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Silver was up a dime by 3 p.m. in Hong Kong in their afternoon yesterday…when it, too, began the long decline…with the bottom coming at 9:30 during Comex trading. The rally in silver ran into the same seller as gold…and at precisely the same time…and that was it for the day.

Initially, the precious metals shares held up well despite the onslaught…but the ‘big hammer’ that showed up at 11:30 a.m. in New York was a sign for some that maybe a short-term top had been reached, as the HUI promptly caved by four percent and never recovered. The usual New York commentator said this…”The gold shares, however, were panic-stricken, completely losing their (very modest) gains…and not recovering at all. The HUI closed down 3.97% and the XAU was down 2.86%. Behavior of this type usually means a very serious sell-off attempt in gold the next day.”

That last comment is certainly worth remembering, as one of the favourite tricks of the price managers is to hit gold and silver around 3:00 a.m. New York time on Wednesday morning…the day after the cut-off for Friday’s Commitment of Traders report. Then they can do as they wish with the price during the next eight business days…well away from prying eyes. We also have options expiry coming up for the June contract. That’s on May 26th. We’ll find out soon enough if there’s any truth to this scenario.

Tuesday’s nice rally in both gold and silver obviously increased the open interest. In gold, o.i. rose a largish 8,694 contracts to 350,823. In silver, o.i. also rose…this time by 1,006 contracts…bringing the o.i. up to 95,540 contracts. If the boyz report everything on time, these changes should be in tomorrow’s COT report.

In last Friday’s Commitment of Traders report…there certainly was deterioration…as both gold and silver have risen almost continuously since I went on vacation two weekends ago. What this means is that the tech funds in the Non-Commercial category and the small traders in the Nonreportable category are increasing their net long positions and the bullion banks in the Commercial category are taking the short side of all these trades. It’s the ’same old, same old’ pattern…at least for the moment. Both Ted Butler and I were hoping that JPMorgan (NYSE:JPM) et al wouldn’t show up to go short into this price rally…but they have. As of last Friday’s COT [for positions held as of the end of trading on May 5th] the big bullion banks were short 16.0 million ounces of gold…and this has certainly increased since then. Ditto for silver…where the deterioration has been even more pronounced. How bad it is will be known at 3:30 Eastern time on Friday when the new report comes out.

As far as Comex deliveries went yesterday, there were only 11 gold contracts delivered…along with 107 silver contracts. There are about 1,120 May silver contracts still to be delivered. That’s only 5.5 million ounces. One wonders what the issuers of these deliveries are waiting for.

In other gold and silver news, I see that the U.S. Mint has been busy while I was away. As of yesterday, there had been 44,500 gold eagles minted and 1,034,500 silver eagles stamped out. The year-to-date numbers are impressive. If you want to follow these U.S. Mint numbers yourself, the website for this info is linked here.

Over in Switzerland at the Zürcher Kantonalbank, the last two weeks of increases in their gold and silver ETFs amounted to the following…Gold up a smallish 29,984 ounces, and their silver ETF was up 796,655 ounces. I thank Carl Loeb for that info. There were no significant changes to either the SLV or GLD. I note that Comex silver stocks have risen a couple of million ounces since I was gone…with 590,540 ounces of that being deposited yesterday.

I also noted that Central Gold Trust (AMEX:GTU)…a Toronto-based fund that’s similar to Central Fund of Canada (AMEX:CEF)…completed an enormously successful offering that more than doubles the amount of gold under management…to 403,000 ounces. Their offering in January drew $38 million…this one was $201 million…a whopping increase! Somebody wants the real stuff.

And lastly, I see that the new Bank Participation Report [for May] was issued last Friday along with the latest COT. In silver, it showed that two U.S. banks were net short 26,201 Comex contracts. This represents 82.1% of the entire Commercial net short position on the Comex…while fifteen non-U.S. banks were net long 5,111 Comex silver contracts. In gold, three U.S. banks were net short 93,453 Comex contracts. This represents 58.2% of the entire Commercial net short position on the Comex…while twenty-three non-U.S. banks were net long 5,880 Comex contracts. These numbers [in both silver and gold] are an improvement in the U.S. banks’ short positions in both metals, compared to the April report. But these numbers also prove the obvious price management by these two or three U.S.-based banks. Here’s the page from the CFTC’s own report. You’ll have to scroll about two thirds of the way down the page to find silver and gold. The link is here.

There have been a lot of gold and silver stories pass under the bridge in the [almost] two weeks since I wrote my last rant. I’m presenting them all here today, because I know that more are probably going to be showing up in the next 24 hours.

The first is a lengthy, but vitally important read. For those of you who want a clear understanding of how the Gold Cartel operates…and why…nothing could be more enlightening than this piece by GATA consultant James Turk over at goldmoney.com. It’s entitled “A Short History of the Gold Cartel”. The link I’m using is from Kitco. Click here.

As you can tell from the last piece, GATA’s Bill Murphy and Chris Powell [along with Sprott Asset Management's John Embry] were in London last week taking our story to the London press. This GATA release is a story posted by Paul Mylchreest of Thunder Road News. His extensive bio is at the end of his commentary. The link is here.

In a similar vein is this story written over a month ago by John Embry of Sprott Asset Management in Toronto for the April edition of Investor’s Digest of Canada. It…along with the two stories before this…and the many to follow, falls into the ‘must read’ category. This one is entitled “Monetary measures imply big movement for gold” and the link to the pdf file is here.

The next story is so unbelieveable, that if it hadn’t appeared in print, I would have dismissed it as hearsay. But here it is. I’ve never been compared to an IRA [Irish Republican Army] terrorist before…but I guess there’s a first for everything…at least GFMS metals consultant Philip Klapwijk seems to think so. GATA’s secretary treasurer, Chris Powell, also moonlights as senior editor of one of Manchester, Connecticut’s leading newspapers…the Journal Enquirer. His commentary gives truth to the old phrase that one should “never get into a fight with someone who buys their ink by the barrel”. The commentary…and the story…is linked here.

The next story is by Murray Pollitt. Pollitt is president of Pollitt & Co., a brokerage firm in Toronto, and a veteran of mining industry finance. His essay is entitled “The gold monetization scheme is ending”…and the link, another GATA release, is here.

In a rather interesting story that came out of the United Arab Emirates yesterday is word that “Much of the region’s gold that has so far been held in London may soon return.” The story, from business24-7.ae, is entitled “DMCC vault may store region’s gold reserves”. If true, I’m sure that London will not be amused. I thank my good friend Dr. Jim Willie for passing this along. The link is here.

In a Bloomberg article from way back on May 4th, come this piece entitled “Venezuela Orders Gold Producers to Sell More Locally”. It sound like they’re following China’s lead. The link is here.

And lastly [I have lots more, but I've got to cut this off somewhere] is silver analyst Ted Butler’s latest commentary. As far as I’m concerned, everything Ted writes is worth reading. So is this. It’s entitled “A Presidential Bombshell” and the link is here.

Do I think there’s manipulation going on? You bet I do. I wouldn’t put anything past Wall Street and the Fed. I think gold is being manipulated down. I think the Dow is being manipulated UP to cover up the weakness in the dollar. Put the public’s attention on the Dow — as long as the Dow is rising, “everything must be all right.” And we know that the Fed is buying bonds. Isn’t it time for the IMF to remind us that they’re thinking of selling a load of gold? – Richard Russell, 12 May 2009

I note, as I put the finishing touches on this rant, that the boyz showed up at 3:00 a.m. New York time in the thinly-traded Hong Kong afternoon market…and did the dirty. The rest of today’s trading will be educational…especially the Comex open…but, if they’re at all serious, I wouldn’t be surprised if the New York bullion banks showed up in London today as well. And I can’t help but wonder what the boys and girls at the World Gold Council and the Silver Institute do for a living? It certainly isn’t anything that supports the mining industry. I also wonder if their collective hands shake a little as they reach for their paycheques? If I worked there…mine would.

See you tomorrow.

Source: And Then There’s This…Thursday, May 14th, 2009

Q: What are your thoughts on the drillers? – J.D.

A: That’s a pretty broad question, because there are several different kinds of drillers. However, high oil prices are good for all of them…

Natural gas, for example, is the commodity of the minute. The price of natural gas rose 113% since its low of $5.25 in September 2007. That’s important because 79% of the rigs drilling in the U.S. are looking for natural gas, not oil.

High natural gas prices mean strong demand for drill rigs. More demand means higher day-rates for the rigs. That means it’s a great time to own drillers. But is it a great time to buy?

It is… if you can find ones that aren’t making new highs already. Helmerich & Payne (HP), to pick one natural gas driller, is hitting all-time highs right now. You’re paying 15 times earnings and taking on the risk of the natural gas price falling.

I wouldn’t buy HP right now. But I do think there are other opportunities. I’m researching a couple for my S&A Oil Report subscribers right now.

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Q: What do you think of all the protests against high gas prices? – R.T.

A: In my introductory biology class at Penn State, my professor told us a story…

Some years ago, in central Pennsylvania, there was an abundance of rain, and the clover grew thick. Lots of clover meant the rabbits had plenty to eat. Happy rabbits did what rabbits do… and pretty soon, the place was overrun with rabbits.

Lots of rabbits meant the foxes had plenty to eat. They got fat and sleek. They also made lots of baby foxes. But after a while, those rabbits ate all the extra clover. That meant they weren’t making more rabbits quite as fast as before. Fewer bunnies meant more hungry foxes.

Eventually some of those foxes starved.

In terms of oil, we’ve run out of clover – big, easy-to-find, easy-to-pump deposits. So refining companies (the rabbits in our story) are hurting. There is too much competition for too few resources. Now the airlines, truckers, and SUV drivers (our foxes) are getting hungry.

The world’s demand for fuel is catching up with an industry that really hasn’t changed much since the 1970s. Oil and gas prices must respond to market forces (and go up) to make us change. The protests are simply the whimpers of starving foxes.

Note: I got loads of responses to my request for more gold funds…

The big one you mentioned was the Central Fund of Canada (CEF). This $1.5 billion fund holds gold and silver bullion. Currently, shares trade nearly 9% above the value of the fund’s assets. That means you’re paying $90 more than you need to on every $1,000 you invest in the stock.

That’s fairly unusual among gold funds. The largest of them all, GLD, trades at a 0.42% premium to its assets. IAU trades at a 0.16% discount to its net asset value. If you are just trying to buy gold, find a fund that is liquid and trades close to its net asset value.

Another mixed fund is the Gabelli Global Gold, Natural Resources, and Income trust (GGN). The fund focuses on global natural resource and mining stocks. So it isn’t a pure play on gold. This fund’s largest holding is actually Petrobras, the Brazilian oil company. It’s trading at nearly an 8.5% discount to the value of its assets and it uses creative financial strategies (selling covered calls) to generate a 5.8% yield.

Finally, you’ve got Deutsche Bank’s Double Short (DZZ) and Double Long (DGP) Exchange Traded Notes. These two funds use gold futures and treasury notes to return twice the fall or twice the rise of gold, respectively. These funds are extremely risky, since they double the performance of the metal. You shouldn’t ever invest more money than you can afford to lose into this type of fund.

Good investing,

Matt

P.S. If you’ve got a question about commodities or commodity producers, shoot me an e-mail. (Bear in mind, I can’t give out personalized investment advice.) I answer reader questions every Wednesday in Growth Stock Wire.

Source: The Commodity Investor Q&A Wednesday, June 4, 2008