So when I hit the ‘On’ button on the computer yesterday morning, I was hoping and praying that we would be away to the races when the Kitco gold chart came up…and we were. I’m encouraged by the fact that gold managed to finish on its highs in electronic trading after the Comex had closed for the day. The markets are very thin there…especially on Fridays…and it would have been easy for JPMorgan to have crushed the price if they’d wished to. But they didn’t.

Silver had a little harder time of it, and both Ted Butler and myself were somewhat disappointed in its performance vis a vis gold. However, volume in silver yesterday was pretty light considering the run-up…so I guess I should be thankful for small mercies…and I am.

Open interest in gold on Thursday fell a largish 5,117 contracts, whereas silver’s o.i. rose a smallish 194 contracts. The Commitment of Traders data published yesterday turned out to be nothing worth mentioning. I guess I shouldn’t have been surprised. When you’re standing at the bottom of the barrel, it just means that there are no spec longs left that the boyz can take out….and the bottom is in.

So, where to from here? I’m expecting a big run to the upside from this point. Gold closed right at its 50-day moving average and silver closed slightly below its 20-day moving average. Once these key averages are penetrated convincingly to the upside, it’s almost a certainty that the technical funds (in the Non-Commercial category of the Commitment of Traders) will be in this market going long in a big way. But the $64,000 question you have to ask yourself is this one…”Will the bullion banks (JPMorgan/HSBC USA Ltd.) be there to go short against them as they always have?” That will determine how fast and how high this rally goes. If they show up, it will be the “same old, same old” garden variety rally that we’ve always had. But if they just fold their arms and stand aside…then the tech funds will be buying into a vacuum…and we’ll have a 10/10 “reverse” waterfall to the upside that will take your breath away. Ted Butler says (and I agree) that the bullion banks have just spent four months beating the living crap out of the tech longs in all commodities…especially the money commodities…and that now that they have covered every short position that they can, they won’t be back to put their heads in the lion’s mouth again. We should know pretty soon what they’re going to do…and the price action will tell all.

In a report at ino.com, I see that “the Italian parliament will consider a long-discussed plan to use the Bank of Italy’s gold reserves to lift the country’s economy…Previous attempts by European Union governments to use proceeds from central bank reserve sales to support political goals have met with resistance. Moreover, the Bank of Italy is bound by an agreement among European central banks that strongly limits its freedom to sell its gold and foreign exchange reserves.” (Note to Finance Minister Giulio Tremonti: Call Beijing…they’ll cut you a cheque so fast it will make your head spin…and not one ounce of that gold would ever hit the markets. – Ed)

In other news…Warsaw (Reuters) “Poland’s financial and securities regulator KNF said on Friday it had filed a complaint with local prosecutors accusing a ‘person acting in the name of JP Morgan Securities’ of possible market manipulation…A spokesman in London for JP Morgan Securities, a unit of JPMorgan Chase, declined to comment.” (Guilty as charged, would be my bet. – Ed). New York (Reuters) “Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock market value in three days…Citigroup has more than $2 Trillion in assets, dwarfing companies such as AIG.” (But its market cap at the close of trading on Friday was $21 billion. One wonders what these “assets” are really worth…tee hee! – Ed)

click to enlarge

Two stories today. The first was posted at Kitco yesterday morning. It proves beyond a shadow of a doubt that the demand for physical bullion by the public is not only world wide…but now well beyond the capabilities of all the world’s mints to satisfy. It’s the result of finite refining and production capacity on one hand…and a finite amount of good delivery bars to supply that demand on the other. The story…posted at theaustralian.news.com.au…is entitled, “Perth Mint suspends orders amid rush to buy bullion” and the link is here.

The second story is a sixteen page monster that will keep you off the streets for a bit. It’s in (of all places) the December issue of Vanity Fair. The author (who writes under the pen name Niall Ferguson) is Laurence A. Tisch, Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West. The essay is entitled “Politics & Power: Wall Street Lays Another Egg”…and the link is here.

A man in the audience who identified himself as a Comex gold trader asked how he could protect himself against U.S. government intervention to obstruct delivery of gold due on the December contract. I replied that unfortunately the only defense against such lawlessness by the government might be the Second Amendment. – Chris Powell, Secretary Treasurer, gata.org

Today’s ‘blast from the past’ is another one from the 70s. I can’t believe I actually had a ‘hair do’ like that way back then. I looked ridiculous. Those were the days…sigh! Turn up your speakers and click here.

At precisely 3:00 p.m. Eastern time, some mysterious entity (probably Hank and the President’s Working Group) starting buying S&P futures by the bucket full. The short covering rally that followed was a sight to behold. If you think for one second that what happened in the last hour of trading was free markets in action…I’ve got a bridge I can sell you!

Source: And Then There’s This… Monday, November 24th, 2008

From there, both metals rose in fits and starts all through London, but then began to tack on some gains once the Comex opened for business. However, the rise in prices did not go unopposed. You can see from looking at the Kitco gold chart; that once in London trading…and three times in New York trading…gold got sold off slightly when it showed any signs of “irrational exuberance” to the upside. Silver was the same.

Although I’m delighted with Friday’s action, I’m actually a bit underwhelmed by it. Firstly, in forty-eight hours, oil tacked on about $16…and the dollar was down 1.4 cents. These are monster moves…both of them…and very gold friendly. Despite that, gold did nothing on Thursday. All the gains came on Friday…such as they were. Remember that oil was about $110 and the US$ was a hair under 70 cents when gold was at its peak of $1,040 or so. We barely cracked $900 in gold on Friday…and silver is still down about 25% from its high in mid-March. So you can see why I’m not jumping up and down. But regardless of the monster sell-off in the equity markets, the HUI put in a pretty good performance.

Despite the run-up in price yesterday, there was just decent Comex volume on Friday, not huge volume. As far as Thursday’s open interest numbers go, gold o.i. rose 1,543 contracts, and silver added another 882 contracts. Volume was obviously thin on Thursday as well.

We are, once again, well through both the 20- and 50-day moving averages for silver. Gold closed on its 50-day m.a. yesterday and is about $5 above its 20-day m.a. As I mentioned, volume has not been extremely heavy in either metal for the last couple of days. That could change quickly once the tech funds show up on the long side.

As far as the Commitment of Traders goes, the “8 or less” traders (bullion banks) covered some of their shorts in both metals while the tech funds pitched their respective long positions. There wasn’t as much of a clean-out as either Ted Butler or myself were expecting. We were expecting at least double what was actually reported…but maybe this is the best the bullion banks could do! Despite the clean-out, the concentrated short position in gold hit another new high record amount. The boyz are now short 84% of the entire Comex gold market. In silver it’s 79%. Yet the CFTC and your mining companies do nothing.

And lastly, I see that Dennis Gartman got totally blown out of his gold short positions. Al Korelin, from the Korelin Economics Report, interviewed me about this…and ‘all of the above’…in our Friday commentary which is linked here.

I have three stories today, so I’m glad it’s the weekend, as I hope you can find the time to read them…if they suit your fancy. The first one is from The Wall Street Journal of all places. This is the second gold story that has come from a senior ‘fellow’ of the Council on Foreign Relations in the last sixty days. Does it mean anything? Who knows. You can decide. The article is entitled “Contracts as Good as Gold” and is linked here.

Then a day after the above story showed up, this next story appeared in the Asia Times out of Hong Kong. The co-authors of this piece look and sound like they’re reasonably well connected too. Any relation to these two articles? Don’t know that either…however, gold is front and centre in both. It’s worth reading, and is entitled “Time overdue for a world currency” and is linked here.

And lastly comes the following Reuters story filed from Jerusalem. I would suspect that the contents of this story had something to do with what happened in the gold, oil, currency and stock markets on Friday. The article is entitled “Israel to attack Iran unless enrichment stops–minister”. The link is here.

You can fool some of the people all of the time, and those are the ones you want to concentrate on. – George W. Bush, Washington, D.C. – March 31, 2001

Today’s video will take you back about 40 years. My God…where has the time gone??? Turn up the volume on your speakers and enjoy! The link is here.

I noted in a Bloomberg story that US household wealth fell the most in five years….$1.7 trillion worth in Q1/08. Real estate-related assets dropped by $329 billion, the most since 1952. And even though the Dow was down 411 points (and falling) just before the close, the ‘Catch a Falling Knife” brigade made sure that it didn’t close on its low. Is everything still fine? Monday’s trading should be educational.

Enjoy the rest of your weekend, and I’ll see you bright and early Tuesday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Saturday, June 7th, 2008