Gold & Silver Daily
"A run-away gold price would certainly be the end of the current fiat money system in very short order if the free market was allowed to operate unchecked."

¤ Yesterday In Gold & Silver

Gold was pretty flat through most of Far East trading...and Wednesday's low of the day came at 3:00 p.m. Hong Kong time...about an hour before London opened on their Wednesday morning.

Gold's high of the day [about $1,750 spot] came at 12:30 p.m. in London...and it was then sold off into the London p.m. gold fix two and a half hours later.  The ensuing rally was not allowed to get over the $1,750 mark once again...and after it regained that price about 11:30 a.m. in New York, the price got slowly sold off going into the close of electronic trading at 5:15 p.m. Eastern.

The gold price closed in New York at $1,743.00 spot...up $6.30 on the day.  Net volume was very decent at 120,000 contracts.

The silver price path was similar...and the rally that began at 3:00 p.m. in Hong Kong yesterday afternoon was far more substantial, but ran into a determined seller once the price got within a dime of the $34 price level.  From that point, silver pretty much traded sideways...and the many attempts it made to rise about the $34 spot price mark were firmly sold off.

Silver closed the New York trading session at $33.71 spot...up 58 cents.  Net volume was 31,000 contracts...and I can tell from the closing CME volume numbers that the roll-overs out of the March silver delivery month is already underway.

The dollar index rose about 25 basis points earlier in the Far East on Wednesday...and topped out at precisely 2:00 a.m. in New York, which just happened to correspond with the low prices for gold and silver at 3:00 p.m. Hong Kong time during their Wednesday afternoon.

Starting at the 2:00 a.m. high of 79.55...the dollar index spent the next nine hours declining all the ways down to 78.63...a fall of 92 basis points, or 1.16%.  It's obvious, at least to me, that the original rallies in both gold and silver that began at 3:00 p.m. Hong Kong time...about an hour before London capped at 10:00 a.m. in London.  If you look at the Kitco gold and silver charts above, it's easy to spot.

Once the low was in about 11:05 a.m. Eastern time, the dollar index rose about 30 basis points going into the close of New York trading.

Without the price management scheme in London and New York yesterday, the precious metals would have blasted off on this drop in the dollar.  If you remember what happened to silver on Tuesday, silver got clocked for 4% on a dollar rally of only 55 basis points.  [Here's the link to my column yesterday if you want to check it out.]

The price management scheme pretty much attempts to negate the rise in precious metals prices as the dollar index falls...and then press their advantage when the dollar index rises.

The gold stocks more or less followed what the gold price did...and the HUI finished unchanged from Tuesday.

For the second day in a row the silver stocks finished mixed...but Nick Laird's Silver Sentiment Index closed up 1.90%.

(Click on image to enlarge)

'Day 3' of the February delivery month for gold showed that 241 gold and a chunky 146 silver contracts were posted for delivery on Friday.  In gold, the biggest short/issuer was JPMorgan out of its house account, with 183 contracts to deliver.  Jefferies was a distant second at 43 contracts.  The biggest long/stopper...180 contracts...was Deutsche Bank out of its proprietary [house] trading account.

In silver, it was Jefferies once again.  They were the short/issuer for all 146 contracts.  The lion's share of these deliveries were received/stopped by the Bank of Nova Scotia and JPMorgan.  These two firms will take delivery of 134 silver contracts of the 146 issued.  The link to yesterday's Issuers and Stoppers Report is here...and it's worth a quick peek.

There were no reported changes in either GLD or SLV...and the U.S. Mint had nothing to say for itself, either.

The Comex-approved depositories had another big day on Tuesday, as they reported receiving 999,973 troy ounces of silver...and shipped 687,566 ounces of the stuff out the door.  The link to that action is here.

Silver analyst Ted Butler posted his mid-week comments to clients yesterday...and I've had to steal three paragraphs from this report in order to make the point he makes about the short position in SLV.  These three paragraphs are must reads.  I hope he's still talking to me when I call him tomorrow.

"What is very upsetting to me is when the SLV short sellers are not even trying to buy a few days’ or weeks’ worth of time in order to round up the physical silver to deposit, but instead have no intention of ever depositing silver into the SLV. Having no intention of ever depositing silver on shorted shares is pure fraud and manipulation. And that intention is easy to prove – all you have to look at short interest data for the past year. The short interest in SLV has averaged over 25 million shares for all of 2011 into today. That means 25 million ounces of silver have not been deposited and the buyers of those shorted shares do not have the metal backing their shares as dictated by the prospectus. This goes to the heart of my argument. Because the short sellers of these shares clearly have no intent to deposit the metal (otherwise they would have done so by now), they are defrauding whoever owns the shares with no metal backing (perhaps my wife). Further, if the 25 million ounces of silver that should be backing the shorted shares had actually been purchased and deposited into the SLV, the price of silver would be substantially higher. That’s where the manipulation angle comes in."

"Before the SLV started trading in 2006, the Silver Users Association petitioned the US Securities and Exchange Commission to prevent its introduction because the SUA claimed there was not enough silver to supply it without causing prices to surge. The SEC took the unusual action of formally reviewing the matter and decided that the SUA’s fears were unfounded and approved trading in SLV. Despite the SEC’s intense review (complete with a public comment period), the matter of short selling in the shares was hardly considered. The only reference to short selling in the final rule was on pages 13-14 under the topic of liquidity of the shares. An objective reading of that reference connotes an understanding that any short selling in shares of SLV would be temporary until the short sellers could quickly deposit silver.  The link to that ruling is here."

"No one, including me, contemplated the effects that a large and permanent short position in SLV might have on shareholders and the price of silver. Today, six years after the SEC’s final ruling, the effects have become clear. In addition to potentially defrauding large numbers of SLV shareholders, the large and permanent short position has enabled two massive 35% takedowns in the price of silver in 2011. Make no mistake – these takedowns would not have occurred, in my opinion, had there been no excessive short position in SLV. Despite all this, I am still convinced that this fraudulent and manipulative short position in shares of SLV will be rectified in time and that shareholder and silver investors will be amply rewarded when that time of rectification comes."

Nick Laird of fame sent me a couple of charts that he thought might be of interest.  The first is US Bond Yields for 5, 10 and 30 year bonds starting back in 2007.  As you can see, the 5-year bond is at record low yields...and the 10 and 30 year are not that far behind.

(Click on image to enlarge)

And here's the Total PMs Pool chart...the total physical ounces of all know repositories, ETFs, funds, etc...and all valued in US$.  As you can see, we are back at record levels of metal held...and the big increase in value of all metals took a big jump in January.  We're not back at record-high prices, but a new record high price is less than 5% away.

(Click on image to enlarge)

Here's a 3-year chart of the CRB that has some interesting annotations on it.  I thank Washington state reader S.A. for sharing it with us.

I have the usual number of stories today...and I hope you find most of them of interest.


¤ Critical Reads

After a Delay, MF Global’s Missing Money Is Traced

Investigators have determined what happened to nearly all of the customer money that disappeared from MF Global around the time of its bankruptcy last Oct. 31, but have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing, people briefed on the investigation said.

While authorities have traced hundreds of millions of dollars to banks, MF Global’s trading partners and even the firm’s securities customers, investigators remain uncertain about whether they can retrieve the money.

Some recipients were entitled to payouts from MF Global, which could make clawing back the money difficult. For instance, securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients, according to other people briefed on the matter.

This story was posted late Tuesday night in The New York Times...and I thank reader Phil Barlett for sending it along.  The link is here.


Slow Start to 2012 Evident in January U.S. Rail Traffic

Fitch Ratings sees little evidence of a notable ramp up in U.S. economic activity in January freight volume trends, with shipments of major industrial commodities growing at a lackluster pace. Data provided by the Association of American Railroads points to generally sluggish demand growth across most commodity groups through Jan. 21, with a few notable exceptions where early 2012 expansion may outstrip growth in the broader economy.

Management teams at the largest U.S. rail operators have painted a picture of relatively restrained volume growth for 2012, after rail carload growth slowed in the second half of 2011. Relatively strong operating fundamentals for Class I rail operators such as CSX Corp. and Union Pacific Corp. continue to be driven more by pricing than volume. Revenue per carload growth rates again outpaced volume growth in the fourth quarter, reflecting the strength of the rail pricing environment and higher fuel surcharges.

Total carloads grew by only 1.1% year over year during the first three weeks of January, and robust growth is evident only in a few select commodity groups. Shipments of high-volume commodities such as coal and chemicals are flat or declining on a year-over-year basis.

This story was posted over at the website on Tuesday afternoon...and is one I borrowed from yesterday's edition of the King Report.  It's worth skimming...and the link is here.


Dead Market Exhibit A: January Volume

Presented with little comment except to say that the total lack of volume (and massive concentration of what volume there is at the close) is hardly reflective of a market that is anything other than broken and dying.

Last January (2011) the average number of stocks traded on the NYSE per day was 891mm shares vs. 661mm for this January (a 26% drop YoY!) and this is down an incredible 59% from January 2008.

This one-paragraph article, which you just read, was posted over at late on January 31st...and the graph is worth the trip.  This is another story that I borrowed from yesterday's King Report.  The link is here.


Greece nears debt deal with banks but EU clash looms

Greece was on the brink of a deal with private creditors on Wednesday night after weeks of brinkmanship.

But the simmering clash with EU officials and the International Monetary Fund has yet to be resolved and remains a larger threat.

"We are just one step, just a formality, from completion," said Evangelos Venizelos, the Greek finance minister.

The deal will slice €100bn off Greece's debt and leave banks, pension funds, and other bondholders nursing effective losses above 70pc, but it does not in itself avert the risk of a Greek default in March.

This Ambrose Evans-Pritchard offering was posted in The Telegraph yesterday evening...and is Roy Stephens first offering of the day.  The link is here.


The Hard Sell: Merkel Seeks Euro Zone Investments from Beijing

Many in Europe have been eyeing Beijing's trillions as a possible solution to the continent's debt crisis. During her trip to China, German Chancellor Angela Merkel plans to promote investments in the debt-ridden euro-zone countries. But the Chinese have so far been tight with their money. Will Merkel succeed in getting Beijing to bend?

The caricature of the euro shows a small and ailing little man -- unshaven, bandaged and weak, his eyes peering down at the ground in humility and carrying an old hat in his right hand to collect money. Angela Merkel, who is accompanying this sad creation, looks serious as she knocks on the imperial gate seeking entry -- and to plead for a small handout for her problem child.

The picture created by a caricaturist for China's English-language Global Times newspaper isn't a very nice one. But there is a nugget of truth in the exaggerated image. Merkel isn't exactly going to be begging when she begins her three-day visit to China on Wednesday, but neither will she be opposed to leaving the country with one or more deals bringing multi-billion Chinese investments to the debt-plagued euro zone.

This story was posted on the German website yesterday...and is Roy's second offering of the day.  The link is here.


China Headed for 2012 ‘Hard Landing’: Shilling

China's economy is headed for a “hard landing” this year as weaker demand overseas chokes off exports, said Gary Shilling, who correctly forecast the U.S. recession that began in December 2007.

A Chinese government report yesterday showed that export orders fell last month even as manufacturing expanded. The Shanghai Composite Index dropped 1.1 percent yesterday as stronger manufacturing boosted concern the world’s second- largest economy will decelerate further as the government refrains from loosening monetary policies to tame inflation and curb property prices.

“They slammed on the brakes,” Shilling, president of A. Gary Shilling & Co., a Springfield, New Jersey-based consultancy firm, said at the Bloomberg Link China Conference in New York yesterday. “Transition is not easy because they are geared up to exports.”

Shanghai reader Anson Lau, who sent me this story last night, had this to say in his covering e-mail..."As someone living in Shanghai, the excesses in residential and commercial real estate are clearly visible to any rational human eyes.  The whole property boom had been a massive wealth transfer exercise.  People's savings from the past 20 years of economic progress have moved into the hands of property developers, banks, SOEs, the governments...and those closely connected [to them]. It looks like the population is sucked dry...and this transfer is coming to a completion. The grand finale, the "final suck", could be a large dose of inflation to write off those bad debts."

This story was posted at Bloomberg yesterday evening...and I thank Anson for bringing it to our attention.  The link is here.


Outside View: Revolutions ahoy?

Alas poor Marx, Engels and Lenin. After being entirely discredited and disproved by the collapse of the Soviet Union and its communist ideology and repudiated by China's embrace of market capitalism, perhaps they weren't necessarily wrong. Instead, perhaps they were simply a century too early in their revolutionary aspirations!

Their thesis was empowered by the same forces envisioned by someone rarely associated with this communist trio, Thomas Jefferson in the Declaration of Independence. "When government becomes destructive, it is the right of the people to alter or abolish it and establish a new one." This is what has happened in Tunisia, Libya and Egypt and is threatening to occur in Syria and Bahrain.

Revolutions in some form will break out in predictable as well as unexpected places. Readers will draw their own conclusions about the revolutionary probabilities especially in one of the contenders -- the United States and equally interesting parallels with Russia.

This UPI piece from yesterday is well worth the read...and I thank Roy Stephens for sharing it with us.  The link is here.


South Korea, Japan want U.S. to exempt them from Iran oil sanctions

South Korea and Japan will soon meet U.S. officials in Washington to ask how much oil they can import from Iran under new sanctions that leave the Asian nations with few alternative sources for energy, government officials said Wednesday.

Japan is the world's third biggest oil consumer, and South Korea is the fifth largest.

Both nations import significant amounts of crude from Iran, which they are under pressure to cut back to secure a waiver from a U.S. law imposing sanctions on financial institutions that trade with Iran's central bank.

This Reuters story was posted in the Tehran Times yesterday...and is another Roy Stephens offering...and the link is here.


Asia buyers resort to any means to import Iran's petrochemicals

Some Asian traders are using creative methods to obtain Iranian petrochemical products as U.S. and EU-led international sanctions imposed on Tehran tighten, industry sources said on Tuesday.

Asia is divided on its stand on Iran sanctions, partly because of the country’s strategic importance as a source of crude oil and petrochemicals to the region...and Iran ranks next to Saudi Arabia as the biggest petrochemical producer in the Middle East, according to industry experts.

Some buyers have turned to using non-traditional currencies in trades, including the Japanese yen and the United Arab Emirates' (UAE) dirham, for letters of credits (LC) to pay for Iranian cargoes.

This interesting story was also posted in the Tehran Times yesterday...and I thank Roy once again for sending it along.  The link is here.


Doug Casey on the Coming War with Iran

Yesterday's edition of Casey's Daily Dispatch was all about the above topic...and was basically a mini version of the usual Wednesday edition of Conversations with Casey.  This is a must read from one end to the other...and the link is here.


JP Morgan adds muscle to metal warehousing money

Investment bank JP Morgan is bulking up its metal warehousing facilities in Rotterdam and Chicago, industry sources say, in a business that consumers complain deliberately delays delivery of metals to boost revenues from rent.

London Metal Exchange rules allow warehouse companies to release only a fraction of their inventories per day, much less than is regularly taken in for storage, creating long queues to get metal out and guaranteeing rental income.

JP Morgan's aim is to fill its Henry Bath warehousing arm with inventory in the two port cities large enough to rival trading house Glencore's Pacorini and U.S. bank Goldman Sachs' Metro.

The Pacorini and Metro facilities in Vlissingen, Netherlands and Detroit combined are estimated to hold around half of the global London Metal Exchange (LME) aluminum stocks which stand at just under 5 million tonnes.

This Reuters piece was posted on their website yesterday morning...and I thank reader Michael in Anchorage, Alaska for sending this story along.  The link is here.


Bill Gross Explains Why "We Are Witnessing The Death Of Abundance" And Why Gold Is Becoming The Default "Store Of Value"

While sounding just a tad preachy in his February newsletter, Bill Gross' latest summary piece on the economy, on the Fed's foray into infinite ZIRP, into maturity transformation and the lack thereof, on the Fed's massive blunder in treating the liquidity trap, but most importantly on what the transition from a levering to de-levering global economy a must read.

Gross goes to say that..."Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well induced inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little left in paper."

The first one through the door with this item was reader Richard Craggs...and the link is here.


Gold better for diversification than commodities, Hinde Capital says

Hinde Capital in London, whose CEO, Ben Davies, spoke at GATA's Gold Rush 2011 conference there in August, published analysis yesterday arguing that investment diversification into commodities generally is not much of a boon and is far surpassed by investment in gold.

I extracted this story...and Chris Powell's introduction...from a GATA release yesterday.  The Hinde letter is titled "The Myth of Commodity Diversification" and it's posted at the Hinde Capital Internet site...and the link is here.


Italy's Top Gold Scrap Buyer Sees Booming Business

OroCash, Italy's biggest buyer of used gold jewelry, expects business to flourish this year with the opening of 150 new collection points in Italy and abroad as high gold prices and unfolding economic crisis prompt people to sell family assets.

Recycled gold accounts for more than a third of global gold supply and is a major driving force on precious metal markets. Gold scrap volumes in Europe jumped 12 percent to record highs in 2011 on the back of rising metal prices, according to data from metals consultancy Thomson Reuters GFMS.

"People are no longer so emotionally attached to their old jewelry as in the past. Jewelery has become an accessory. People buy and sell it as easily as they buy and sell shoes," Marco Agostoni, OroCash commercial director, said on Wednesday.

This Reuters piece is another one that I borrowed from a GATA release yesterday.  It's definitely worth the read...and the link is here.



¤ The Funnies

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Tosca recently received results from the 13 remaining holes from its phase two, 16,000 M (4,873 m) diamond drill program. Per Tosca’s Chairman, Dr. Sadek El-Alfy, “the drill program has successfully verified historic drill results of the shallow Copper-Molybdenum cap and confirmed the presence of a deeper, well mineralized Molybdenum Porphyry deposit.” The results of 21 holes drilled through the copper/moly cap in Tosca's 2011 drill program give a weighted average grade of 0.39 % Cu over a core length of 113 feet (34.5 m). Since the copper cap is subhorizontal, the average core length can be interpreted as being approximately equivalent to true width. The copper/moly cap is crescent shaped, approximately 4,000 feet (1220 metres) long and 400 feet (122 m) to 1000 feet (305 m) wide.

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¤ The Wrap

Just because you do not take an interest in politics does not mean politics will not take an interest in you. - Pericles, 430 B.C.

Well, it was the second day of price management in a row in the precious metal markets yesterday.  It's obvious that the 'powers that be' were desperate to keep gold and silver prices suppressed as the dollar headed south, as a run-away gold price would certainly be the end of the current fiat money system in very short order if the free market was allowed to operate unchecked.

The volumes yesterday on such small price moves in both metals, is [at least to me] proof-positive that 'da boyz' had to throw everything, including the kitchen sink, at the Comex futures market to prevent a massive rally in gold and silver...and it wouldn't surprise me in the slightest if they were active in the shares as well.  The preliminary open interest numbers for Wednesday's trading day showed a decent [but not spectacular] increase in gold's open interest...and a smallish increase in silver's o.i.

The final open interest numbers for Tuesday [which will be in tomorrow's Commitment of Traders Report] showed a decline of about 1,000 contracts in both gold and silver.

Nick Laird has two more graphs for us today...and both are about silver.  I've already posted these graphs for gold...and Nick has been working tirelessly to produce the equivalent charts in silver...and here they are...and Nick explains them as follows:

"In the first 42-year chart...if you bought the NY open and sold the NY close, your money would be 53% of what you started with."  In the second 42-year chart Nick says that "if you bought the NY close and sold at the NY open, you would have had 3,200% gains."  Each chart is "Base 100".

I suggest that you use the 'click to enlarge' feature on both graphs, as each is full-screen size...and carefully read what Nick has written in the dialogue box on each.

(Click on image to enlarge)

(Click on image to enlarge)

Some real smart person or hedge fund should be able to design a trading platform that is able to capitalize on this Anglo/American price-fixing scenario.  And, like GATA's Chris Powell said at the Vancouver conference two weeks ago, as soon as the funds are announced [in either gold or silver...or both] he'll be a buyer.  So will I...and I'll keep you posted on any developments.

In overnight trading, both gold and silver ran into some resistance shortly after London opened for the day...and gold's attempt to break through the $1,750 mark was turned back once it was in Far East trading early on their Wednesday morning.  As of 5:20 a.m. Eastern time, gold is up about four bucks...and silver is down a dime from yesterday's close in New York.  The trading volumes in both metals is, like Tuesday, already pretty high for this time of day...and most of it would be of the high-frequency variety.

That's all I have for Thursday's column...and I'll see you here on Friday.