Well, that little uptick shortly before 10:00 a.m. in London yesterday morning turned out to be the high of the day for gold. If it made it above the $1,600 spot level, it was only for a few seconds before the buyer[s] ran into an avalanche of selling from the usual not-for-profit suspects.
It was all down hill from there, of course...but the gold price managed to open the Comex trading session in the black by a few bucks, but that lasted less than five minutes before the high-frequency traders showed up and began to engineer the price lower.
The most ferocious part of the price decline started at 10:30 a.m. Eastern time...and in well under twenty minutes, the gold price cratered for another fifteen bucks.
That proved to be the low the day at $1,570.70 spot...and from there a nice rally began that took the gold price back to over $1,592 spot. But that was as high as it got...or was allowed to get...and the gold price slowly drifted lower until shortly before 4:00 p.m. Eastern time...and from there traded flat into the 5:15 p.m. electronic close.
Gold finished the Tuesday session at $1,582.40 spot...down $6.20 from Monday. It should come as no surprise that the volume figures for Tuesday were 50% higher than Monday's, as net volume was around 129,000 contracts.
It was precisely the same story in silver...except the price was more 'volatile'. Silver's high...around $27.65 spot...came at the same time as gold's...shortly before 10:00 a.m. in London. Silver was still up about a dime at the Comex open until the high-frequency traders showed up at 9:40 a.m....and then again at 10:35 a.m. Eastern time.
The low in silver [$26.68 spot] came at the same as gold's low. The subsequent rally took silver back above its Monday close and the Tuesday opening price on the Comex...and the New York high of the day. But that wasn't allowed to last, and silver closed the trading session at the same closing price as Monday...$27.31 spot. What was the chance that that was a coincidence? Net volume was also 50% higher than Monday's volume...with 36,000 contracts traded vs. 23,000 contracts traded on Monday.
The dollar index didn't do a whole heck of a lot during Far East or London trading on Tuesday. It was down about twenty basis points in early Far East trading...but then rallied back to basically unchanged by the 8:00 a.m. London open. From there it more or less traded sideways until exactly 10:00 a.m. Eastern time, which also happened to coincide with the time of the London p.m. gold fix.
Then, in the space of about forty minutes, the index rallied about 40 basis points. The dollar index high tick just coincidentally happened to coincide with the low of both gold and silver in New York yesterday morning.
From that high, the index got sold off...giving up all its gains and more by 4:00 p.m. Eastern time. From there, the dollar index traded flat into the close, finishing the Tuesday trading session down about 15 basis points at 82.92.
I'd like to say that yesterday's sell-off in the precious metals was all currency related, but that certainly doesn't explain the decline in both metals that began at 10:00 a.m. in London...and which continued right up until 10:00 a.m. in New York. A large chunk of the dollar index rally was in the bag before either gold or silver got sold off hard...and it's my opinion that they didn't fall off the turnip truck at 10:30 a.m. Eastern on their own...they got pushed.
The gold stocks actually spent a few minutes in the black after trading began in the equity markets in New York yesterday morning. But that didn't last too long..and from there they got sold off over two percent to their low at 10:40 a.m. Eastern time. Then they rallied sharply until a few minutes after 12 o'clock noon...and then traded sideways from there. The HUI finished down 0.97% on the day...and back below the 400 mark.
There was the odd green arrow in the silver stocks yesterday...but they closed mostly down on the day...but Nick Laird's Silver Sentiment Index actually finished the Tuesday trading day up 0.56%. Considering the closing price of the seven big cap silver stocks that make up this index, I found this very hard to believe...and I told Nick that.
(Click on image to enlarge)
The CME's Daily Delivery Report showed that 2 gold and 436 silver contracts were posted for delivery on Thursday. The big shocker, at least for me, was that the big short/issuer was JPMorgan in its in-house/proprietary account. They're delivering 426 contracts. The biggest long/stopper was the Bank of Nova Scotia with 324 contracts...along with 63 contracts for JPMorgan in its client account...and 43 contracts for ABN Amro. The Issuers and Stoppers Report is definitely worth looking at...and the link is here.
There were no reported changes in either GLD or SLV...and the U.S. Mint didn't have a sales report either.
Over at the Comex-approved depositories, they reported receiving 599,779 troy ounces of silver on Monday...and shipped 906,225 ounces of the stuff out the door.
Ted Butler pointed out to me yesterday that Sprott's Physical Silver Trust [PSLV/PHS.U] has already reported receiving around 5.2 million ounces of the silver that it had ordered.
Here's an e-mail that I received from reader Eddie Costik yesterday...and it's pretty much self-explanatory...
Ed..."I have news for you....the home industry in the U.S. is finished as we know it. Retail sales for home improvement were down 1.6% for the month of June. I'm still in touch with wholesale distributors of building materials...nobody in that industry is making any money. My small retail lumber company is only one of five remaining in a five county area of Central Pennsylvania. Everyone is struggling. The halcyon days from the past are over. Mortgage rates are at all time lows but very few can qualify because of stringent qualification requirements. There are so many foreclosures that banks are holding them off the market so they don't have to write them down. If Obama gets his way.... eliminating the Bush tax cuts we're headed for an economic abyss. Then again how much worse can it get? A lot. Hold onto your behind this is not going to end well."
It was a very slow news day yesterday, so I'm delighted to report that I don't have much reading material for you...but there are quite a few of the ones that I do have, that are well worth your time.
U.S. states face long-term budget burdens that are already limiting their ability to pay for basic services such as law enforcement, local schools and transportation, a report released Tuesday said.
Aging populations and rising health care costs are inflating Medicaid and pension expenses. At the same time, revenue from sales and gas taxes is shrinking. And grants from the federal government, which provide about a third of state revenue, are likely to shrink, the report said.
Those challenges are made worse by a lack of planning by many states and the repeated use of one-time accounting gimmicks to cut costs, the report added.
No! Really? What a surprise... This AP story was picked up by the finance.yahoo.com news service yesterday afternoon...and I thank Scott Pluschau for sending it. The link is here.
Federal Reserve chairman Ben Bernanke stopped short of promising fresh stimulus for the US economy even after admitting its performance is "disappointing."
The world's most powerful central banker also forecast that the drop in the unemployment rate will be "frustratingly slow" in what was a downbeat assessment of the economy before Congress.
Hopes had built in financial markets that the Fed chief would use today's appearance to offer strong clues that the bank is about to embark on another round of printing money. Instead, Mr Bernanke refused to elaborate on an earlier pledge that the central bank stood ready to do more if needed.
Despite the world's largest economy enjoying a bright start to the year, top officials in the US now face a slowing jobs market, declining retail sales and a fall in business spending. While investors did not get the specific hints they had sought, the Fed chairman's assessment was gloomy enough to convince some that a further round of quantitative easing, or printing money, is inevitable later in the year.
This story was posted on the telegraph.co.uk website yesterday...and the link is here.
HSBC was forced to apologise publicly yesterday before the US Senate – and saw its compliance chief resign – over facilitating a multi-billion-dollar money-laundering operation for drug gangs, terrorists and rogue nations worldwide.
Britain’s biggest bank was “pervasively polluted for a long time” as it allowed funds to be shifted to and from its branches in the United States as far afield as Mexico, Syria, the Cayman Islands, Iran and Saudi Arabia, the hearing was told.
Issuing an apology, Stuart Gulliver, chief executive of HSBC, said: “We have sometimes failed to meet the standards regulators and customer expect… we take responsibility for fixing what went wrong.”
HSBC, the only British bank with US branches, is now braced for a “substantial” fine which analysts said could be up to $1bn (£640m). The latest banking scandal comes in the wake of Barclays’ £290m fines for its role in rigging Libor.
This is another story that was posted late yesterday evening on The Telegraph's website. The link is here.
The idea that the financial products known as derivatives pose a danger to the financial system is nothing new. Commentators have been pointing this out for years. Most famously, Warren Buffett referred to derivatives as "time bombs" and financial "weapons of mass destruction." Recently a complex derivatives trade caused over $5 billion in losses at J.P. Morgan.
Derivatives are bets between two parties that are made today with a payoff in the future based on the value of some stock, bond, or index. One party will profit if the reference security or index goes up in value and the other party will profit if it goes down. These bets usually settle up every three months based on value at that time, and then a new calculation period begins. There are many variations on this basic pattern, but almost all derivatives involve some form of a bet in which gains and losses are calculated and settled-up periodically.
If derivatives are as dangerous as the commentators suggest, why are they permitted? If they are such a threat to the financial system, why does the size of derivatives bets continue to grow? The answers have to do with several myths the big bank derivatives players have created. These myths are false and distract interested parties from doing what needs to be done to ban derivatives. It's time to demolish these myths once and for all.
This usnews.com story was posted on their website on Monday...and I thank Miami reader Harold Jacobsen for sending it along. In my opinion, anything Jim has to say is well worth the read...and the link is here.
The economy is the main event but the LIBOR scandal will be on the under-card when Fed Chairman Ben Bernanke testifies before Congress again today.
At issue is what the Fed, and other bank regulators, knew about manipulation of the key lending rate and whether they condoned banks giving low-ball estimates of LIBOR in order to make themselves look healthier during the crisis of 2008.
Bernanke is likely to face some inquires about this issue, but the U.S. regulator most questions are being asked about is Treasury Secretary Tim Geithner, who is set to testify about the matter before the House Financial Services committee next week.
In 2008, while President of the NY Fed, Geithner sent a memo to British regulators to raise concerns about potential manipulation of LIBOR, as has been widely reported and confirmed Friday by the NY Fed.
This 4:32 video was posted on "The Daily Ticker" website yesterday morning...and was picked up by finance.yahoo.com Internet site yesterday...and is a must watch for sure. It's Miami reader Harold Jacobsen's second offering in a row in today's column...and the link is here.
Senior British officials said on Tuesday that they did not receive warnings from the Federal Reserve Bank of New York about possible rate-rigging during the financial crisis of 2008.
Speaking to a British parliamentary committee on Tuesday, Mervyn A. King, governor of the Bank of England, said discussions with American authorities had instead focused on ways to improve the London interbank offered rate, or Libor.
Timothy F. Geithner, who then ran the New York Fed, sent an e-mail to Mr. King in June 2008 that outlined reforms to the Libor system. They included recommendations that British officials “strengthen governance and establish a credible reporting procedure” and “eliminate incentive to misreport,” according to documents released last week.
This story was posted on The New York Times Internet site early on Tuesday morning...and is Phil Barlett's first offering of the day. It's certainly worth skimming...and the link is here.
Britain's regulators were “in denial” about widespread Libor rigging by banks in the build up to the financial crisis and frustrated US efforts to crack down on the problem, MPs said yesterday.
Members of the Treasury Select Committee (TSC) also claimed the Bank of England and the Financial Services Authority (FSA) had been “asleep” in letting Barclays promote Jerry del Missier to chief operating officer last month, after establishing he had instructed colleagues to fix the key inter-bank lending rate.
The criticisms came as Ben Bernanke, chairman of the US Federal Reserve, warned that banks’ “unacceptable behaviour” was “undermining confidence in financial markets” and applauded the “quick” response of the Federal Bank of New York, which first uncovered evidence of rigging in back in 2008.
He said: "Importantly, it informed all the relevant authorities in both the US and the UK." Sir Mervyn King, Governor of the Bank of England, denied that the Bank had been warned, saying: “Neither the Fed nor anyone sent us any evidence of misreporting.”
Here's a story from The Telegraph yesterday evening that gives their version of events mentioned in The New York Times story posted above this one. Click here...read it...and then place your bets.
Even as lawmakers in London hammered a top Barclays executive over the bank’s role in a rate-rigging scandal, another financial firm that is largely owned by the British government is fighting an investigation into the vast scheme.
The Royal Bank of Scotland, one of more than 10 banks under scrutiny from authorities around the globe, is refusing to turn over crucial information to Canadian regulators, court documents from Ottawa show.
The Canadian court documents, collected over the last year, hinted that two other big banks were aiding authorities. Those banks are UBS and Citigroup, according to people close to the matter.
This story was posted on The New York Times website very late on Monday evening...and I thank Phil Barlett for his second story in today's column. It's certainly worth the read...and the link is here.
Spain needs to make significant spending cuts and see a major boost in state revenues -- but its most recent reforms apparently fall short by some nine billion euros. As tensions rise, the country still awaits the approval of 100 billion euros in emergency aid.
Spain is tinkering with a comprehensive reform package to help the deeply indebted country get itself out of a severe financial crisis. But its new belt-tightening measures will apparently only go so far -- bringing in almost €9 billion ($11 billion) less than what had been announced.
The program presented last week envisions savings of €56.4 billion over the next two and a half years, according to a report published Saturday on the website of Spain's leading daily, El Pais. Citing government sources, the paper said that roughly €29 billion of this would come from tax increases and some €27 billion from spending cutbacks.
Spain must reduce its budget deficit by €65 billion if it hopes to get it under the European Union's upper limit of 2.8 percent by the end of 2014. The country is already grappling with its ailing banks, unemployment of nearly 25 percent and the consequences of a real-estate bubble collapse. But now it must also struggle to push through these reforms and regain the confidence of the EU and the financial markets.
Here's a story that I found over on the spiegel.de website yesterday...and the link is here.
Italian Prime Minister Mario Monti said on Tuesday he expected the governor of Sicily to resign following a growing financial crisis that has pushed the autonomous region close to default.
Monti said in a statement there were "grave concerns" that the island could default and he said he had written to the governor Raffaele Lombardo seeking confirmation that he would resign by the end of the month.
"The solutions which could be considered that involve action on the part of the government cannot fail to take account of the situation of the administration at regional level but rather have to be matched to this so as to deploy the most efficient and appropriate instruments," the statement said.
This short 3-paragraph Reuters piece, filed from Rome, was posted on their website yesterday evening local time...and I thank reader 'David in California' for sharing it with us. The above three paragraphs contains the entire story...and the link to the hard copy is here.
The German Federal Constitutional Court said on Monday set September 12 as the date on which it will announce its decision on whether to impose a temporary injunction against laws setting up the permanent bailout fund and the fiscal pact for the euro
That means efforts to rescue Europe's common currency will remain in limbo for almost two more months.
The court is hearing a case brought by plaintiffs who argue that by signing up to the €500 billion ($610 billion) European Stability Mechanism and the fiscal pact enforcing debt reductions, Germany will jettison too much sovereignty and undermine the power of its democratically elected parliament to determine what happens with taxpayers' money.
This is another story I found posted on the German website spiegel.de yesterday...and the link to that is here.
The first blog is with Jeffrey Saut...and Eric gave it the headline "The World is in its 3rd Super Cycle in the Past 200 Years". The second one is with Rick Rule. It's entitled "The Physical Silver Market is Getting Dangerously Tight". The next item is an audio interview with John Embry over at Sprott.com...and it's certainly worth listening to. And lastly is this blog with Tocqueville fund manager John Hathaway...and it's headlined "Gold Manipulation: Banks are Agents of the State". This is a must read.
The amount of new gold discovered has not kept up with the current pace of mine output, as the easy-to-reach gold deposits are being depleted, said a mining consultancy group on Tuesday.
From 1997-2011, there have been 99 discoveries of gold deposits containing at least 2 million ounces of the metal, totaling 743 million ounces of gold in reserves, resources and past production as of the end of 2011, said the Metals Economics Group in a research report.
“Assuming a 75% resource-conversion rate and a 90% recovery rate during production, these 99 discoveries could potentially replace only 56% of the estimated gold mined during the same period, if they are economical to mine,” they said in their report.
This short 5-paragraph story was posted over at Kitco yesterday...and I thank West Virginia reader Elliot Simon for sending it our way. It's a must read as well...and the link is here.
Bayfield Ventures Corp. (TSX.V: BYV) is exploring for gold and silver in the Rainy River District of NW Ontario. The Company’s 100% owned “Burns” Block property adjoins the immediate east of Rainy River Resources’ (TSX.V: RR) world-class gold deposit which includes an indicated resource of 5.72 million ounces of gold, averaging 1.18 g/t, in addition to an inferred resource of 2.25 million ounces of gold, averaging 0.79 g/t. Drilling to date on Bayfield’s Burns Block demonstrates that the ODM17gold zone extends from Rainy River Resources' ground onto the Burns Block. Bayfield is currently carrying out 100,000 metres of diamond drilling on its Rainy River properties. Drill results thus far have been very encouraging. Notable drill results include 60.05 grams per tonne gold and 362.96 grams per tonne silver over 11.2 metres within 26.70 grams per tonne gold and 170.69 grams per tonne silver over 25.5 metres, as well as 35.93 grams per tonne gold and 359.65 grams per tonne silver over 10.0 metres. Bayfield also holds a 100% interest in two other properties in the Rainy River District. Claim blocks “B” and “C” are well located to the immediate east and west (respectively) of Rainy River Resources’ #433 and ODM17 gold zones. Please visit our website to learn more about the company and request information.
As investors begin to realize that gold has not peaked, and that today's "high" prices are actually just a step on the way up, I expect more of them to pile into the gold sector. The pressure to find sectors and companies with a good return will send Main Street investors, Wall Street fund managers, and sovereign wealth funds into our market. The spectacle will be, as Doug Casey likes to say, like trying to pour the contents of the Hoover Dam through a garden hose. - Louis James, Senior Metals Investment Strategist, Casey Research
There's not much one can say about yesterday's price action in all the precious metals except to say that we've seen this particular movie lots of times in the past...an engineered price decline behind a manufactured rally in the dollar index.
As I mentioned in my closing remarks in 'The Wrap' yesterday...Tuesday was the cut-off for Friday's Commitment of Traders Report, so I was prepared for anything as far as price movement went...and this price pattern didn't surprise me one bit.
I'm only speculating here, but I would guess that JPMorgan et al were covering short position like mad in all precious metals yesterday...and going further on the long side as well in the subsequent rally, which had all the hallmarks of a short covering rally. I am hopeful that all this price action will show up in Friday's COT report...and it should be obvious to anyone that the 'powers that be' want gold below $1,600 spot for as long as possible.
It was gratifying to see John Hathaway come out of the closet and state that 'da boyz' are obviously managing the gold price...just as they are managing the LIBOR. I would suspect that Eric King will have the audio interview of that blog posted on this website sometime today...and I will be posting it this space as soon as it becomes available.
Not much happened in Far East trading during their Wednesday...and it's pretty much the same now that London is open. Volume is light in both metals...and the dollar index is not doing a thing, either.
I haven't a clue as to how gold will trade during the Comex session in New York today, but one can assume that the worse the news, the lower the gold price will be engineered. As to when the precious metal prices break higher, it's 100% up to JPMorgan et al...and when they decide to end their duties as a not-for-profit seller, it will be immediately apparent in the price...and not a moment before.
I hope that your Wednesday goes well...and I'll see you tomorrow.