Gold and silver didn't do much anywhere on planet earth yesterday. Their respective lows were at the Comex open... and a $10 rally in gold, along with a 30 cent rally in silver, came to an abrupt end just minutes after London closed for the weekend. After that, both metals prices sagged a bit before heading sideways for the rest of the New York trading session. Both metals posted small gains over Thursday's closing price... as did the HUI*1 and XAU*2 precious metals indexes.
The changes in open interest*3 for Thursday aren't worth spending much time on. Even though both metals had substantial down days, and short covering should have been expected... open interest actually rose in both metals. In gold, o.i. was up 639 contracts... and silver o.i. was up 33 contracts. Basically unchanged in both. Volume was pretty chunky, however. In gold it was 162,299 contracts... and in silver it was 41,549 contracts.
The big story was the Commitment of Traders report which came out at 3:30 p.m. yesterday for positions held as of the end of trading on Tuesday, October 13th. Surprisingly, there was almost no further deterioration in silver, as the bullion banks only increased their net short position by a very smallish 238 contracts. Right now the bullion bank net short position is a whopping 65,426 contracts... 327.1 million ounces of paper silver.
In my daily conversation with Ted Butler, he broke the numbers down even further. '4 or less' bullion banks are short 63,383 Comex silver contracts... which is 97.6% of the entire net short position of 65,426 contracts. '8 or less' traders are short 76,168 Comex silver contracts, which represents a stunning 116% of this same short position. And the most grotesque number of all [when you take out all the market-neutral spread trades] is that JPMorgan, all by itself, is short about 40% of the entire Comex silver market!!! The full-colour COT graph for silver is linked here.
In gold, the bullion banks increased their net short position by another 14,062 contracts. Only by purchasing 4,493 long positions did the bullion banks save themselves from the notoriety of being net short over 30 million ounces of gold at the end of this reporting period. Their new net short position [as of Tuesday] was 295,926 contracts... or 29.6 million ounces of gold. The '4 or less' bullion banks are short 19.6 million ounces of that... and the '8 or less' bullion banks are short 27.0 million ounces of gold... or 91.2% of the entire net short position. The full-colour gold COT report is linked here...and is a sight to behold.
Yesterday afternoon, Ted Butler did his usual weekly interview with Eric King over at King World News. The interview is a must listen and I advise you to stop reading right here and listen to this report before continuing. The link is here.
Yesterday, the CME's Daily Delivery Notices showed that 97 gold contracts were scheduled to be delivered on Tuesday. There were no deliveries reported in silver. Their were no changes to the alleged holdings of either the GLD or SLV yesterday. The U.S. Mint updated their eagles numbers again... another 6,000 gold and 150,000 silver... to 56,000 and 1,417,000 respectively month-to-date. And the daily change in the Comex-approved depositories were, once again, not worth mentioning.
The usual New York gold commentator reported the following yesterday... "Thursday's down $14.10 December gold close saw a 639 increase in open interest to 511,391 lots... a new 2009 high."
"India was an importer all day even though the rupee weakened. However, the currency did gain on the week, the 6th weekly gain running. Since the March low, the rupee has risen 12.8% against the US$. Mitusi-London today noted better Indian gold off-take, but like many, presumes there will be a substantial post-Diwali decline, which I doubt. Unfortunately for the nerves of gold's friends, Monday is an Indian holiday."
Gold at the TOCOM was active. Confusingly though, the public cut another 2.32 tonnes from its long, which now stands at the very low level of just over 14 tonnes."
"Bearishness is widespread, with a majority [9/16] of gold traders in Bloomberg's weekly poll forecasting a decline next week." [The link to that story is here.
"The influential Gartman Letter is suggesting... we've every reason to believe that our target back toward $1,000 shall be seen at some point in the next week or so..."
"I believe that, as so often, this expectation is based on an in adequate appreciation of the state of the physical market." [We shall see. - Ed]
Eric King of King World News was kind enough to interview me the other day, and you can listen to the interview here. I have quite a few new stories today, but since it's the weekend, I hope you can find the time to run through them.
The first story was sent to me by Craig McCarty. It's a Reuters piece that was posted yesterday evening, so it hasn't seen much exposure so far. "Billionaire hedge fund founder Raj Rajaratna
m and executives from some of the most prestigious U.S. companies were charged on Friday with the largest hedge fund insider-trading scheme ever. Also, three executives from major American companies IBM, top consulting firm McKinsey & Co... and the venture capital arm of chip giant Intel Corp are also facing criminal charges." The headline reads "U.S. charges billionaire Rajaratnam with record insider trading"... and the link is here.
The next three stories are all courtesy of the King Report. The first is a story posted at
In another Reuters story, the headline reads "Capital One credit card defaults rise in September". Capital One is not the only company recording losses of this magnitude. Most companies are now reporting loss rates of over 10%. The story says that this problem will peak in Q4 of this year "and remain elevated in 2010." These guys are dreaming in Technicolor if they think that will be in the case. Net charge-offs will get much worse than this before there's any sign of leveling off. The link to the story is here.
The last story that's courtesy of the King Report is an offering from Ambrose Evans-Pritchard from The Telegraph in London. The headline reads "German 'Wise Men' fear credit crunch in 2010". "Germany's leading institutes have warned that the pace of economic recovery is 'unsustainable' and that the country's banks may face a fresh crisis over the next year as bad debts surface in earnest." Further down in the story, ratings agency Moody's said this week that Spanish banks face "severe asset quality deterioration" and have yet to make provision for "losses that could reach 225 billion Euros. The link is here.
The last two stories are courtesy of reader P.S. The first is a story from finance.yahoo.com The video clip starts as soon as you hit the link, but the written story posted beside it is a much better synopsis of the situation, and you should pay more attention to that than the video. In the video they never mention two items that are on the screen... the increase in the gold price from $280 to $1,060... nor the price of crude oil, which was a $16.44 back in 1999, and is now over $75. But to their credit, they mention that the dollar has lost 25% of its purchasing power, so today's 10,000 Dow is, in actual fact, worth 7,500. It's a short item headlined "Dow 10,000: The More Things Change, The More They Stay the Same"... and is well worth the read... and the link is here.
Lastly is a story posted over at mises.org. "One of the few places in the world not yet plagued by government intervention is the internet. Although some governments in certain parts of the world have infiltrated the activities of the internet to varying degrees, it remains the closest thing to a purely free economy that we can identify in the modern world." The essay, which isn't particularly long, is entitled "Witness the Freest Economy: the Internet" and the link is here.
Who looks outside, dreams; who looks inside, awakens. - Carl Gustav Jung
The last two stories are courtesy of reader P.S. The first is a story from finance.yahoo.com The video clip starts as soon as you hit the link, but the written story posted beside it is a much better synopsis of the situation, and you should pay more attention to that than the video. In the video they never mention two items that are on the screen... the increase in the gold price from $280 to $1,060... nor the price of crude oil, which was a $16.44 back in 1999, and is now over $75. But to their credit, they mention that the dollar has lost 25% of its purchasing power, so today's 10,000 Dow is, in actual fact, worth 7,500. It's a short item headlined "Dow 10,000: The More Things Change, The More They Stay the Same"... and is well worth the read... and the link is here.
Lastly is a story posted over at mises.org. "One of the few places in the world not yet plagued by government intervention is the internet. Although some governments in certain parts of the world have infiltrated the activities of the internet to varying degrees, it remains the closest thing to a purely free economy that we can identify in the modern world." The essay, which isn't particularly long, is entitled "Witness the Freest Economy: the Internet" and the link is here.
Who looks outside, dreams; who looks inside, awakens. - Carl Gustav Jung
Today's 'blast from the past' goes back to 1972... and, as usual, needs no introduction whatsoever. So turn up your speakers and click here. I would be the first one to admit that, in the short term... the next 6 weeks... I have no idea which way the gold and silver markets are going to go... and I'm getting tired of repeating myself day after day. If you took the time to listen to what Ted Butler said in his interview with Eric King, you'll understand why I'm sitting on the fence. Nobody knows for sure how this is going to end... but end it will, one way or another... maybe even with a bang. This is certainly not a market for the faint of heart.
I must, again, repeat what I say every week at this time, In order to participate and gain maximum benefit from this ongoing bull market in the precious metals, you must make the right investment decisions. As a writer in the gold and silver market, and as a member of GATA for the last nine years, I have free access to a lot of precious metals investment newsletters that are sent my way...lots of them! And I can say without a word of a lie, that Casey Research's International Speculator is far and away the best of the bunch. I know the price is steep... but quality pays... it never costs. But included in that is a complimentary subscription to Casey's Gold & Resource Report... plus, your satisfaction is 100% guaranteed. I strongly urge you to give this serious consideration.
I await Sunday evening's opening of the gold market in the Far East with great interest.
Enjoy what's left of your weekend, and I'll see you on Tuesday morning.
*1 The HUI Index represents the symbol of the AMEX Gold BUGS Index. BUGS stands for Basket of Un-hedged Gold Stocks which means that companies included in the HUI Index limit any hedging of their gold positions to one and a half years. To the contrary, another major gold index, the XAU Index, does include companies that hedge for the long term. As a result, the HUI Index tends to be more volatile than the XAU Index. At its inception in March 1996, the HUI Index was set at a value of 200. The HUI Index tracks a group of companies (i.e. there were 15 in 2008) involved in the mining of gold. The HUI Index is a modified equal dollar weighted index. In computing the HUI Index, AMEX ranks these gold mining companies based on market capitalization. AMEX then gives greater index weighting to the top three ranked HUI Index companies while the remaining HUI Index stocks are given equal weighting. AMEX maintains the HUI Index in accordance with the eligibility criteria set forth in Exchange Rule 901c. Composition of the HUI Index is reviewed quarterly at the close of trading on the last Friday in March, June, September and December. AMEX can also, at its discretion, decide to add or remove companies from the HUI Index to respond to changes in the gold mining industry and to ensure that the companies included in the HUI Index are still a fair representation of gold mining companies.
*2 http://www.soyouthinkyoucanrant.com/pop_windows/stocks/xau.html
*3 Open interest (also known as open contracts or open commitments) refers to the total number of derivative contracts, like futures and options, that have not been settled in the immediately previous time period for a specific underlying security.
For each buyer of a futures contract there must be a seller. From the time the buyer or seller opens the contract until the counter-party closes it, that contract is considered 'open'.
[edit] Use of Open Interest in Technical Analysis
Many technical analysts believe that a knowledge of open interest can prove useful toward the end of major market moves. For some option traders, open interest indicates the intensity of trading in a financial instrument. If open interest increases suddenly, it is likely that new information about the underlying security has been revealed, which may indicate a near-term rise in the underlying security's volatility. However, neither an increase in volatility nor open interest necessarily indicate anything about the direction of future price movements. A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Technical analysts view increasing open interest as an indication that new money is flowing into the marketplace. From this assumption, one could conclude that the present trend will continue. Analogously, declining open interest implies that the market is liquidating, and suggests that the prevailing price trend is coming to an end.
However, according to the definition of open interest in this entry, a change in open indicates a difference in the number of buyers and sellers of a financial instrument. Like volatility, it has no directional component, it is just a tally of unsettled contracts.
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