Casey Research Publication
Gold & Silver Daily
"Can prices of both gold and silver be driven lower from here? I suppose, but there aren't many leveraged tech fund long contracts left to liquidate at these price levels."
 

¤ Yesterday In Gold & Silver

As I commented in 'The Wrap' section of this column yesterday, every rally in the gold price that looked like it had the potential to take the price sharply higher, got sold off in Far East and early London trading on Tuesday...with top coming just a few minutes after the London open, when it looked like the gold price was going to blast up to the $1,700 spot price mark.

That proved to be gold's high tick of the day...and once the London a.m. gold fix was in at 10:30 a.m. British Summer Time [5:30 a.m. Eastern], the selling pressure began anew...and it was basically a one-way trip to the low of the day which came in the thinly-traded New York Access Market just minutes after 3:00 p.m. Eastern time.

The gold price recovered about $30 going into the close...and finished down $36.70 from Monday's closing price.  Net volume was pretty chunky at 200,000 contracts.

It was just about the same for silver.  The silver price was up about 75 cents by the time London opened...with the big smack down coming minutes later...just like in gold.  Then once the daily silver fix was in around 12 o'clock noon in London, the silver price came under immediate selling pressure.

There were several attempts at rallies during the Comex trading session in New York, but every one got sold off hard...and once electronic trading began at 1:30 p.m. Eastern time...JPMorgan et al had silver down another dollar plus by 3:10 p.m.

From the high at the open in London, silver 'fell' about $2.65 to its absolute low of the day, which was $28.58 spot.

The silver price made a rousing recovery from there...and only finished down 55 cents on the day.  Net volume was rather large at 50,000 contracts.

The gold shares gapped down at the open...and then headed for the nether reaches of the earth.  At one point the HUI was down well over 8%...but the big rally in everything late in the day took more than five percentage points off that loss in very short order...and the HUI finished down 'only' 3.27%.

Up until the big rally began shortly before 3:30 p.m...the silver stocks got absolutely smoked.  Some of the well known companies were down double digits for a while.  Most losses were cut in half by the end of the trading day.  This was cold comfort indeed, as Nick Laird's Silver Sentiment Index was down another 2.70%.

(Click on image to enlarge)

The CME's Daily Delivery Notice is hardly worth mentioning, as only 5 gold and 5 silver contracts were posted for delivery on Thursday.

There were withdrawals from both GLD and SLV yesterday.  GLD reported a withdrawal of 87,587 ounces...and SLV declined a rather small 163,102 troy ounces.

The U.S. Mint reported selling another 50,000 silver eagles yesterday...and sold no gold coins of any description.

The Comex-approved depositories did not receive any silver on Monday...and reported shipping 286,982 troy ounces out the door.

I decided to steal another short paragraph from silver analyst Ted Butler's weekend commentary...

"The big 4 [JPMorgan] now holds their smallest net silver short position (less than 32,000 contracts) as far as my records go back [to 2005. Thanks, Turner]. I would estimate that JPMorgan, alone, now holds 16,000 contracts or so net short, their smallest net short position ever, or at least since acquiring Bear Stearns’ concentrated short position in March 2008. Next week’s Bank Participation Report should help further clarify the amount. The two-week reduction in the commercial total net short position totaled 21,000 contracts, confirming and exceeding the 100 million oz. reduction I predicted last Wednesday."

Once again I have a fair amount of reading material for you, so I hope you have the time to skim most of it.

 

¤ Critical Reads

Key reversal day?

Might the stock market have hit a major bottom on the very day that it also satisfied the official definition of a bear market?

That distinct possibility is raised by the market’s stunning recovery in the last hour of today’s trading session, which appears to satisfy the definition of a “key reversal day”—a technical event that some technicians believe to be potentially quite bullish.

A key reversal day occurs when the market records a new low and then rallies to close above the previous day’s close. And that’s exactly what happened Tuesday.

Mark Hulbert is skeptical in this short piece posted over at marketwatch.com.  He should be, as not too many investors with deep pockets would have been prepared to catch a falling knife that late in the day yesterday.  Only the President's Working Group on Financial Markets...a.k.a. the Plunge Protection Team would be involved in a market operation that size...and once the inevitable short-covering rally kicked in...then 'Bob's your uncle'. The link is here.

Read more...

Soaring Financial Volume Leads CME To Announce A 33% Margin...Cut!

Here's another story from the top drawer of the 'You-can't-make-this-stuff-up' filing cabinet.

While soaring volatility in gold and copper, not to mention silver, results in one after another margin hike to "cool off the speculators"...when it comes to financial stocks, especially in the "tail wag the dog" variety where the synthetic drives the stock price, a surge in volume means a cut in margins, or 33% to be precise.

Expect more margins cuts, this time in ES offset by margins hike in all other instruments, especially of the public enemy #1 variety, such as precious metals and crude.

Casey Research's own Bud Conrad sent that story around today.  This very short zerohedge.com story is a must read...and the link is here.

Read more...

Bernanke downbeat about job outlook

Bernanke wasn’t optimistic about the outlook. He said a close reading of recent economic data doesn’t show any hint of improvement ahead for the weak U.S. labor market.

“Recent indictors, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead,” Bernanke said.

This marketwatch.com story from yesterday was sent to me by reader Donna Badach...and the link is here.

Read more...

The Next Economy [After This One Dies] - Bill Bonner

Life in the future won't necessarily be so bad. The lust for MORE will become a lust for BETTER, says Bill Bonner, founder of the Daily Reckoning.

Yes, the age of easy growth is over. You probably won't make any money buying stocks. And your house will never return to the levels of '05-'06. And oh yes...you may not be able to get a job.

But that's the good news. We'll deal with the bad news some other day.

It's not often that something from Bill is posted in the clear...and when it is, it's normally well worth reading.  I've read it...and yes, it is.  It's posted over at the bullionvault.com website...and I thank reader Thorsten Winkler for sending it along.  The link is here.

Read more...

'Everything You Say Is S***' - Merkel Ally Under Fire for Profanity-Ridden Tirade

The euro crisis is nothing if not stressful for European politicians. Now, though, Angela Merkel's chief of staff, who is also a member of the chancellor's cabinet, is under fire for a profanity-laced tirade he directed at a fellow conservative in the run-up to a crucial vote on the euro backstop fund. Many are calling for him to be replaced.

Signs of strain have become impossible to ignore in Athens as well. Indeed, according to a story in Tuesday's Financial Times Deutschland newspaper, Greek Prime Minister Giorgios Papandreou is considering resigning. The story claims that he has twice spoken with confidants in recent weeks about throwing in the towel.

On Tuesday, a government spokesman declared that the story was "nonsense." But it isn't difficult to imagine that the challenges of steering his country through the debt crisis might be getting to the prime minister.

This Roy Stephens offering from the German website spiegel.de is a short read that's well worth skimming...and the link is here.

Read more...

Profit Warnings and Greek Debt: European Banks Show Signs of Ill Health

Germany's Deutsche Bank issued a profit warning on Tuesday and a Franco-Belgian bank wobbled significantly as Greek debt begins to drag significantly on Europe's financial industry. The European Central Bank is expected to make emergency credit available this week for the first time since the Lehman collapse.

Deutsche Bank on Tuesday said in a statement that the company's earnings targets for 2011 were no longer realistic and that third quarter results were well behind expectations. CEO Josef Ackermann, who is set to vacate his current post next May, had hoped to earn a record pre-tax profit of €10 billion ($13.27 billion) this year. But the bank was forced to write down €250 million in Greek debt in the third quarter after similar write downs of €155 million in the second.

In addition, share prices for stock in the Franco-Belgian bank Dexia plunged on Tuesday, the most recent symptom of its significant holdings of Greek debt. The stock dropped by as much as 38 percent on Tuesday as officials in Belgium and France struggled to come up with a plan to prevent it from collapsing altogether.

This is another Roy Stephens offering from spiegel.de...and this one is definitely worth reading.  The link is here.

Read more...

Dexia Gets Pledge From France, Belgium as Possible Breakup Hammers Shares

The French and Belgian governments pledged to support Dexia SA as shares of the lender plunged in Brussels on concern it will require a second government bailout.

France and Belgium will take “all necessary measures” to protect clients and will guarantee all Dexia’s loans, French Finance Minister Francois Baroin and Belgian Finance Minister Didier Reynders said in a statement today. Belgium’s cabinet met in Brussels last night to review the options for the lender. Both governments have stakes in the bank following its bailout in 2008.

West Virginia reader Elliot Simon sent me this must read Bloomberg story from yesterday...and the link is here.

Read more...

Italy downgrade deepens contagion fears over euro debt crisis

Italy's sovereign debt rating has been cut for the second time in as many weeks, with ratings agency Moody's citing "sustained and non-cyclical erosion of confidence" as it slashed its forecast for the country.

In a report released after US stock markets closed on Tuesday, Moody's downgraded Italy's government bond ratings from Aa2 to A2 with a "negative outlook", suggesting further cuts could be to come. The move threatens to increase Italy's cost of borrowing, and will add yet more pressure to European finance ministers now wrestling with a financial crisis that has spread across the continent.

This story was posted in The Guardian just before midnight last night...and I thank reader Craig Eubanks for sharing this must read story with us.  The link is here.

Read more...

UK wins major victory to stop EU regulation of financial services

George Osborne has declared that he had defeated plans to regulate over-the-counter (OTC) derivatives that would have given EU financial supervisors the power to decide who could trade in the City. [That's the City of London he's talking about. - Ed] 

The EU has moved to pass a directive, the Emir, or European Market Infrastructure Regulation, to regulate the trading of complicated financial instruments that many blamed for causing the global financial crisis. The legislation aims to standardise all derivatives products not traded on a regulated exchange.

The Chancellor said the victory was "important" because 75pc of Europe's OTC derivative trading takes place in London and Britain needed to guard against eurozone protectionism.

Well, dear reader, the latest report from the Office of the Comptroller of the Currency in the U.S. shows that just 10 U.S. banks hold over 99% of all U.S. OTC derivative trades...and Britain holds 75% of all of Europe's...so it doesn't take rocket science to figure out that the Anglo/American Empire is still going strong, for the moment that is.

This story was filed late yesterday evening in The Telegraph in London...and I thank Roy Stephens once again for sending it along.  The link is here.

Read more...

Saudi Arabia Vows ‘Iron Fist’ After Attack

The government accused an unidentified “foreign country” of seeking to undermine the stability of the kingdom as a result of the violence in Awwamiya, in which the assailants, some on motorcycles, used machine guns and Molotov cocktails, the Riyadh-based news service reported late yesterday. A man and two women were also injured, it said.

Saudi Arabia, the world’s largest oil supplier, escaped the mass protests that toppled the leaders of Egypt and Tunisia this year and spread to Saudi neighbors Yemen and Bahrain. There were rallies earlier in the year in mostly Shiite eastern Saudi Arabia, including Awwamiya and al-Qatif village.

Predominantly Sunni Saudi Arabia has accused Shiite-led Iran of interfering in the affairs of Arab countries in the Persian Gulf, home to three-fifths of the world’s oil reserves. Iran denies the charge and accuses Sunni rulers in Bahrain and Saudi Arabia of discriminating against Shiites. Saudi Arabia and other Gulf countries sent troops to Bahrain in March to quell the mainly Shiite unrest.

I thank GATA board member Adrian Douglas for sending me this Bloomberg story in the wee hours of this morning...and the link is here.

Read more...

CME raises margins on copper, platinum futures

The CME Group on Monday raised its margin requirements for trading copper and platinum futures, effective after the close of business on Oct 4.

The exchange operator raised initial margins on Comex copper futures by 15 percent to $7,763 a contract, while raising the same requirement on Nymex platinum futures by about 29 percent to $4,950 a contract.

With platinum down over $450 from its peak on August 22nd...and copper flat on its back...it's a little late to be raising margin requirements on either metal.  But the CME will leave no stone unturned to help JPMorgan and friends out of any short positions they may have in any of the metals.

I thank Edmonton reader 'Ray' for sending me this very short 2-paragraph Reuters story...which you've already read...but the link is here if you want to look at the hard copy.

Read more...

Government has to crush gold as equities plunge, Embry tells King World News

Sprott Asset Management's John Embry told King World News yesterday that governments and central banks can't let gold look good when the stock market is falling hard, which explains the latest counterintuitive action in precious metals prices.

I thank Chris Powell for wordsmithing the introduction. An excerpt from the interview...headlined John Embry - Silver is Completely Flushed out to the Downside...is posted here.

Read more...

The Greatest Bubble in History Is at Our Doorstep: Jeff Clark

It may not feel like it after a 12% correction in the past 30 days, but Mike Maloney - founder of GoldSilver.com - is convinced that we're in a gold bull market that will be life changing for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we talked about here. You may be shocked at what you read, because he's devoted a larger allocation to gold and silver than we have. See why he's convinced a bubble is ahead for precious metals, how high prices will go, and why he stores some gold overseas. - Jeff

This interview was posted in yesterday's edition of Casey's Daily Dispatch...and is a must read.  The link is here.

Read more...

Two Interviews: King World News interviews Norwegian bullion dealer and Rick Rule

Eric King sent me both of these stories yesterday...and since Chris Powell was kind enough to do all the work for me, I'll leave the rest to him.  The link to both of these must read blogs is contained in this GATA release here.

Read more...

CFTC lets Morgan get away with rigging silver market: Ned Naylor-Leyland

Ned Naylor-Leyland, investment director for Cheviot Asset Management in London, who spoke at GATA's Gold Rush 2011 conference there in August, complains in a new Cheviot investment letter about JPMorganChase's manipulation of the silver market and the U.S. Commodity Futures Trading Commission's continuing facilitation of that manipulation. Naylor-Leyland's commentary is headlined "Silver, Gorillas, Madoff, and Financial Regulators -- Will They Ever Learn?"...and you can find it posted at the Scribd.com website.

I thank Ted Butler for sending me this 2-page essay...and Chris Powell for writing the preamble.  The link to this absolute must read is here.

Read more...

 

¤ The Funnies

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¤ The Wrap

We have met the enemy...and he is us. - Pogo

As I've mentioned a couple of times in the last few columns, I was hoping that both Monday and Tuesday would be quiet or down days for the precious metals, as I really wanted to see what this Friday's Commitment of Traders Report looked like without a major rally erupting on either day.

Well, after Tuesday's price action, this fell into the category of "be careful what you wish for".  I certainly hope that JPMorgan et al will report all their trades from yesterday in a timely manner so that the full effect of yesterday's down day will be in that report.  With yesterday being the cut-off we'll just have to wait and see.

The CME posted the preliminary open interest numbers for the Tuesday trading day at their usual time...in the wee hours of this morning.  If these numbers are any guide, the final report should show further declines in silver and gold open interest.

The final open interest numbers for Monday showed smallish declines in both precious metals.  Gold open interest is now down close to 30,000 contracts from the cut-off to last Friday's COT report...which was last Tuesday...and I'll be very interested in seeing what these translate into when the report comes out.

Ted Butler pointed out that this open interest reduction, besides showing a possible big decline in the bullion banks' net short position in gold, could also be the result of spread trades being lifted.  The effect of a spread trade being lifted is market neutral, as a long and short position are extinguished at the same time...so Friday's COT report will tell us which of these two factors, or combination of these two, was the most prevalent.

Not much happened in Far East trading during their Wednesday.  As I write this at 2:53 a.m. Eastern time, London is about to open...and at this moment, gold is up a couple of bucks...and silver is down fifty cents.  Gold volume is decent...and silver volume is pretty light.

Can prices of both gold and silver be driven lower from here?  I suppose, but there aren't many leveraged tech fund long contracts left to liquidate at these price levels...and to get much more, the bullion banks would have to get below the recent absolute lows of both metals...which is below $26 in silver and $1,535 in gold.  Even then, they wouldn't get much.

To give you a 'for instance'...here's the 3-month platinum chart for entertainment purposes only.  From its August 22nd high, to it's close yesterday, this white metal 'fell' about $460 the ounce.  Note the big 'crash' of the last two weeks...and look at the volume numbers associated with that drop.  Initially, volume was in the 15-20,000 contracts per day, as the majority of the tech fund longs dumped their positions...but in the last three trading days...Friday, Monday and Tuesday...volume has virtually disappeared.

Platinum 'fell' over $50 intraday yesterday...but the volume was only 117 contracts...and don't forget that they raised margin requirements for platinum on Monday which became effective at the close of trading on Tuesday...yesterday.  Those magnificent 117 contracts was the total sum of what 'da boyz' could get after all the smoke had cleared...and Monday's volume wasn't any better.  That, dear reader, is an illiquid market.  There are no spec longs left...and the ones that are left, are so few and far between, that they're not worth going after.

(Click on image to enlarge)

This situation is probably what currently exists in silver right now as well...and gold is not too far behind.  This is what 'blood out of a stone'...and market bottoms...look like.

As I hit the 'send' button on this column at 4:28 a.m. Eastern time, I note that gold is now down about three bucks...and silver is down eighty cents.  Trading action is very quiet, but can change in an instant if the bullion banks show up.  It should be another interesting trading day when New York opens this morning.

See you on Thursday.