So speculative betting on gold going higher now equals a record-busting 752-tonne position in Comex futures and options, yet this is not a bubble according to Michael Pento of Deltaga.

Let’s say otherwise. Let’s say that gold prices, surging by almost $100-per-ounce in barely a month, are very much in a bubble…blown up by near-zero interest rates worldwide and a sharply negative cost of borrowing after inflation. Were that the case, the question before potential and existing investors would be simple:

Is this “irrational exuberance” or a “permanently high plateau”?

Alan Greenspan applied the former to US price/earnings in Dec. 1996; Irving Fisher said the latter of US equities in Oct. 1929. Both were looking at what history would decide were clearly bubbles in hindsight. But Greenspan was three years and 105% early.

Fisher spoke less than 72 hours before the Great Crash began…

Buying gold always looks “irrational” to most financial advisors and commentators, because it doesn’t pay an income or yield.

No matter that gold has beaten all other asset classes bar none since the start of the decade. People looking to buy gold (the blue line of Google searches above) have been underwhelmed with content and analysis online, despite outstripping the volume of “buy stocks” searches (in red) for nearly five years.

Gold buyers have also averaged 20% gains year-on-year since this point in 2004. That compares with -0.6% on average from shares, but so what? Check the spike in “buy stocks” stories highlighted by Google Trends’ lower chart during October last year. Just when gold turned sharply higher – and stocks still had another 40% to fall – the news-flow focused on bottom-fishing in equities.

Gold’s productive value is also judged to be nil next to foodstuffs, energy or base metals – materials that vanish in use and thus display a clear supply/demand dynamic. Whereas all the gold mined in history—being indestructible—is still with us today…some 165,000 or so tonnes. That makes a fundamental case for gold built on tight supply, rising demand absurd. Nor can TV or newspaper journalists get used to applying “exuberance” to gold, the ultimate in gloom-and-doom insurance outside your local gun-store.

But while permanent plateaus are harder to find in finance than geology, gold’s peg-legged clambering of the last nine years most certainly puts it higher than it started.

What’s powering the Stannah Stair-Lift today? In a word, leverage.

Liquidity (meaning “leverage”, as 2008 proved) has flooded back into the big investment houses, thanks to tax-funded injections, quantitative easing, and central-bank asset guarantees.

Near-zero interest rates sure help as well. And that, in turn, has enabled what we used to call investment banks to revive their prime broking services, offering to deal whatever leverage-hungry clients want most, and financing the trade with that ultra-cheap money.

The most leverage-hungry clients, outside of the banks’ own proprietary trading desks, remain hedge funds – hedge funds which doubled in number from 2003 to end-2007 (Hedge Fund Review), growing their assets under management from $600bn (Goldman Sachs’ estimate) to $2.9 trillion (HedgeFund.net) before hitting the credit crunch precisely as Bear Stearns blew up.

Just as the long-run bull market in gold threatened to keel over on this sudden withdrawal of derivatives leverage, however, the physical appeal of owning gold – or a near proxy, at least – came into its own.

Physical gold investment surged in the back-half of 2008 and early 2009, rising 150% from July-to-Dec. 2007 before adding two-thirds of that fresh record between Jan-and-March this year alone. (Data courtesy of the World Gold Council.) And now that deflation seems to be tipping ever-so-smartly into inflation – and the surge in ETF, coin and bar demand has eased off – leverage is back just in time for gold’s typical autumn move higher, a pattern seen 20 years in the last 40 and delivering some 15% gains on average this decade between Sept. and Feb. even for cautious investors buying on cash, rather than margin.

Inflation, deflation, who cares? Whether it’s exuberant hedgies or panicked private investors with something to lose, this “bubble” in gold – if that’s what you choose to call it after a decade of beating everything else, and four years after it broke sharply higher versus all currencies, not just the Dollar – just keeps expanding.

Sub-zero real rates of interest sure help. Media hype, to date, is missing. When those two factors reverse, buying gold may well become irrational – and whatever plateau it’s reached might well give way.

Regards,
Adrian Ash

Source: Gold: A Permanently Exuberant Plateau

Now as then, China keeps its own counsel. We know what they want us to know, plus what we can surmise from rumor and reading between the lines. But lately, we’ve been able to add presumption to news and come up with something that looks very significant.

Specifically, there’s been a flood of tantalizing stories out of the East that, taken together, strongly suggest a growing preoccupation with a form of money that was ancient even in Signor Polo’s time. And it ain’t silk. It’s gold.

We already learned, back in April, that China has been salting away bullion for the previous six years, out of sight of international gold watchers. To the tune of 14.6 million ounces. Now the evidence suggests that that was merely the prologue.

Let’s take these tidbits one at a time:

Sovereign Wealth Fund Dumping $$ for Gold?

This one is still at the rumor stage, but highly-respected website Mineweb.com is supporting it. What we know for sure is that the country founded its primary sovereign wealth fund, China Investment Corporation (CIC), two years ago, with the stated aim of rapidly deploying some of its $1.5 trillion forex surpluses – $200 billion initially, with another $100 billion recently added to the kitty – into investment in non-Chinese enterprises. This it has been doing in spades, acquiring businesses around the globe. Extractive industries are among them, including Teck Corp., the diversified Canadian mining giant.

Might it also be buying up gold? We don’t know that for sure, but it seems likely. And, in addition, rumors sneaking off the mainland indicate that within the CIC, a lot of effort is being poured into prospective investment deals in the oil and precious metals sectors. The more it produces, the more it can keep.

The Chinese have made no secret of their disdain for current American economic policy and what they see as the inevitable destruction of the dollar. That they would be moving to diversify out of the greenback shocks precisely no one, and gold is one logical landing place for all those bucks. We suspect that’s exactly what is happening, behind the scenes as well as center stage.

Gold and Silver Pushed to the People

As recently as 2002, the private ownership of gold was prohibited in China. You could be jailed if caught with any in your possession. Beginning in 2009, in a stunning about-face, the central government removed all restrictions. In fact, as Mineweb and other sources report now it’s actively pushing folks to buy some personal metal, with China’s Central Television, the main state-owned television company, running news programs cum infomercials, letting the public know just how easy it is to purchase gold and silver as an investment.

It truly is as simple as can be, because every bank sells gold and silver bullion bars in four different sizes to individuals. (Try to find the same the next time you make the trek down to Wells Fargo.) Mining companies are reportedly encouraging employees to convert some of their wages to gold on payday. Gold is traded in some form 24 hours a day. And paper proxies for the metal are also soaring in popularity.

There are persistent rumors that the export of silver has already been banned. Gold could be next.

Thus China, which only yesterday was the lowest per-capita consumer of gold in the world, is bidding to become the biggest. Some analysts believe it will pass India – the top dog since forever – as early as 2010. Clearly, the government believes the country is strengthened if everyone who can holds some hard currency.

All this suggests a mania in the making, and only in the formative stage. Imagine if hundreds of millions of new consumers climb on that particular bandwagon…

China Repatriates its Bullion

Meanwhile, in early September numerous sources reported an announcement that Hong Kong is pulling all its physical gold holdings from depositories in London and transferring them to a newly built, high-security depository at the city’s airport.

That means the government is backing the promotion of Hong Kong to a more formidable status as a Swiss-style, regional trading hub for bullion, at the same time as it reduces London’s role as a key settlement and storage center.
Press reports cited government officials as saying that marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility. Outreach will also be made to commodity exchanges, banks, precious metals refiners and ETF providers.

There can be little doubt this signals that the Chinese government fully recognizes the importance of gold in a time of crisis, and that the most prudent plan involves keeping its stores close at hand.

China Threatens to “Just Walk Away”

In one of the year’s most intriguing developments, commodity and derivative markets were thrown into a tizzy on Monday, August 31, by the worldwide circulation of a story published two days earlier in Caijing magazine (and reported by Reuters here).

According to the Caijing article, a spokesperson for China’s state-owned Assets Supervision and Administration Commission – the regulator and nominal shareholder for state-owned enterprises (SOEs) – told six foreign banks that SOEs reserve the right to default on contracts.

Say what?

Maybe the commission has been paying attention to the “just walk away” forfeiture movement that blossomed among American homeowners whose overall debt on their properties far exceeded the assessed value.

Small wonder there was panic in trading houses that hold a lot of Chinese paper. They hope any problems will be worked out short of a default. In fact, “It’s [only] a handful of companies who are being encouraged by regulators to ‘re-negotiate’,” says one banking source. “It’s outrageous, but it’s China, so everyone is treading very carefully.” Very carefully.

Nevertheless, in addition to tangible losses, those potentially affected fear the establishment of a dangerous precedent, one that could lead to utter chaos in the enormous, tangled world of derivatives.

And there is one other, albeit highly speculative, possibility. Some major entities – we don’t know who, due to the opaque nature of international gold trading – have huge, perhaps quite concentrated short positions in the metal, both on the COMEX and OTC market. Is one of them China, acting through American intermediary banks?

A short position in precious metals means that the initiator of that position is obligated to deliver physical gold or silver if the buyer (who holds the long end) wants it. Suppose China is one of the big shorts. Suppose it’s been playing the market in order to buy at what it sees as bargain prices. Now suppose a gold rally induces it to just walk away from all those obligations to deliver. Who’s going to force it to make good? Guess what, no one has a gun large enough.

Granted, it’s an outlandish scenario. But impossible? No. Beijing has shown nothing but indifference to what others think of it. And if the dollar does crap out as the world’s reserve currency, there’s nothing to say that China won’t see its self-interest as lying in a completely new direction.

Conclusion. Gold, and the companies that produce it, have enjoyed a brisk runup of late, as the metal mounts yet another assault on the beckoning, symbolic $1,000 level. How much of this can be traced to what China has done, is doing, or may yet do?

We don’t know, but we suspect it’s not entirely coincidental. All rumor and speculation aside, as China clearly turns more and more bullish on gold, so will everyone else.

Regards,
Doug Hornig

Source: What the Heck Is Going on in China?

But prices remained rangebound as traders awaited clearer direction from the currency markets.

Spot gold was bid at $941.80 an ounce at 1523 GMT, against $943.55 an ounce late in New York on Tuesday. Earlier it rose as high as $949.85.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange were down $1.8 at $944.20 an ounce.

“We are probably going to stay fairly rangebound,” said Standard Bank analyst Walter de Wet. “We would have to see some decent dollar weakness for gold to move above $956-960.”

The dollar rose versus the euro and a currency basket, reversing early losses, after durable goods numbers from the United States.

The data showed June orders for durable goods, excluding transportation, rose less than forecast despite overall orders posting their largest advance since July 2007.

The report, however, was tempered by data showing a jump in U.S. new home sales last month that fuelled some selling in the dollar versus the euro.

U.S. stocks advanced after they July new home sales data, while European stocks gave up early gains to fall by early afternoon.

Demand from buyers of physical bullion remained sluggish as buyers awaited further price falls.

“Physical demand has dried up, but we are expecting more buying around $930-925,” said Commerzbank senior trader Michael Kempinski.

The world’s largest exchange-traded fund, the SPDR Gold Trust , said its holdings fell another 4.58 tonnes on Tuesday, bringing its total outflow to 21.4 tonnes in the last four weeks.

LONDON ETF HOLDINGS RISE

But London-based ETF Securities said it saw the biggest ever one-day inflow into its ETF Physical Gold product on Aug. 25. Its holdings rose 211,500 ounces to 3.190 million ounces on Tuesday.

On the supply side, the Russian Gold Industrialists’ Union reported a 21 percent rise in gold output from Russia, the world’s fifth largest producer of the yellow metal, in the first seven months of the year.

Platinum received an early fillip from a strike at Impala Platinum’s Rustenberg mine in South Africa, where workers rejected the company’s latest pay offer on Wednesday.

Prices rose as high as $1,249.50, but later eased to $1,233 an ounce from $1,239 as investors took profits. “The price of platinum reacted only marginally to the news,” said Commerzbank in a note.

An Implats spokesman said more than 20,000 workers were involved in the strike, ignoring a weekend call from the National Union of Mineworkers to suspend the action.

Separately, Aquarius Platinum said contract workers at its Kroondal and Marikana operations in South Africa had launched a strike.

Palladium was at $283 against $286. Silver was at $14.24 an ounce against $14.24.

Aug 26 (Reuters)

Speaking of open interest numbers, gold o.i. on Thursday fell 3,216 contracts to 391,144…on absolutely monstrous volume of 174,662 contracts. Silver’s decline was much more modest…only 93 contracts to 96,309…on total volume of 18,664 contracts.

The Commitment of Traders report issued yesterday, was as expected. In silver, the bullion banks decreased their net short position by 1,522 contracts. This doesn’t seem like a very big number, but it’s impressive because o.i. fell in the face of a silver price that rose quite a bit during the reporting week. The full color COT report is linked here.

Gold o.i. was exactly as expected…with the bullion banks going short against every long…effectively stopping the gold rally in its tracks. The bullion banks increased their net short position by a staggering [but not surprising] 21,939 contracts. The bullion banks are now net short 204,226 contracts…20.4 million ounces. The full-color COT graph for gold is linked here.

We are now sitting with a COT structure that is bullish to very bullish for silver…and very bearish for gold. This situation has only existed a few times during the last ten years. Ted suggested [and not for the first time] that maybe ‘da boyz’ are trying to permanently separate silver and gold prices so that silver will rise independently of gold. That’s possible…but we’ll have to wait and see if it pans out that way.

The Comex Delivery Report for Friday showed that only 55 gold contracts were delivered…and nothing at all in silver. There were no changes in the alleged holdings of either GLD or SLV. The U.S. Mint has updated their production numbers in silver eagles again. This time they showed that another 275,000 silver eagles were minted…bringing the monthly total up to 2,300,000. Nothing was added for gold eagles. And the Comex-approved warehouses reported that 320,392 ounces of silver were withdrawn from their collective inventories.

The usual N.Y. gold commentator mentioned that The Gartman Letter’s buy stop at $955 was not triggered yesterday because gold did not, in fact, trade long enough above that price to trigger its buy. He also had this…”There is a good deal of commotion today regarding forecasts that China will pass India in gold consumption in some five years. It is odd that so many observers extrapolate about the intensely volatile Indian gold market based on a few months recent history. At the time of the enormous imports last summer, the talk might well have been of India monopolizing the world gold stock! In any case, China’s gold production, bolstered by subsidized fuel and the hugely undervalued Yuan apparently supplies almost all local demand (India mines almost no gold). How seriously can one take the Shanghai Gold Exchange, which today reports that the gold contract is backed by only 156 kilos of metal? The Bloomberg story is headlined “China May Overtake India in Gold Demand, Council Says”..and the link is here.”

The other day, several companies [i.e. Ford (NYSE:F), eBay (NASDAQ:EBAY) and AT&T (NYSE:T)] reported better than expected earnings and as a result, the stock market rallied on the news. While some companies have reported better than expected earnings for Q2/2009, others have struggled. Today’s chart provides some perspective on the current earnings environment by focusing on 12-month, as reported, S&P 500 earnings. You can see how earnings are expected [38% of S&P 500 companies have reported for Q2/2009] to have declined over 98% since peaking in Q3/2007, making this by far the largest decline on record…and the data goes back to 1936. I thank P.S. for providing this data…which is all [including the chart] courtesy of www.chartoftheday.com …the link to the website is here.

Besides the Bloomberg story embedded in the usual N.Y. gold commentator’s paragraph above, I have three other stories for your reading pleasure this weekend. The first is from yesterday’s edition of The Economist out of London. It bears the headline “Here today, gone by 2010: Russia reserve fund is emptying fast.” The story is certainly worth the read…and I thank P.S. for sending it along. The link is here.

The next story is from the hallowed halls of the The New York Times. It’s a story about high-frequency trading—which has become one of the most talked-about and mysterious forces in the markets. Casey Research’s own Bud Conrad was circulating this story around the company yesterday…and I thought it worthy of your time. It’s entitled “Stock Traders Find Speed Pays, in Milliseconds”…and the link is here.

The last story today is from commodityonline.com…and filed from Johannesburg. The title pretty much says it all…”New law boosts gold bar sale in South Africa.” Until I read this story, I wasn’t aware that South Africans were not allowed to own gold in bar form. You learn something new every day. The link is here.

Throughout all my years of investing, I’ve found that the big money was never made in the buying or the selling…the big money was made in the waiting. – Jesse Livermore

Today’s ‘blast from the past’ goes back to 1972. I believe that this was their biggest, if not their only, hit. But what a hit it was. Turn up your speakers and then click here.

Something appears to be up in the gold and silver market…which the latest COT confirms. Further rallies in gold never amount to much when the bullion banks are short this amount of gold. Sure, I’ve seen their short position as high as 26 million ounces…which is 55,000 contracts higher than we are today…so I guess we can go higher, but the odds are not in our favor. How high we go from here [if we do go higher] depends entirely on whether the bullion banks are prepared to take on an even larger short position. But once that high [whatever, and whenever it is] is in, there is only one direction gold can go…down. Will silver go with it? Don’t know, but Ted Butler says that they would have to get the price below its latest low, which is around $12.40…about $1.50 below where it closed yesterday…before there would be any more significant long liquidation by the tech funds and the small traders. The 200-day moving average is at $12.29. Ted doesn’t think they can do it. We’ll see.

I note in closing that this is the last edition of Casey’s Daily Resource Plus. I hope that you have found it to be both educational and entertaining. Many parts of it will be shuffled off into other reports…and as most of you already know, I’ve been fortunate enough to be given my own daily stand-alone column. That honor is entirely because of you, dear reader…and for that, I’m grateful, appreciative…and thankful.

Enjoy the rest of your weekend and I’ll see you next week with a brand new look…which I look forward to seeing for the first time myself…as I haven’t seen it yet either.

Source: And Then There’s This…Monday, July 27, 2009

Wednesday’s open interest in gold showed an increase of 3,421 contracts to 394,360…on big volume of 120,609 contracts. Silver o.i went the other way…down 1,867 contracts to 96,402…on decent volume of 22,687. Ted said that most of the decline in silver came from far-dated spreads being lifted. I was surprised that silver o.i. fell at all, considering the fact that silver rallied 30 cents in New York trading…at the same time that gold rose nine dollars…as did its open interest. Another unsolved mystery in the dichotomy that exists in the o.i. between these two metals. Since this occurred on Wednesday, one day after the Commitment of Traders cut-off, we won’t see the actual results of this until the COT on July 31st.

Speaking about the COT…the latest one comes out at 3:30 Eastern time this afternoon. Ted and I figure that the net short position in gold has deteriorated at least 20,000 contracts since the last report…and that the bullion banks are now short over 20 million ounces…again. And don’t forget that of that 20 million ounces, pretty close to 14 million ounces of that short position is held by ‘3 or less’ U.S. bullion banks.

The Comex Delivery Report showed that 66 gold and 38 silver contracts were delivered yesterday. There were no changes in the alleged gold holdings of either GLD or SLV either. There were no changes in production over at the U.S. Mint…and the Comex-approved warehouses showed a small decline in silver inventories of 117,180 ounces troy.

Before continuing further, I’d like to explain what I mean by “alleged” when I refer to the gold holdings of either the GLD or SLV. I know I’ve explained it before, but an e-mail that I received yesterday via Ted Butler suggests that I should do it again. Yes, I’m confident that there is gold and silver in these ETFs…but not all that they say they have. The individual prospectus on each of these ETFs is so full of holes, you could drive a Mack truck through most of them. There are no public audits, so there is no way of knowing whether all the metal they say they have, is actually there. The custodians for each do not lend confidence either. The two U.S. bullion banks with the biggest derivatives positions in the precious metals market…JPMorgan (NYSE:JPM) and HSBC USA (NYSE:HBC)…are the custodians of the silver and gold ETFs respectively. Both Ted Butler and I agree that JPMorgan is by far the biggest silver short…if not the only silver short…amongst all the U.S. bullion banks. You’ll excuse me [and the rest of the GATA crowd] if we think something stinks here.

This is one of the few areas that Ted and I totally disagree on. Our conversations turn ugly whenever this subject comes up…and he calls me a lot of terrible names at times. He thinks that it would be pure fraud if the ETFs did not have all precious metals they said they did. True…but how is one to find out? And I trust these two bullion banks just about as far as I can throw them. How about you?

The ETFs are fine for speculating on the price…but to say you own gold when you own one of these [or other] ETFs is pure fiction. The ETFs short their own shares whenever they don’t have the metal to back up demand. Ted and I agree that JPMorgan will rig a sell-off just so that it can buy back the shares they shorted and not have to physically deliver the metal to the SLV.

If you really want to make sure that whatever investment vehicle you buy in the precious metals arena has the physical to back it up, you have several choices…and here are a few of them…the first of which is Central Fund of Canada, James Turk’s GoldMoney, Bullion Management Group, Central Gold Trust (AMEX:GTU)…and soon CEF will have their Silver Trust up and running. I’d bet my life savings on the fact that these firms have the metal to back up their funds that they say they do. All you have to do is phone their auditors and ask. And I’m also fortunate enough to know the principals of all these firms…most of them personally.

But before you invest a dime in any of them, just make sure that your own personal stockpile of gold and silver [in your physical possession] is big enough, before you buy any fund…even GLD and SLV if you must. I don’t…and won’t…own either.

The usual N.Y. gold commentator also had this to say as well…”Amongst today’s buyers was apparently The Gartman Letter which cut its buy stop to $955/1 hour this morning. This will distress many of gold’s friends. [Yes, it does...but as I said earlier this week, I'm praying fervently that he is correct this time. - Ed] While TGL’s initial entry points for gold have a reasonable record, the history of its attempt to double up on breakouts is alarming. Perhaps TGL gets into the wrong hands! With the physical market faltering and Comex open interest and volume getting to levels seen at the late May/early June peak, this move has entered a risky phase.” [It has indeed!!! - Ed]

One of things that has gold where it is…and the bullion banks pulling out all the stops to prevent its rise…is the sheer amount of paper that the U.S. Treasury has monetized…or is about to sell. It is money printing on a scale not seen since Weimar Germany after WWI.

I note in Gregory T. Weldon’s latest edition of Weldon’s Money Monitor that he had this to say…”The most recent data reveals a HUGE single-week [sixth largest EVER] of debt monetization by the Fed, to the tune of $36.9 billion or, at an annualized pace, that would see the Fed monetize TWO Trillion Dollars worth of debt in a 12-month period.”

“Moreover, purchases were broad-based, providing the market with a GRAND-SLAM, covering all ‘four bases’ … with monetization of Treasury debt ($8.67 billion), Mortgage-Backed debt ($26.6 billion), Agency debt ($1.7 billion) and Term-Asset-Backed debt ($1.4 billion).”

And I see that Karl Denninger has gone apoplectic on this issue. Starting today, and ending next Thursday, there are $235 billion dollars in U.S. Treasuries being auctioned…almost a quarter of a Trillion dollars!!! Yep, you read that right! The article, courtesy of Craig McCarty, is entitled “Holy !@#!! Treasury Auction Schedule” and the link is here. There was a story about this in Bloomberg yesterday as well.

There should be a great smoking hole where the U.S. dollar used to be…along with a big four-digit gold price and three-digit silver price on such news…but we all know why there isn’t.

Besides the Denniger piece above, I have two other today. The first I found while I was reading Bill Murphy’s MIDAS commentary over at lemetropolecafe.com. It’s posted at the Ottawa Citizen…and is a reprint from The Financial Post. The story is headlined “On the road to higher gold prices: ‘Barometer of investor anxiety’”…and the link is here.

And lastly is this article in the Financial Times of London…written by Eckart Woertz, who is the Program Manager in Economics at the Gulf Research Centre in Dubai. Amongst other things, he recommends that…”they should engage in cautious currency diversification with gold being the ultimate dollar hedge.” The link is here.

The stock market is no longer the sum product of informed, or Captains of Industry, action. It is a rigged casino and asset bubble that is used to paper over declining US living standards. – Bill King, the King Report…23 July 2009

I’m still on the fence…but every reason why the price of gold and silver should explode…or why the price should be crushed…is on display in this commentary. Rampant money printing…and a large [and growing] gold short position that is well into the danger zone. But can they…or will they? The third possibility is that the bullion banks could get totally over run. I’m not optimistic about this scenario…but like I said before, if it does happen, the party’s at Ted Butler’s place!

All of us at Casey’s Daily Resource Plus hope you have a great weekend and I’ll see you on Saturday morning.

Source: And Then There’s This…Friday, July 24th, 2009

Silver traded flat most of the day, as a gentle rise and fall in London and the same in New York canceled each other out perfectly. The metal finished exactly where it started at $13.70/oz., up/down 0 cents. Overnight, silver is trending higher. (Click here for charts)

Despite big gains in oil yesterday, which is usually gold supportive, the yellow metal fell as it took its cue from rising equities and a slightly stronger dollar.

“We have a tug of war here between those who dare to buy at these levels and people who got in at previous levels. If it breaches $960 [an ounce] it might make a quick run to $975, or it might swing back to the lower end,” said Jon Nadler, senior analyst at Kitco Metals Inc.

If Treasury auctions or GDP data coming next week prove dollar supportive, “it would bring gold down to the $930s at a minimum,” Nadler continued.

While Peter Grant, a senior metals analyst at USAGOLD – Centennial Precious Metals, Inc., believes inflation to be a “legitimate risk,” Nadler calls the jury very much out. “Right now we’re still grappling with deflation if anything.”

In reality, we’ve already had massive inflation (meaning expansion of the monetary base), but it hasn’t manifested in prices yet because the banks are holding the funds in reserve rather than lending them out. Once that money hits the market, however, (and there’s no telling when that will be exactly) you can and should expect huge price inflation to follow. This will be extremely positive for gold.

Source: Gold Takes a Step Back

For the first time in quite a while, there were no deliveries in either gold or silver on the Comex Delivery Report. There were no changes [as usual] in the alleged holdings of the SLV ETF…but GLD showed a drop of 186,507 ounces yesterday. The U.S. Mint has another update for us…they increased their gold eagles by another 4,000 and their silver eagles by 150,000…bringing their monthly totals so far to 60,000 and 2,025,000 respectively. And lastly, there were no material changes in silver inventories over at the Comex-approved warehouses.

The only gold story of interest that I could find was over at mineweb.com where the headline read “Saudi retail gold sales plunge: Higher prices and fewer visitors force sales down 30%”…and the link is here. On top of that, the usual New York gold commentator mentioned in his commentary that neither India or Vietnam were importing gold yesterday.

In other news, I note in a Bloomberg story headlined “Credit Card Charge-offs rise again in June”. As a matter of fact, they rose to a record high. The Moody’s credit card charge-off index — which measures credit card loans that banks do not expect to be repaid — rose to 10.76% in June from 10.62% in May. Moody’s also mentioned that charge-offs should peak at 12-13% in mid-2010.” [I wouldn't bet any money on that. It sounds like another case of whistling past the graveyard to me. - Ed]

Not a lot of interesting stories…as it was a ho-hum kind of day everywhere yesterday. The first one is an item that I lifted from Bill Murphy’s MIDAS commentary over at lemetropolecafe.com. It’s a story from the BBC in London. The headline reads “U.K. Debt Hits a Record of £799 billion” One wonders how much hacking, slashing and outright cooking of the financial books it took to get that number below £800 billion? The link is here.

The next story is from Bloomberg. The opening paragraph reads…”The Federal Reserve is “embroiled” in politics and has “stretched beyond reason” its authority to make loans, said William Poole, who served as president of the St. Louis Fed from 1998 to 2008.” The ‘long knives’ are out for the Fed…even from their own people. The short article is well worth the read…and the link is here.

Normally, press releases from the CFTC would not show up in my column, but this one is different. The headline reads…”CFTC to Hold Three Open Hearings to Discuss Energy Position Limits and Hedge Exemptions: First Hearing Scheduled for July 28, 2009″. Ted Butler sent it to me early yesterday morning. He pointed out the fact that one paragraph was all in bold type. Now why on earth would a government press release do that? It stands out like the proverbial sore thumb. Maybe its because the boys over at JPMorgan Chase (NYSE:JPM) [and the other silver shorts] can only read large print. But it sure looks like a warning to me. Ted went on to say that the 8-point list below that describes to a ‘T’ what has to be done in the silver market to bring it back into line with every other traded commodity on the planet. Or, it could mean nothing. You be the judge…and the link is here.

While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort, we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us. – Herbert Hoover, President of the United States…May 1, 1930

To make up for the lack of anything of much interest yesterday…here’s a video I ran at least 18 months ago. I’ve picked up a lot of new readers since then, so I thought I’d run it up the flagpole one more time. It’s not a music video, but turn up your speakers anyway, and then click here. Enjoy!

I’m still sitting on the precious metals fence…waiting to see which way the gold [and silver] price is going to go…but ready to jump into either the bull or bear camp, depending on the outcome. And as I’ve mentioned several times over the last week or so…I’ve got the perfect explanation as to why the price is going up or down…and by now, dear reader, you should have figured that out too.

Enjoy the rest of your day, and I’ll see you here on Friday.

Source: And Then There’s This…Thursday, July 23rd, 2009

Silver started to fall midway through trading in the Far East and moved sideways through London but trended much higher the rest of the day through the Globex to close at $13.70/oz., up 17 cents. Overnight, silver is trending higher. (Click here for charts)

Gold closed at its highest price on the Globex since June 11 as the dollar weakened in response to an up-tick in risk appetite.

“Almost all the recent momentum is coming on the back of recent dollar weakness,” said Pradeep Unni, a Richcomm Global Services analyst. “Earlier this month economic worries encouraged investors to buy the dollar and U.S. Treasuries. Appetite for other assets including gold and equities seems to be returning.”

“Prices remain well supported above the $950 an ounce mark, largely on the back of the weaker dollar,” said Calyon metals analyst Robin Bhar.

“It may be that outflows from things like the ETFs or the retail base are being offset by more buying of OTC- or futures-based [products],” Bhar added.

Meanwhile, reported holdings of SPDR Gold Shares (NYSE:GLD) dropped another 5.8 metric tons yesterday from 1,092.41 tons to 1,086.61 tons. In the last 30 days, holdings have fallen 44.63 metric tons, or 3.9%.

Some analysts view the decline in holdings at GLD as a sign of waning investor demand.

“We fear that there will be very few buyers above $955 an ounce,” said Andrey Kryuchenkov, a VTB Capital analyst. “Investor demand is waning and it is too early for a seasonal pick-up in jewelry demand.”

Source: Gold Closes Above $950

I mentioned yesterday that the open interest decline on Friday [in that short-covering rally] would have been somewhat offset by the big rally that we had on Monday. Well, I was only partially right. Open interest for Monday’s big day showed a staggering increase…up 12,999 contracts to 393,536…on big volume of 139,361 contracts. Friday’s improvement in o.i. got buried by more than 10,000 contracts! I was stunned! Ted Butler was flabbergasted! Ted feels that the net short position in gold is now back over 20 million ounces, as the bullion banks have increased their net short position by 20,000+ contracts since last Tuesday’s Commitment of Traders report cut-off.

With these open interest changes for Monday now public information, it is more than obvious that bullion banks prevented an explosion in the gold [and silver too?] price on Monday. The reason I say that should be crystal clear to all…because if the bullion banks hadn’t been there to take the short side against all these speculators pouring in on the long side, there would have been nobody else to take the short side and the price of gold [and silver] would have been bid to the stratosphere in a New York minute! This was not an act of strength by the bullion banks…but rather one of extreme weakness…desperation, if you will.

With this untimely [and unhappy] turn of events, Ted and I spent most of our time on the phone discussing a ‘where to from here’ scenario for the bullion banks. In five trading days, they piled on the short positions that just took them five weeks to get out of…and again have a short position that would choke a whole herd of horses…but the questions that remain to be answered are…can they, or will they?

And in silver??? I’m glad you asked. Silver also had a robust day on Monday, and its price also got trashed along with gold’s. It would be fair to presume, would it not, that silver open interest would have soared as well? Well, one would be wrong to presume that. Silver o.i. on Monday rose a magnificent 191 contracts to 98,823…on decent volume of 21,428 contracts. Ted figures that there has been little, if any, deterioration in silver open interest since last Tuesday’s cut-off. I feel [and Ted agrees] that, at the absolute maximum, there are about 7,000 speculative long contracts left to be liquidated in silver for it to be all cleaned out on the downside. In gold, it’s 50-100,000 contracts…and more than that, if we talk about returning to the lows of last November.

It should also be obvious that the bullion banks are treating the silver market like it was a bucket of nitroglycerine…which, in fact, is exactly what it is. They have the kid gloves on here. Ted Butler has always said that the silver market is the center of the universe for the bullion banks…and he would be right about that. These changes in open interest…gold vs. silver…should speak volumes to you. The bullion banks [principally JPMorgan] do not want to go back on the short side of this market.

Many times in the past, the bullion banks have used the price of gold to smash the price of silver. But the question keeps coming up…can they? Will they? If this effort we saw over the last six weeks [gold down to $907...silver to $12.45 at the lows ten days ago] was the best they can do…well, it could get interesting to the upside. But…they have the firepower in their arsenal to blast gold down at least $100 from where it is right now if they choose to. But can they…or will they? The price action in the days and weeks ahead will tell us a lot. The rest of the summer could be really interesting.

Yesterday’s Comex Delivery Report showed that 3 gold and 42 silver contracts were delivered. There were no changes in the alleged holdings at SLV…and over at GLD, a smallish 68,713 ounces were withdrawn. And at last…after six days in a row…the U.S. Mint reported no changes in their production numbers on Tuesday. Over at the Comex-approved warehouses, total silver inventories dropped by four rather small good delivery bars…3,891 ounces.

The usual N.Y. gold commentator had the following…”[This week] the European Central Bank weekly statement of condition indicated no change in “gold and gold receivables”. At a glance, this is only the second time in almost a decade nothing was reported sold. Last week’s disposal was only €2 Million – 0.09 tonnes. The ECB squadron of banks appears to have withdrawn from the market.”

“[On Monday] very powerful opposition immediately materialized on gold’s challenging important technical levels. Both UBS (NYSE:UBS) and Mitsui have remarked that the Spec long as reported by the CFTC had, as of last Tuesday, come down to levels at which they could entertain the possibility of a rally. Perhaps the CFTC data influenced the instigator of yesterday’s move. Unfortunately, as of last night, open interest had added 23,027 lots (71.6 tonnes, or 6.2%) for a $26 rise (2.8%).” [Ted's comment in a prior paragraph that gold o.i. had increased 20,000+ contracts since last Tuesday's cut-off is obviously correct. - Ed]

Before I start on my stories for the day, I want to mention something from my commentary yesterday. One of the charts provided was the contraction of the Commercial Paper market. The chart I cut and paste wasn’t overly clear…so here is the URL where I got the chart from…and it’s infinitely better. The link is here.

Over at Bill Murphy’s lemetropolecafe.com came this item of interest. It appears that a Café member e-mailed David Einhorn of Greenlight Capital to get some clarification on the switch from GLD to bullion (Did Greenlight simply redeem its GLD shares for bullion from GLD, or did Greenlight sell its GLD shares and procure the bullion from a source other than GLD?). The reply he got from Einhorn was as follows…”We didn’t discuss the transaction at that level of detail (and don’t plan to).”

Today’s first story involves the U.S. Postal Service. It appears that four unions representing the nation’s postal workers are pleading for a meeting with the White House to address possible funding shortfalls for workers’ payroll and retiree health benefits. USPS top executives are now saying that the USPS will default on a $5.4 billion payment to prefund future retiree health benefits on September 30, 2009…and may not be able to make payroll in October and will be forced to issue IOUs instead. I thank Craig McCarty for the story over at myfederalretirement.com and the link is here.

In a story out of the Financial Times in London is this headline…”China to deploy foreign reserves”…”Beijing will use its foreign exchange reserves to support and accelerate overseas expansion and acquisitions by Chinese companies…” and the link is here.

Along with Philadelphia yesterday [and the ongoing bankruptcy saga in California] is this Bloomberg story headlined “Jefferson County, Alabama, to Put One-Third of Workers on Leave”…and unpaid leave at that! The link is here.

Thanks to Bill King over at the King Report on Sunday night, came this insider story posted over at advancedtrading.com. It’s a fascinating look into the world of “proprietary algorithmic trading codes”…the story that engulfed Goldman Sachs (NYSE:GS) just recently. Despite its rather complex subject matter, the article is pretty easy to understand…and very much worth your time. The article is entitled “The Real Story of Trading Software Espionage”…and the link is here.

And lastly is another article by silver analyst Ted Butler. Now that the U.S. Commodity Futures Trading Commission is talking seriously about imposing position limits in silver, Butler says the suppression of silver prices can be broken. But only if silver investors express themselves and encourage the new regime at the CFTC, every step of the way. For the commodity exchanges will fight behind the scenes to preserve the status quo…and the illicit profit it ensures for the market manipulators. Butler’s new commentary is headlined “The Real Solution” and is linked here.

It is hard to imagine a more stupid or more dangerous way of making a decision than by putting those decisions in the hands of people who pay no price for being wrong. – Thomas Sowell

I’d forgotten that Gentle Ben was giving his semi-annual monetary policy report to the House Finance Services Committee yesterday morning. That may have been part of the reason why there was no follow-through in the gold market on Tuesday. As to what’s coming down the pipe…if you’ve carefully read what I had to say further up…it’s really a crap shoot. Either gold and silver get killed and the bullion banks cover as many shorts as they can…or the price continues to rise and the bullion banks just get more mega-short. Then there’s the issue of the CFTC’s position limit changes…if, and/or when they happen. I think I’ll flip a coin instead.

See you on Thursday.

Source: And Then There’s This…Wednesday, July 22nd, 2009

Silver hit its intraday high of $13.70 about midway through Hong Kong then developed a volatile but generally downward sloping trend and fell to its intraday low of $13.45 around 1 p.m. in New York. From there silver was able to regain some ground through the Globex to close at $13.53/oz., down 10 cents. Overnight, silver is down sharply. (Click here for charts)

Gold was propped up by higher oil prices yesterday but that upward force was slightly overpowered by investors’ naïve belief that the Federal Reserve will be able to combat future dollar devaluation and price inflation.
Still, analysts like Shuji Sugata, a manager at Japan’s Mitsubishi Corp Futures & Securities, said crude oil is currently a key factor in providing gold with direction.

“We’ve seen crude oil climb almost daily and before we knew it it had topped $60, which has been a positive factor for gold,” Shuji said.

“Now whether crude oil challenges $70… will also be key to whether gold will rise towards its recent high near $990,” he continued.

Meanwhile, reported holdings of SPDR Gold Shares (NYSE:GLD) dropped 2.13 metric tons yesterday from 1,094.54 tons to 1,092.41 tons. In the last 30 days, holdings have fallen 38.83 metric tons, or 3.4%.

In company specific news, Australia’s largest gold producer, Newcrest Mining’s annual gold production fell more than 8% over the past fiscal year, only just meeting company guidance.

Newcrest’s latest production report showed total gold production across its operations fell to about 1.63 million ounces, compared to about 1.78 million ounces last year, a fall of 8.4%.

Newcrest shares fell 57 cents, or 1.84%, to $30.39 on the news.

Source: Gold Holds Firm