Gold & Silver Daily
"Was yesterday's action the beginning of a major breakout...or just a one-day wonder? We'll find out pretty quick I would think."

¤ Yesterday In Gold & Silver

The gold price was up a few dollars about half an hour before London opened yesterday morning...and from there, gold slid about twelve bucks going into the London a.m. gold fix at 5:30 a.m. Eastern.

From the a.m. fix, the price drifted slightly lower, with the low of the day coming at the London p.m. gold fix at 3:00 p.m. local time, which was 10:00 a.m. in New York.  From that low, gold gained back about ten bucks...and just minutes before 12:30 p.m. Eastern time, gold was down about seven bucks from Tuesday's close in New York.

Then a not-for-profit buyer showed up...and in just over an hour, the gold price rose forty-five bucks...and by the close of electronic trading, gold was up over sixty bucks from its low at the London p.m. fix.

Gold closed at $1,710.80 spot...up a whopping $44.40 on the day.  Gross volume was an immense 323,392 contracts.

It's my understanding that yesterday was options expiry for the February gold contract.  Well, if that's the case, then a whole boatload of out-of-the money call options all of a sudden expired in the money.  It will be real interesting to see how many of these newly-minted [pardon the pun] in-the-money option holders will now convert to future contracts and stand for delivery next Tuesday.

Silver's price action was virtually identical to gold's, except the low in silver came about 9:50 a.m. Eastern time...about ten minutes before gold's low price tick.

The silver price rose from there...and then blasted off at the same second that the gold price went ballistic, which was minutes before 12:30 p.m. in New York.

Within an hour, silver was at $33.20 spot with just ten minutes left before the Comex closed...and electronic trading began.

The silver price closed up $1.22 at $33.27 spot...but silver was up about $1.70 from it's 9:45 a.m. Eastern time low.  It was quite a day...and net volume was a very heavy 47,000 contracts

Platinum and palladium also had big days yesterday as well, but their respective lows came much earlier...during afternoon trading in Zurich, long before New York opened.

The dollar index didn't do much until 3:30 p.m. Hong Kong time, which was half and hour before the 8:00 a.m. London open yesterday.  The rally peaked at 12:30 p.m. in London...and then drifted lower until about 12:20 p.m in New York, five hours later.

At that point, the dollar index fell off the proverbial cliff, as the precious metals prices headed north at warp speed...and within an hour the index was down about 65 basis points  From there it rallied about 30 basis points, before falling to its low of the day at 79.40 at 3:40 p.m. in New York.

Of course the gain in the precious metals was out of all proportion to the dollar's decline, but we've seen the reverse of that so many times, that we'll happily take it the odd time that it actually does go in our favour.

The gold stocks opened down slightly when trading began at 9:30 a.m. Eastern time yesterday morning...but minutes before 12:30 pm...away went the gold price and their respective shares.  The HUI didn't finish precisely on its high, but close enough, as the index closed up an eye-watering 6.62% on the day.

It's almost pointless to add that the silver shares put in a blistering performance yesterday as well...and Nick Laird's Silver Sentiment Index closed up a chunky 5.44%.

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 61 gold and 43 silver contracts were posted for delivery on Friday.  And in silver it was the usual Jefferies/Bank of Nova Scotia/JPMorgan trio again...with Jefferies as the short/issuer...and the other two entities as the long/stoppers.  Here's the link to the ongoing saga.

So far in January...1,161 silver contracts have been delivered...which is an enormous number for what is traditionally a non-delivery month.  One has to wonder what it means...and did yesterday's price action in silver have anything to do with that?  Beats me.

The GLD ETF added 291,605 troy ounce of gold yesterday...after having about 165,000 ounces withdrawn on Monday.  There was no reported change in SLV.

The U.S. Mint only reported selling 1,000 ounces of gold eagles yesterday...and nothing else.

Tuesday was another busy one over at the Comex-approved depositories.  They reported receiving 596,695 troy ounces of silver...and shipped 209,942 ounces out the door.  The link to that action is here.

Silver analyst Ted Butler has a few things to say about yesterday's trading action in his mid-week report to his paying clients...and here are two paragraphs.

"If JPMorgan is not selling but is, in fact, buying, then a very different scenario could develop, similar to how I have speculated in the past. If JPMorgan is buying and not the technical funds, then a very different and bullish scenario emerges. If JPMorgan decides not to put its head back into the lion’s mouth and withdraws from manipulating silver, then a new silver chapter may have begun. Let me be clear – there is no way of determining for sure who is buying and selling today and this past Friday; only future COTs will reveal that. If it turns out that JPMorgan is buying back more of its short position on these rallies that would suggest much higher prices to come and maybe real soon. This goes to the heart of the silver manipulation. Take away the big silver short and you should take away the manipulation itself. I’m not saying that is the case, just that it might be. I would play it, as I always do, like it may be the end of the manipulation, simply because if it is, there will be little likelihood of second chances to get on board easily."

"That’s not to say that the commercials will roll over and play dead. I sense a profound lack of true liquidity since the MF Global disaster, in which the HFT operators are now responsible for an even higher share of total volume than before. I think that the HFT share of silver volume has approached 100% at times recently, rendering the silver market to its most illiquid state in my experience. More than anything else, this low true liquidity environment is behind the price spikes of Friday and today. In such a low liquidity environment we must be prepared for more price volatility, not less. We must be prepared for whatever may come, but we must also hang on to silver positions like never before. Be prepared for volatility that will rattle your bones. But volatility is a two-way street and up is one of the ways. So is up big."

Here's the silver equivalent to the gold charts that Nick Laird provided yesterday.  This shows the 5-year charts for silver for six different world currencies as of the close of trading yesterday.  The 'click to enlarge' feature is a must for these graphs.

(Click on image to enlarge)

I have the usual number of stories for you today...and I hope you have the time to go through them all.


¤ Critical Reads

Tax Evaders Renounce U.S. Citizenship

Rather than deal with the complexities of U.S. tax law, Americans living overseas are increasingly renouncing their citizenship in order to avoid paying their income taxes.

According to National Taxpayer Advocate Nina E. Olson, approximately 4,000 people gave up their citizenship from fiscal year 2005 to FY 2010. Renunciations increased sharply within the past three years, from 146 in FY 2008 to 1,534 in FY 2010. And during the first two quarters of FY 2011 alone, 1,024 Americans ditched their citizenship.

The advocate's report cites two reasons for the renunciations. First, many taxpayers abroad say they are confused “by the complex legal and reporting requirements they face and are overwhelmed by the prospect of having to comply with them.”

This story was posted over a the website on Tuesday...and I thank reader Scott Pluschau for sending it along.  The link is here.


Fed to maintain rates near zero through late 2014

The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth.

The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.

It's my guess, dear reader, that we'll never have high interest rates again.  We are at permanently low rates until the world's financial and monetary system breaths its last, as the world's sovereign debt can only get bigger.  You can never borrow your way out of debt nor spend your way to prosperity.

This story was in The New York Times yesterday...and is Roy Stephens first offering of the day.  The link is here.


John Williams: Accelerating Great Collapse & Hyperinflation

“The U.S. economic and systemic-solvency crises of the last five years continue to deteriorate.  Yet they remain just the precursors to the coming Great Collapse: a hyperinflationary great depression.  The unfolding circumstance will encompass a complete loss in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system, as we know it; and a likely realignment of the U.S. political environment.”

Here's a King World News blog that Eric sent me last night.  I haven't posted anything from John Williams for a while...and this is probably worth the read.  The link is here.


Japan's first trade deficit since 1980 raises debt doubts

Japan's first annual trade deficit in more than 30 years calls into question how much longer the country can rely on exports to help finance a huge public debt without having to turn to fickle foreign investors.

The aftermath of the March earthquake raised fuel import costs while slowing global growth and the yen's strength hit exports, data released on Wednesday showed, swinging the 2011 trade balance into deficit.

Few analysts expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge portfolio of investments abroad. A steady inflow of profits and capital gains from overseas still outweighs the trade deficit.

But the trade figures underscore a broader trend of Japan's declining global competitive edge and a rapidly ageing population, compounding the immediate problem of increased reliance on fuel imports due to the loss of nuclear power.

I borrowed this short must read Reuters piece from yesterday's edition of the King Report...and the link is here.


Iran embargo may shut down 70 EU refineries

The European Union’s embargo on Iranian oil threatens to accelerate refinery closures in Europe, the head of Italy’s refiners’ lobby said.

“Asian countries not applying the embargo could buy the Iranian oil at a discount and sell cheap refined products back to us,” Piero De Simone, general manager of Unione Petrolifera, said in an interview in Rome . “Italy already risks the closure of five refineries and at a European level we’re talking about 70 possible shut downs.”

This story showed up in the Tehran Times yesterday...and is Roy Stephens second offering of the day.  The link is here.


Davos 2012: George Soros says 'debt crisis could destroy European political union'

"The measures introduced by the European Central Bank ... have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer.

"Half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that become highly indebted in a foreign currency," he added.

Germany he said was now acting as the "taskmaster", instead of the IMF, imposing tough fiscal discipline.

This story appeared in The Telegraph yesterday afternoon...and it's also courtesy of Roy Stephens.  The link is here.


EU ratchets up pressure with Greek default threat

Austria's finance minister Maria Fekter said patience with Athens is exhausted. "Greece has failed its austerity targets by a wide margin. The Greeks have made decisions, but they weren't implemented. They have agreed to austerity measures, but costs haven't come down. This situation has caused great consternation," she said at a meeting of EU finance minister in Brussels.

"We're sending a direct message to Greece that the community expects more. We're not pleased and only when there's a written message on the table in front of us, can further assistance be discussed," she said.

The head of the European Commission's economics team Mario Buti said Brussels is prepared to allow credit default swaps (CDS) on Greek bonds to come into play if talks fail to reach a deal that gives Greece enough debt relief to claw its way back to viability. "Triggering CDS may have to be considered," he said.

The comment is a clear warning to private creditors holding €206bn (£172bn) of Greek debt that the EU will not step in with fresh money to prevent a default on March 20, when Greece must make a €14.5bn debt payment.

This Ambrose Evans-Pritchard offering was filed late Tuesday night in The Telegraph.  I thank Roy Stephens once again...and the link to this very interesting story is here.


Angela Merkel defiant as IMF leads attack on Germany

German Chancellor Angela Merkel has defied calls for a radical shift in strategy to lift Europe out of crisis but is increasingly isolated as the International Monetary Fund and key global bodies join ranks to force her hand.

Mrs. Merkel said it was folly to think that a deep problem built up over many years could be solved "at one fell swoop" and dismissed talk of doubling or tripling of the EU bail-out fund as senseless chatter.

"I ask myself, how long would that remain credible? What we don't want is a situation where we promise something we can't back up, because if markets then attack hard, Europe's flank really will be exposed," she told the World Economic Forum in Davos.

She warned that Germany itself is nearing the limits of what it can bear as its public debt reaches 82pc of GDP. "We Germans have to be careful and not end up exhausting our strength, because we don't have unlimited resources either."

Here's another Ambrose Evans-Pritchard offering...and this one was posted just before midnight in The Telegraph last night.  I thank Roy once again for sharing this story with us...and the link is here.


Doug Casey on the Collapse of the Euro and the EU

Yesterday's Conversations With Casey took up the entire contents of Casey's Daily Dispatch yesterday.  Louis James and Doug go at it...and it's today's absolute must read.  So if you read nothing else in today's column...this would be it.  It's a little on the long side, but worth every minute of your time...and the link is here.


Jim Sinclair: Gold went mainstream yesterday on QE to infinity

This King World News blog was posted on Eric's website yesterday...and it's well worth your time if you have it...and the link is here.


India mum on possible use of gold to pay for Iranian oil

While the use of gold as currency may help India get around the proposed freeze on Iranian central bank's assets and the oil embargo that the EU foreign ministers have agreed to impose on Monday, any outflow of sovereign gold will not go undetected, bringing in the political consequences of flouting the West-imposed embargo.

Keeping the Iran crude oil tap running is crucial for India, which depends on imports to meet around 80% of its oil requirements. Iranian crude accounts for a 12% share in India's total oil imports and any threat to this would have grave implications for the Indian economy.

Officials said another option that the government was looking at was to pay with the Indian currency. (India has had a rupee-rouble agreement with Russia.) According to the mechanism discussed with Iran, the exports and imports will be netted out and India will pay in rupees through Uco Bank. India is a net importer due to crude from Iran.

This story was posted on The Times of India website early this morning...and I borrowed it from a GATA release.  It's certainly worth the read...and the link is here.


Warsh speech on 'financial repression' to be broadcast at Stanford's Internet site tonight

In an essay in The Wall Street Journal on December 6th, Warsh wrote that "policy makers are finding it tempting to pursue 'financial repression' -- suppressing market prices that they don't like."

Warsh said last week he planned to elaborate on "financial repression" in his remarks at Stanford and GATA has urged him to identify which policy makers and which markets are involved, to explain whether he learned about this "financial repression" through his service at the Federal Reserve, and to say whether the public and the markets have the right to know exactly how "financial repression" is being targeted.

Video of this Thursday's address at the Stanford University Institute for Economic Policy Research by former Federal Reserve Board of Governors member Kevin M. Warsh, who lately has complained about "financial repression" -- government intervention against free markets -- is expected to be broadcast live at 8 p.m. Eastern time at Stanford's Internet site.

If you don't remember to listen to it this evening, I'm sure that Chris Powell will post it in a GATA release later on Thursday evening...and it will be in my Friday column.  The link to this particular GATA release is here.


Gold does best among commodities even when adjusted for volatility

Gold provided the best returns of all commodities in the past five years when adjusted for volatility, and Goldman Sachs Group Inc. says the rally will continue as options traders signal no change in the metal's relatively low risk.

The Bloomberg Riskless Return Ranking shows the Standard & Poor's GSCI Gold Total Return Index produced a 6.5 percent risk-adjusted return in the five years ended yesterday, the highest among 24 commodities tracked by S&P, data compiled by Bloomberg show. Silver, the next-best performer, yielded a risk-adjusted gain of 3.1 percent, while a total-return index for all raw materials slipped 0.2 percent.

Bullion, which has seen 11 years of gains as investors sought a haven amid two bear markets in stocks and a sovereign debt crisis, also posted the safest return in the past 12 months, even as it fell from a record high to a five-month low in the second half of last year and gold investors led by John Paulson suffered losses. Goldman Sachs forecasts that gold will reach a record this year, and a gauge of future price swings is near a five-month low.

I plucked this Bloomberg piece from another GATA release yesterday...and the link is here.


Sprott talks about Chinese demand, Fed's free money, PSLV's new buy

As gold and silver spring to life again, King World News gets Sprott Asset Management CEO Eric Sprott to comment on powerful Chinese buying of gold, the Federal Reserve's dedication to free money, and the details of the latest bid of the Sprott silver fund (PSLV) for nearly $350 million in metal.

I borrowed the above introductory title from a GATA release yesterday afternoon...and the link to the must read KWN blog, is here.



¤ The Funnies

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¤ The Wrap

Well, Wednesday's price action was a real yawner in both gold and silver until the blast off occurred just minutes before half-past lunchtime in New York yesterday afternoon.

As Ted Butler pointed out, it's not possible to know whether they were short covering rallies...or technical funds going long.  If it was a tech funds going long, it was certainly wasn't done in a for-profit manner...and if it was a short covering rally [my guess] then why is the preliminary open interest in gold up by 12,000 contracts in gold, but down 194 contracts in silver?

Of course with all the activity surrounding the February delivery month, it's possible to hide just about anything in the open interest data...and even the final open interest number posted on the CME's website later this morning may not be of much help.

These big price spikes on all four precious metals happened on a Wednesday...and whatever open interest changes there are, won't be in tomorrow's Commitment of Traders Report, as the cut-off was on Tuesday afternoon.  So we'll have to wait until next Friday's report.

The final open interest numbers for Tuesday's trading showed a big drop in gold's open interest...and no change at all in silver.  That doesn't really surprise me, as all the activity is in gold at the moment...and we won't see any activity in silver until we get closer to delivery into the March contract.  All the roll-overs and associated trading won't really get underway in earnest until we're well into February.

Here's a nifty graph that I check on every once in a while...and I thought it worth posting after yesterday's big day in the precious metals.  It shows the year-to-date price gains and losses in a long list of commodities.  As you can see, silver is a strong second so far this year.  The 'click to enlarge' feature comes in real handy on a chart like this.

(Click on image to enlarge)

As per usual, gold's high in Far East trading on their Thursday came late in the Hong Kong afternoon during the last hour of trading before the London open this morning.  Once London opened, both metals got sold off, but then spiked a bit shortly before 10:00 a.m. GMT...and as of 5:15 a.m. Eastern time, gold is up about five bucks and silver is up about 15 cents.  Volume is still pretty light in both metals at the moment, all things considered...and the dollar index is down about 40 basis points.

Volume was very light all day yesterday until the big pop at 12:30 p.m. in New York...and then volume went supernova.  As I said above, it will be interesting to see what all of this volume and open interest data translates into...and even more important, was yesterday's action the beginning of a major breakout...or just a one-day wonder?  We'll find out pretty quick I would the 50-day moving averages in gold and silver to the upside...and the dollar to the downside...have been taken out with real authority.

As I said yesterday, I was expecting the rest of the month to be pretty quiet price-wise, but I'm equally delighted to be proven wrong.  It appears that something is going on under the hood...and all bets could now be off as to how prices go for the rest of the month.

I'll be watching the New York open with more than the usual amount of interest...and I'll see you here tomorrow.