lows late last year…and 25+ million ounces when the gold price was at its highs early in 2008. So there’s lots of room for the gold price to run to the upside…and even more room for silver. But will JPMorgan (NYSE:JPM) et al, allow it?

I see in a mineweb.com story that Anglogold Ashanti (NYSE:AU) cut their hedge book by another 154,000 ounces during the last quarter and pledges to cut another 150,000 ounces out of its hedge book in the current quarter. As of the end of March, the company had a hedge book of 5.84 million ounces. Between them and Barrick (NYSE:ABX), these two companies hold at least two thirds of world’s remaining forward sales. JPMorgan is the counterparty to a large portion of their respective hedge books. The entire story is linked here.

The Comex Delivery Report for Friday showed that 101 gold contracts were delivered. In silver a very large 782 contracts were delivered…finally! The big deliveries were by Goldman Sachs (NYSE:GS) [220 contracts] and JPMorgan [562 contracts]. The big stopper was Bank of Nova Scotia (NYSE:BNS) with 556 contracts accepted.

I also noted yesterday that the U.S. Mint updated their gold and silver eagles numbers. Friday is a strange day for them to do it. Anyway, the changes weren’t large. One ounce Gold eagle mintings rose a smallish 6,000…and silver eagles rose 55,000 to 1,089,500. My coin dealer [and the usual N.Y. gold commentator] both mentioned yesterday that lots of silver was available now and that premiums on just about everything were falling rapidly. There were no changes in either GLD or SLV yesterday…and Comex-approved silver warehouse stocks rose again…this time a smallish 265,915 ounces.

While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today’s chart helps provide some perspective as to the magnitude of the current economic decline. It illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months [with over 90% of S&P 500 companies having reported for Q1/09], making this by far the largest decline on record [the data goes back to 1936]. In fact, real earnings have dropped to a record low and if current estimates hold, Q3/09 will see the first 12-month period during which S&P 500 earnings are negative. I thank P.S. for sending this along. The graph below tells all…

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I only have three stories today. The first is a GATA dispatch from last weekend entitled “Is U.S. buying back gold pledged to IMF for $100 billion?” It’s a very interesting spin on the ongoing saga of IMF gold and who really physically owns it…or those who may have paper claims on it. The link is here.

The next item is from the Finance and Economics section of The Economist dated May 7, 2009. “But do not mistake the bottom for a vigorous rebound. Consumption may be growing again, but there is every chance it will remain depressed in coming years because of weak income growth, depleted wealth and tightened credit.” That’s the understatement of the year, in my opinion. I thank P.S. for sending the story along. It’s entitled “Off their trolleys” and the link is here.

Lastly is commentary from Eric Sprott over at Sprott Asset Managment in Toronto. He and David Franklin address the question of the derivatives market in an article entitled “The Elephant in the Room”. It’s definitely worth the read, and the link to the pdf file is here.

My momma always told me, the bucket brings up what’s in the well. – J.C. Watts

Today’s blast from the past needs no introduction whatsoever. It’s by the late, great Roy Orbison…and that should tell you all need to know. Turn up your speakers and then click here.

So what will happen to gold and silver next week? Beats me. However, the wonderful set-up that existed a couple of weeks ago in both metals has diminished somewhat…as it is obvious that the bullion banks are [again] going short against all longs in this rally. How long will this current rally last? Don’t know that either. But what I do know is that until the bullion banks stop doing what they’re doing, nothing will change…and they will remain firmly in control of the precious metals market…until they either give up, or are blown up.

Source: And Then There’s This…Monday, May 18th, 2009

David Einhorn, the hedge fund manager who predicted the downfall of Lehman Bros., recently bought gold for the first time. And then there is John Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and credit crisis.

Paulson just plunked down $1.3 billion for an 11% stake in AngloGold (NYSE:AU). He’s also got a big position in Kinross Gold (NYSE:KGC).

Peter Munk, the 82-year-old chairman and founder of Barrick Gold, also offers up his own anecdote about gold’s broadening appeal. “I have had more phone calls in the past six months than ever before – from people who have $120,000 inherited from grandmother, and from hedge fund managers with millions,” he says. “I am not saying George Soros, but people of that caliber have told me they are buying gold.”

You no longer have to be a gold bug to think gold will rise in price. In fact, this buying by some of the world’s greatest investors may be the leading indicator for a quick 116% climb – to $2,000 per ounce or higher. Give gold the cold stare of a professional handicapper and the odds look very good, indeed.

Why? The biggest reason is that the value of the dollar looks about as brittle as a 90-year-old’s hip socket. And if you worry about the value of the dollar – or any paper currency – then gold is a good alternative.

In fact, gold has held up well while most everything else has taken a beating over the last year. On a recent conference call with investors, First Eagle fund manager Abhay Deshpande points out that gold is at a new high in just about every currency apart from the U.S. dollar and Japanese yen. “It has performed its job for everyone in these countries,” he says. “It has held its value.”

Take a look at the nearby chart and you can see the falloff of the dollar in recent years and the rise of gold.

“But there have always been worries about the value of the dollar,” you say. “That’s not new.” True. What is new is a global financial crisis unlike anything we’ve seen in the post-World War II era. And that crisis has brought with it serious doubts – the most serious in decades – about the dollar’s ability to keep its top perch in the aviary of world currencies. As that doubt increases, gold gathers new fans.

As I write, the headlines are abuzz with China’s proposal to replace the dollar as the world’s reserve currency. (The U.S. Treasury secretary, in a weak moment, said: “We are quite open to that.” He took back those words, but the hammer had already hit the nail.) China and other countries hold a lot of dollars. And they are not too happy to see the U.S. government handing out bills like after dinner mints. America’s $2 trillion (and ballooning) annual deficit and ballooning national debt causes them to wonder about the value of all the paper they hold.

They are not the only ones worried, as I noted up top. Many top investors are already buying gold.

It is easy to buy gold today with gold exchange-traded funds (ETFs). They are like mutual funds that hold gold. As investors pile into these ETFs, the ETFs’ gold holdings also go up. It’s one way to see the dramatic increase in demand for gold in just the last few quarters. (See chart below.)

So we have to ask: At $900 per ounce, are all the fears baked in or are we on some new history-making path?

I have a good friend who advises institutional clients on investing. As he reminds me, the really big money hasn’t started buying yet. There are no big pension funds or endowments with significant gold holdings. That could change. If so, the gold price will go wild.

“Gold is a small market,” Munk notes. Munk’s career spans 60 years and he knows the gold market as well as anyone. Says he:

“Let’s say a small percentage of the world’s central banks – or simply the United Arab Emirates itself – do not believe President Obama’s pledge that he will halve the U.S. deficit by the end of his first term. They shift some of their dollar reserves to gold. It would not take many decisions of this kind to push the price above $2,000 per ounce.”

That’s how gold gets to $2,000 per ounce – just a bit of doubt turning into action. The mind boggles at what would happen if China decided to hold more gold! Gold could well hit $5,000! As long as President Obama, Fed Chief Bernanke and pals treat the dollar like confetti, gold should continue to gather new fans. And gold stocks should do even better.

Gold stocks are supposed to do especially well as gold rises. But that has not been the case over the last year and a half. Mostly, this was because mining costs were rising as fast as, or faster than, the price of gold – thanks in part to record-high energy prices. But as Deshpande points out: “These things have reversed in recent months as gold stocks became quite cheap relative to the underlying value of the gold in the ground.”

The case for gold and gold shares is a nice and clean setup, like one of those toy houses in the window at Macy’s on Madison Avenue. The world order will not always hinge around the dollar. Global finance will not always find its center on Wall Street. As Munk pointed out: “Look around Davos this year. So Goldman Sachs (NYSE:GS) cancels its dinner party. In its place, a Kazakh company has a dinner party.”

As the dollar goes bust, who knows what will replace it? With gold, you don’t have to worry too much about the answer.

Source: How Gold Will Top $2,000 Per Ounce

In 2008, his fund returned 37%  – in a year where the typical hedge fund lost 19%.

Since last September, Paulson earned nearly $420 million shorting the stocks of some U.K.-based bank stocks – specifically Lloyds Banking Group PLC (ADR: LYG), and the former HBOS PLC (which Lloyds absorbed in January).

Paulson clearly does his homework, and now he’s turned his attention to gold.

In a recent move that garnered much industry attention, Paulson acquired an 11.3% stake in AngloGold Ashanti Ltd. (ADR: AU). At $32 per share, that acquisition set him back a cool $1.28 billion. British mining giant Anglo American PLC (ADR: AAUK) was the beneficiary of Paulson’s acquisitiveness, for it sold Paulson the AngloGold shares from its own stake in that company.

So let’s think about this for a moment. A single transaction shifted a significant portion of ownership, and more than $1 billion in cash, strictly between two parties:  No banks and no stock markets took part in the deal.

Besides his 11.3% stake in AngloGold (the world’s fifth-largest gold miner by market cap), Paulson also owns 4.1% of Kinross Gold Corp. (KGC), making him that gold company’s fourth-largest shareholder.

It seems this prescient investor is in good company, too.  David Einhorn, founder of Greenlight Capital Inc., with $5 billion in assets, also began buying gold earlier this year – for the very first time.

Noted value investor Jean-Marie Eveillard holds $1 billion in a vault near Times Square as “calamity insurance.” What’s more, as much as 8% of his First Eagle Global Fund is comprised of bullion and gold miners’ shares.

In the case of Paulson, the billionaire hedge-fund investor, his exceptional skill lies in his ability to foresee extreme financial episodes. From there, he decides how to position his funds to benefit from a likely outcome.

And that’s why we should all pay close attention to his most recent actions.

The very day after Paulson’s acquisition of AngloGold, the U.S. Federal Reserve announced that it would buy back a total $1.25 trillion of long-term Treasury bonds and Fannie Mae (FNM) and Freddie Mac (FRE) mortgage junk. That is essentially a monetization of the debt.  And that’s a red-carpet invitation for inflationary times (which is also the best time to play gold).

Pure coincidence? Maybe. But it’s a lot more likely that one of the savviest investors of our recent era is really onto something.

Source: If You Follow the (Smart) Money, Gold is Clearly the Smart Play

A few days ago, billionaire hedge-fund manager, John Paulson, spent $1.28 billion to buy a piece of AngloGold Ashanti (AU: NYSE), the large South African gold miner. Paulson paid $32 a share for an 11.3% stake in the company. The following day, Fed Chairman Ben Bernanke delivered the shocking news that the U.S. Federal Reserve would buy up to $1.2 trillion of U.S. Treasury debt. And just like that, the price of gold soared, as did the price of AngloGold – handing Paulson a prompt $240 million profit.

But we’re guessing Paulson will hang around for awhile longer. We’re guessing the savvy investor is looking for a double on this investment, at least.

“Apparently, Mr. Paulson sees a solid-gold opportunity,” observes Byron King, the man who urged the subscribers of Outstanding Investment to buy AngloGold three weeks before Paulson made his high-profile purchase. “And Paulson, you may know, has pretty good eyesight, investment-wise. He’s the hedge-fund manager who made $10 billion in 2007 and 2008 betting that the subprime mortgage market would implode.

“Mr. Paulson’s purchase of AngloGold Ashanti is, in essence, a $1.3 billion bet that the U.S. government is pursuing a long-term policy to debase the dollar,” Byron continues. “Seems like a winning bet to us.”

AngloGold is not Paulson’s only wager on the yellow metal. He also owns 4.1% of Kinross Gold. Likewise, David Einhorn, the hedge fund manager famous for predicting the demise of Lehman Bros., is accumulating gold-focused investments (as we reported in the February 23, 2009 edition of the Rude Awakening, “Buy Gold…We Really Mean it This Time.”)

“Dollar debasement will doubtless trigger inflation,” Byron insists. “Over time, this will cause a flight from paper currencies to gold. I’ve already predicted gold at $3,000 within 30 months. I’ve heard other gold analysts forecasting gold at $4,500 within three years. So there’s a lot of room on the up-side.”

It’s true; the bullish case for gold has rarely seemed more compelling. But every investor has cause to wonder whether the bullish case for gold is also timely. Sure, gold could soar to $3,000 an ounce. But will it drop to $600 an ounce first…and stay there a while?

No one knows the answer, of course. Not even Byron King, an experienced geologist and student of financial history. Nor does John Paulson, a guy who knows how to make a few billion dollars by betting against the crowd. Nor does David Einhorn, an investor with an eye for profiting from adversity. But we’re inclined to trust the instincts of all three gentlemen. We are also inclined to trust the “instincts” of the market itself.

Six times during the last six years, gold stocks charged out ahead of gold bullion, signaling an imminent gold rally. Veteran observers of the gold market understand that major rallies usually BEGIN with gold stocks; not with the metal itself.

The chart above illustrates this phenomenon. In August of 2007, gold stocks advanced nearly 20% in three weeks, while the gold price barely budged. But during the next three months, gold soared from $650 an ounce to a new 17-year high of $825 an ounce.

A similar divergence has unfolded during the last few trading days. Gold stocks have jumped 30% – or double the gain of the S&P 500 Index – while gold, itself, has advanced only 4%.

Are gold stocks – like Lassie – trying to tell us something? We aren’t certain. But if we understand what the gold market is trying to say, either Timmy fell into a well or Ben Bernanke has incited the greatest inflationary episode in America since the 1970s.

Source:  Silver and Gold