Casey Research Publication
Gold & Silver Daily
"The internal structure of the precious metals market from a Commitment of Traders perspective is the most bullish I can remember in years"
 

¤ Yesterday In Gold & Silver

As you already know from yesterday's comments in 'The Wrap'...the gold price came under selling pressure at 9:00 a.m. Hong Kong time on their Friday morning...with the low tick of the day [around $1,573 spot] coming at 8:30 a.m. in London.

From that low, the subsequent rally made it up to the high of the day [$1,591.90 spot]...which came around 10:45 a.m. in New York.  And, like Thursday, it got sold off into the close electronic trading from there.

Gold finished the Friday trading session at $1,580.40 spot...down $13.00 from Thursday's close.  Net volume was around 117,000 contracts.

Silver also got sold off in Far East trading starting at the same time.  But silver's low [around $28.40 spot] came exactly thirty minutes after gold's...at  precisely 9:00 a.m. in London.  The silver price recovered a bit from there, but then got sold off once Comex trading began...and by 9:30 a.m. in New York, it was almost back at its London low.

But from there it moved sharply higher...with the high of the day [$29.23 spot] coming around 11:00 a.m. Eastern time.  From that point, the silver price got sold off just over a percent going into the 5:15 p.m. close.

The silver price closed the day at $28.89 spot...down 15 cents from Thursday.  Net volume was around 33,000 contracts.

The dollar bounced around between 80.10 and 80.30 for most of the trading day on Friday...closing almost on it high at 80.26...but only up about 6 basis points from Thursday's close.

The gold stocks gapped down over a percent at the open...but then managed to make it back into positive territory for about thirty minutes around gold's high.  However, once the gold price rolled over, the equities followed...and the HUI finished the Friday trading session down 1.69%.

The silver stocks didn't do much better...and Nick Laird's Silver Sentiment Index closed down 1.38%

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 65 gold and 7 silver contracts were posted for delivery on Tuesday.  Not much to see here.

There were no reported changes in either GLD or SLV...and the U.S. Mint sold another 75,000 silver eagles.

Switzerland's Zürcher Kantonalbank updated their gold and silver ETF totals at the end of the Wednesday trading day on May 8th.  Their gold ETF took in 42,497 troy ounces...and their silver ETF added 574,823 troy ounces.

It was extremely busy over at the Comex-approved depositories on Thursday.  They reported receiving 1,207,452 troy ounces of silver...and shipped another 1,097,050 ounce of the stuff out the door.  The link to that action is here.

Well, yesterday's Commitment of Traders Report [for positions held at the close of Comex trading on Tuesday, May 8th] was beyond even my expectations...which were considerable.  And, as fantastic as these numbers were, I should point out right up front that the new lows in all precious metals that were set on Wednesday...and again yesterday morning in London...means that they are even more fantastic now.

In silver, the Commercial net short position declined by a whopping 5,844 contracts.  The Commercial net short position is now down to 17,900 contracts, or 89.5 million ounces.  The biggest changes in the Non-Commercial and Nonreportable categories were the huge increases in their respective short positions.  Between both categories, they increased their net short positions by 4,844 contracts.  As Ted Butler mentioned several times during the reporting week, it was obvious that JPMorgan et al were setting prices lower in such a way as to entice the traders in these other two categories to go massively short...and they succeeded.

Many multi-year records were broken in this COT report...and I know that Ted Butler will have much to say in his weekly commentary later today.  One record that fell in this COT report was the net long position of the small traders in silver...the Nonreportable category.  It hit a record low on Tuesday...and is lower still, since the cut-off.

It was just as impressive, if not more so, in the COT for gold.  The Commercial net short position in gold dropped by 26,548 contracts, or 2.65 million ounces.  The Commercial net short position is now down to 15.1 million ounces...a level not seen in a bit over three years.  In the other two categories of the COT...the Non-Commercial and the Nonreportable...traders dumped long positions and piled onto the short side.  During the reporting week, these two categories dumped 7,136 long contracts and went short 19,412 contracts.  If you add those last two numbers up, the total comes to the drop in the Commercial net short position...26,548 contracts.  Don't forgot that there has to be a long for every short...and there's your proof.

In some ways, this COT report is better than the one that we had at the prior low of late December of last year...and with the improvements from Wednesday and Friday thrown in, we're most likely at new records in all categories in all four precious metals.

Today's first chart is courtesy of Washington state reader S.A.  It's the "Annual Consumer Inflation" graph from John Williams over at shadowstats.com...and needs no further embellishment from me.

The next chart courtesy of Nick Laird shows the "Total Weight vs. Total Value" of all the transparent precious metal holdings in the world.

Nick also pointed out the following..."Just updating my ETFs holdings...and UBS declared that they sold 347,850 oz ($5.5 billion worth) of gold out of three different Gold ETFs this week - 23% of their total gold holdings, so it's a huge change."

Yes, it is...and here's the "UBS Gold ETF Ounces" chart that Nick sent me.

(Click on image to enlarge)

I have the usual number of stories for a weekend...and I hope you have the time to glance through all of them.

 

¤ Critical Reads

What Jamie Dimon Doesn’t Know Is Plain Scary

Could Jamie Dimon really be as clueless as he sounded on the phone yesterday?

Last month, after Bloomberg News broke the story that JPMorgan Chase & Co.’s chief investment office had, in essence, become a ticking time bomb, Dimon, the bank’s chief executive officer, called the press coverage “a complete tempest in a teapot.” That explanation no longer works.

Yesterday, Dimon changed tacks. Losses on the investment office’s “synthetic credit portfolio” had reached $2 billion so far this quarter, though he refused to give any meaningful details on how that had happened. Presumably, these are derivatives of some sort, but even that basic fact was too much for the bank to specify.

What Dimon lacked in information, he more than made up for in assigning blame -- to himself and JPMorgan employees.

Bloomberg columnist Jonathan Weil tees up Jamie Dimon and drives him down the fairway in this op-ed piece posted on their website early yesterday morning.  It's certainly a must read...and I thank Phil Barlett for sending it.  The link is here.

Read more...

Jamie's Cryin: Dimon, J.P. Morgan Chase Lose $2 Billion: Matt Taibbi

A quick note on the disastrous news emanating from J.P. Morgan Chase, whose unflappable (well, unflappable until yesterday) CEO Jamie Dimon yesterday disclosed that the bank suffered $2 billion in trading losses this quarter.

I’m still not entirely clear on what the trades by Bruno Iksil, the so-called "London Whale," were exactly. According to the excellent Felix Salmon at Reuters, Iksil had taken a massive long position on corporate CDS, and when word of this leaked out, the market turned on him and beat his brains out. From Salmon’s piece:  "Whenever a trader has a large and known position, the market is almost certain to move violently against that trader — and that seems to be exactly what happened here. On the conference call, when asked what he should have been watching more closely, Dimon said “trading losses — and newspapers”. It wasn’t a joke. Once your positions become public knowledge, the market will smell blood."

Matt Taibbi over at Rolling Stone magazine posted this piece on their website about two hours after the Bloomberg piece above.  It's also worth reading...and I thank Roy Stephens for bringing it to my attention.  The link is here.

Read more...

Chilton: JPMorgan's Loss Signals It's Time for Regulators to Put the Hammer Down

Leave it to Wall Street to remind us all how vulnerable our economy remains, and how important it is that we implement financial reform as soon as possible.

Yesterday, JPMorgan Chase reported mammoth losses—over $2 billion—a significant amount of which appear to be related to failed speculative bets on credit default swaps. While that won't trigger a repeat of 2008, it certainly highlights what we already know, painfully well: reckless speculation and poor risk management by large, interconnected financial institutions can spark financial calamities.

These circumstances take on a fantasy-world quality in that many of us continue to believe the bankers are so scary smart about our markets and economy. What it really demonstrates is what chumps we sometimes have become.

Bart Chilton has always struck me as one of those "all hat and no cattle" kind of guys.  Since they can't/won't do anything about JPMorgan's obscene short position in silver, you have to wonder what makes you think that the CME will allow the CFTC to put JPMorgan Chase in its place now.

This op-ed piece by Chilton was posted over at the cnbc.com website late Friday morning...and I thank West Virginia reader Elliot Simon for sharing it with us.  The link is here.

Read more...

Guest Post: How Long Before Massive Government Debt Buildup Triggers Another Financial Shock?

Sometimes a picture is worth a thousand words.  A recent post on the popular ZeroHedge financial blog compared the annualized growth in federal debt to the annualized growth in GDP in Q1 2012.  ZeroHedge reported that while U.S. government debt rose by $359.1 billion in Q1 2012, the U.S. GDP grew only $142.4 billion.  Durden noted that, “It now takes $2.52 in new federal debt to buy $1 worth of economic growth.”

The surprising observation prompted us to examine the relationship between growth in debt and growth in GDP from 1975 through 2012.  What we found is both astonishing and frightening.

Each $1 increase in GDP has been accompanied by, on average, a $2.50 increase in debt.  Before the recession, an increase in debt generally generated a greater increase in GDP, but now it takes an enormous increase in debt to eke out a small increase in GDP.  At some point, the amount of debt required to generate even modest GDP growth will suffocate the economy and trigger another financial shock.

This short piece posted over at zerohedge.com is worth the trip for the chart alone.  I thank Roy Stephens for digging it up on our behalf.  The link is here.

Read more...

James Turk: Central Bankers Are Intellectually Bankrupt

Congressman Ron Paul says that “central bankers are intellectually bankrupt”.  This is actually the title of an excellent op-ed article he wrote last week for London’s Financial Times in which he clearly explains that controlling interest rates is a form of price fixing.  We know from monetary history that price fixing has always been harmful to economic activity. Yet “control of the world’s economy has been placed in the hands of a banking cartel” even “while socialism and centralised economic planning have largely been rejected by free-market economists”.

It is an excellent article, and I highly recommend it. But I do want to comment on one point.

This short piece by James was posted on his fgmr.com website earlier this morning in Europe...and the link is here.

Read more...

Fitch: REOs Now Reach One-Third of All U.S. CMBS Delinquencies

U.S. Commercial Mortgage-Backed Securities [CMBS] delinquencies rose for the second straight month while the volume of real estate-owned [REO] assets continued to climb, according to the latest index results from Fitch Ratings.

Late-pays rose 10 basis points in April to 8.53% from 8.43% in March. This was largely expected with five-year loans originated in 2007 now starting to come due.

Another notable trend is the increased amount of REO assets, which are making up a larger share of the index. REO assets climbed again and now represent one-third of all delinquencies, reaching $11.1 billion in scheduled loan balance in April.

This story was posted on the finance.yahoo.com website yesterday...and I thank reader Ryan McQuire for sending it along.  The link is here.

Read more...

Postal Service Reports Quarterly Loss of $3.2. Billion

The United States Postal Service on Thursday reported a quarterly loss of $3.2 billion and blamed Congress for blocking the agency’s cost-cutting efforts to offset declining mail volume and mounting costs for future retiree health benefits.

From January to March, losses were $1 billion more than during the same period last year. The Postal Service said that without legislative action, it would be forced to default on more than $11 billion in health prepayments due to the Treasury this fall.

This very short AP story showed up in The New York Times yesterday...and you've already read half of it. I thank Phil Barlett for sending it our way...and the link is here.

Read more...

Bankia Bailout: Spain Struggles to Control Escalating Bank Crisis

This week's move by Spain to nationalize the country's fourth-largest bank almost overnight is just the latest in a financial sector crisis that has been growing since the Spanish real estate bubble burst. It is likely to increase calls for Madrid to accept financial aid from its European partners.

It wasn't so long ago that the Spanish banking system was the subject of glowing praise. As financial institutions in Germany and many other European Union countries began to falter because they had badly gambled on high-risk US mortgage securities, the situation remained remarkably quiet in the southwestern part of the continent. The reason was that Spanish banking regulators had largely restricted the country's banks from engaging in the risky business.

In the meantime, Spain's banks are now amongst the greatest problem children in the euro zone. Developments on Wednesday night underscored just how dire the situation has become. The Spanish government announced that Bankia, the country's fourth-largest financial institution, would be largely nationalized. The announcement, made with little notice, suggests a hectic situation. The cabinet of Prime Minister Mariano Rajoy had actually been planning to announce a new bailout program on Friday.

This story was posted over at the German website spiegel.de yesterday...and is another offering from Roy Stephens.  The link is here.

Read more...

French deficit to shatter faith in the new fiscal compact

Greece never was any more than the canary in the mineshaft, a mere outrider for much wider and more fundamental problems in the eurozone. The European Commission's latest economic forecasts, which optimistically point to slow recovery from the second half of this year, more than prove the point.

The Commission has downgraded its growth forecasts for virtually all EU countries for both this year and next. Among the major economies, Germany and Britain are notable exceptions. Even so, the forecasts still look far too optimistic. Does anyone honestly believe that Italy and Portugal will be growing again by next year, or indeed that Greece will have stopped contracting?

The whole thing looks worryingly like one of those exercises in forecasting where the policymakers think about what they would like to happen, rather than what will. I'm not saying they are completely incredible, but they do rely substantially on the eurocrisis slowly resolving itself, even though that looks the least likely outcome right now.

This is another Roy Stephens offering as well.  This one is from yesterday's edition of The Telegraph...and the link is here.

Read more...

Companies must raise £28 trillion to finance 'wall' of debt

Businesses will need to secure as much as £28.5 trillion to refinance old borrowings and fund new spending, raising major questions over the ability of the world economy to avoid a recession, according to a report from Standard & Poor's.

British companies will have to find between £220bn and £268bn of new financing to fund their growth plans on top of refinancing hundreds of billions of pounds more of existing debt, according to the ratings agency.

The scale of the refinancing required, as well as the amount of new debt companies must sell, could create what S&P described as a "perfect storm for credit markets".

This story was posted on The Telegraphs' website early on Thursday evening...and is a story that I borrowed from yesterday's King Report.  The link is here.

Read more...

'No biting the bear's sensitive parts'

In the Kremlin corridors under the new management, it is generally acknowledged that one of the stupidest things former president (now premier) Dmitry Medvedev ever did was to order Russia's representative on the United Nations Security Council to abstain from the vote and veto of the no-fly zone resolution aimed at the Muammar Gaddafi regime in Libya.

That was on March 17, 2010. Russian intelligence services already knew that United States and British submarines were in place under the surface of the Mediterranean, ready to fire missiles to start a war that was intended to end in Gaddafi's death. It did.

This story was posted over at the Asia Times on Wednesday. It's not overly long...and I thank Roy Stephens for bringing it to my attention.  It's definitely worth the read...and the link is here.

Read more...

Why India is Ignoring U.S. Pressure and Continuing to Trade with Iran

Biased Western news outlets keep trumpeting that Iranian exports have fallen, presumably to shore up support for the unlikely idea that the US can unilaterally wish extra millions of oil onto world markets. Few bother to mention that they have fallen in the first two quarters of 2012 primarily because of an Iranian dispute with China over payment terms, delaying Chinese imports. But that dispute has been resolved. China’s oil imports are expected to rise 5% this year, and China will be back to importing a lot of Iranian petroleum soon. The Chinese are also about to deliver a new supertanker to Iran, the first of 12, which will increase Iran’s delivery fleet. And, Iran will accept Renminbi in payment for oil imported by China.

This story was sent to me by Roy Stephens as well.  It was posted over at the oilprice.com website...and the link is here.

Read more...

Gold ‘Will Go To 3,000 Dollars Per Ounce’ - David Rosenberg

Markets are repeating the downturns of 2010 and 2011, and it is time to search for safety, Gluskin Sheff's David Rosenberg tells James Mackintosh, FT investment editor. That means gold eventually reaching $3,000 an ounce.

This 6:21 video interview was posted over at the Financial Times website on Tuesday...and I thank Roy Stephens for his final offering of the day.  The link is here.

Read more...

Why CP’s old-time bondholders have a big say in the future

Canadian Pacific Railway Ltd. has a problem over a century in the making.

As the company’s war for control with activist investor Bill Ackman rages into its ninth month, obscure bonds issued just four years after the completion of the trans-Canada railway are emerging as a potential financial hurdle to a restructuring of the company’s balance sheet.

The bonds, which were sold as far back as 1889, are an investor’s dream: Known as “perpetuals,” they pay 4 per cent interest rate annually every year, have no date of maturity, and contain a clause that once required the company to make the interest payments in gold coins. What’s more, the $31-million of these bonds outstanding represent CP’s highest-ranking debt – having first call on all its assets, ahead of all other bond issues, and carrying a credit rating far above the rest of CP’s debt.

But for CP, the bonds represent a big headache if the company ever attempts to reorganize its finances.

You can't make this stuff up, dear reader...and I thank reader Donald Sinclair for digging up this absolute jewel for our Saturday reading pleasure.  It was posted in the Wednesday edition of the Toronto Globe and Mail...and the link is here.

Read more...

If It’s Made of Metal, Thieves Aren’t Picky

The high price of oil is not the only effect of commodity inflation hitting the streets of New York. A surge in the value of copper, iron and other metals has fueled a wave of thefts from sidewalks, roadways and rail yards in the last few months.

On Wednesday alone, the New York police arrested three men for stealing hunks of cast iron — grates made to protect tree roots and manhole covers weighing as much as 300 pounds. The arrests followed reports of the disappearance of dozens of the grates and covers across the city and came on top of a continuing spree of thefts of copper wire from utility cables.

“It’s about money,” said Kevin Rafferty, president of Dublin Scrap Metal in Newark. “The economy’s tough, and people are looking to sell whatever they can find to sell.”

This story was posted on The New York Times website on Thursday evening...and I thank Phil Barlett for sending it.  The link is here.

Read more...

Two King World News Blogs

The first is with Ben Davies, the CEO of Hinde Capital.  It's headlined "3rd LTRO Coming...and Fed to Power Up Swap Lines".  The second blog is with Rick Rule.  It bears the headline "This Can bring Down the Entire Financial System"

Read more...

Gold, silver, copper mining could get Haiti off international welfare

Its capital is blighted with earthquake rubble. Its countryside is shorn of trees, chopped down for fuel. And yet Haiti's land may hold the key to relieving centuries of poverty, disaster, and disease: There is gold hidden in its hills -- and silver and copper too.

A flurry of exploratory drilling in the past year has found precious metals worth potentially $20 billion deep below the tropical ridges in the country's northeastern mountains. Now, a mining company is drilling around the clock to determine how to get those metals out.

In neighboring Dominican Republic, workers are poised to start mining the other side of this seam later this year in one of the world's largest gold deposits: 23 million ounces worth about $40 billion.

This longish AP story was posted in a GATA release yesterday...and the link is here.

Read more...

Egon von Greyerz: Gold -- what correction?

Matterhorn Asset Management's Egon von Greyerz shrugs off the recent setbacks in the gold and silver markets. His commentary is headlined "Gold -- What Correction" and it's posted at Matterhorn's GoldSwitzerland Internet site here.

Read more...

FT's Gillian Tett provides the rationale for gold price suppression

Explaining "financial repression" as the coercion of investors to purchase government bonds that pay negative real interest rates, Gillian Tett of the Financial Times this week provided the perfect rationale for the Western central bank gold price suppression scheme -- all without mentioning gold at all.

In an essay published in The Wall Street Journal last December, recently resigned Federal Reserve Board member Kevin M. Warsh was among the first to complain about "financial repression," which he described as a matter of policy makers' "suppressing market prices that they don't like"

Chris Powell has a rather long must read preamble to go with this Financial Times story that's posted in the clear in this GATA release...and the link to both is here.

Read more...

 

¤ The Funnies

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¤ The Wrap

These are the times that test men's souls. - Thomas Paine

A lot of TV commercials, both past and present, have been using clips of popular and classical songs for decades to sell their wares.  There has been a commercial on TV here in Edmonton for the last couple of weeks that has a few bars from this 1974 hit from a group called Pilot.  I always sing along to the bits on the commercial, but thought I'd dig up the whole piece and post it in today's column.  Everybody knows it...and the link is here.

The visible price action yesterday was almost incidental to what was going on under the surface of the gold, silver, platinum and palladium markets.  New lows were set for this move down in all the metals..and each came at different times throughout the day.  I've never seen any market bottom in the precious metals that looked like this one.

The internal structure of the precious metals market from a Commitment of Traders perspective is the most bullish I can remember in years...and that's just based on an educated guess as to how much it has improved since the Tuesday cut-off.  It's an easy call to say that we are at or below the December 2011 lows in every important measurement in the COT report.

These engineered sell-offs achieved the desired results.  JPMorgan et al have now reduced their short positions to very low levels once again...and at the same time have tricked the traders in the other two categories into going massively short.  That was the plan...and it worked to perfection. 'Da Boyz' know their prey all too well.

I'm sort of hoping, like I was last week at this time, that we have two more quiet trading days in gold and silver on Monday and Tuesday so that we get an accurate picture of this historic bottom in all four precious metals...especially silver.

As I mentioned the other day, we are now so far below the relevant moving averages that the tech funds aren't going to going long any time soon...especially when they're holding these monster short positions that they just put on.  So we could wander around [price wise] well below these moving averages for quite some time.

But the question always is...will JPMorgan et al put their collective heads back in the proverbial lion's mouth and go short against all comers on the next rally?  They have been the short sellers of last resort for a very long time.  Will that continue...or is this the end of it?

That's all I have for the day...and the week.  I'll be watching the New York open on Sunday night with great interest.

See you on Tuesday.