Well, the vertical spike in both gold and silver shortly after the London open yesterday, ran into some serious opposition within an hour… but both managed to power higher, with the top coming in both metals at the London silver fix [12:00 noon in London]. From there, they both got sold off until shortly after the London p.m. gold fix at 10:00 a.m. New York time. Then it was ‘to and fro’ until the close at 5:15 Eastern. Gold was up about $7 to a new record high close. Volume in gold was pretty big…the CME estimate was 134,651 contracts. We’ll see how close that estimate is when the final numbers go up this morning.

Silver, as usual, had a more ‘volatile’ ride. The spike top [around $18.05] was at the London silver fix… precisely noon local time… 7:00 a.m. in New York. From there it got sold off heavily [50+ cents] until the London p.m. gold fix at precisely 10:00 a.m. in New York. From there a decent rally got squashed [at precisely 12:00 noon in New York] and then got sold off at precisely 2:00 p.m. By the time that New York was through ‘trading’, silver was up less than a dime. The silver graph is below.

Open interest numbers for Monday were rather interesting. Since Monday was a holiday, trading volume was pretty thin. In gold, only 80,303 contracts traded, and open interest actually fell 3,962 contracts, so it’s obvious that some of Monday’s price increase involved short covering. Total gold o.i. dropped back to 498,551 contracts. In silver, o.i. also fell… but by a miniscule 147 contracts. Volume was a very small 17,280 contracts… with total open interest in silver now 133,797 contracts.

The CME Delivery Notice yesterday showed that 84 gold and 3 silver contracts will be delivered tomorrow. There were no changes over at GLD yesterday, but the SLV finally had some silver added to it. This time it was 589,790 ounces. Ted Butler feels that the SLV is now owed close to 40 million ounces. There were no changes reported from the U.S. Mint, and the Comex approved depositories reported that 199,714 ounces were withdrawn.

Well, the Bank Participation Report was posted yesterday… for positions held at the end of trading last Tuesday… the same as Friday’s Commitment of Traders report. I knew it would be ugly, and it was. In silver, two [2] U.S. bullion banks are short 38,375 Comex silver contracts. They are long two contracts… and you read that right… 1+1=2 contracts! As a percentage of total open interest, these two U.S. banks are short 29.1% of the entire open interest… and considerably more than that if you take out the spread trades. This is a record high net short position in silver by the U.S. banks. Those two U.S. banks would be JPMorgan [holding the lion’s share] and HSBC USA.

The ten [10] Non-U.S. banks that hold Comex contracts show that they hold 2,400 Comex long contracts and 2,174 Comex short contracts… for a net long position of 226 contracts. This represents 0.2% of total open interest. These ten foreign banks, on average, are long about 23 contracts apiece! Any questions so far?

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Now for gold. Two [2] U.S. banks are short 116,790 Comex contracts. They are net long ten [10] Comex contracts. This net short position by the two U.S. banks represents 24.1% of the entire gold open interest on the Comex. The two banks are the same as for silver.

The seventeen [17] non-U.S. banks are short 35,874 Comex contracts and net long 8,596 Comex contracts. Subtracting the longs from the shorts, these 17 non-U.S. banks are net short 27,278 Comex contracts… 5.6% of total open interest between 17 banks. As matter of interest, I would bet some serious money that of those 17 non-U.S. banks, probably only three or four of them hold 75% of the entire non-U.S. bank short position… and the other 13 or 14 banks hold the remaining 20% between them.

So, with two U.S. banks short 29.1% and 24.1% of the silver and gold short positions on the Comex respectively… it’s not rocket science to see who controls the price.

And to make matters even worse, these reported short positions by the two U.S. bullion banks are understated. Last Tuesday was the cut-off for both the COT and the Bank Participation Report. On that particular day, we had a huge price move in both metals. The open interest in gold rose about 33,000 contracts and silver o.i. was up nearly 5,000. Then two days later, o.i. blew out another 17,000 in gold and 1,800 in silver. None of these numbers are in this report… but the first set, if they’d been reported in a timely manner, should have been. To be conservative, you could stack another 25,000 Comex gold short contracts and another 4,500 Comex silver short contracts on the backs of JPMorgan and HSBC USA. It’s truly grotesque, isn’t it?

In a private letter to clients yesterday, Ted Butler had this to say about the Bank Participation Report… ‘What JPM did in the past month [since the September BPR – Ed] is contrary to everything that Chairman Gensler has spoken out against since he has been in office. The current [and forever] silver investigation came as a direct result of the Bank Participation Report of August 2008… and my urgings for readers to write in to the Commission. This new BPR is much worse than that one. JPMorgan is now short almost 30% of world silver production. This at a time when mining companies are retreating from hedging their production.’

Oh… and one more layer of icing on this particular cake. The current position limits per trading entity [for all months] is 6,000 contracts for gold, and 6,000 contracts for silver. According to this Bank Participation Report… JPMorgan and HSBC are short 116,790 contracts in gold and 35,874 in silver. If they followed the CFTC regulations, the total short [or long] position allowed is 12,000 contracts total for both banks. So, they are currently 104,790 contracts over the position limit in gold, and 23,874 contracts over the position limit in silver.

The CFTC will not even enforce these limits. At the moment, there are effectively no limits in gold or silver. The bullion banks are allowed to short whatever quantities of gold and silver on the Comex that’s necessary to control their respective prices… and that’s exactly what they’ve been doing for the last 20+ years!. And you wonder why the prices of both metals are going nowhere [relatively speaking]. And your gold and silver mining companies haven’t lifted a finger to help you. Not one of them has written a letter to the CFTC and complained. The words ‘fiduciary duty’ [as it applies to their shareholders] appears to mean nothing to them.

The usual New York gold commentator had the following to report yesterday… ‘Mumbai was closed today, so there were no reliable rupee quotes, neither was there a stock market close. Early Tuesday morning, Vietnam gold stood at a $2.62 premium to world gold… and this morning the premium stood at the surprisingly high premium of $8.46. The TOCOM reopened for business, and was a seller, as the public shed another 3.06 tonnes from its long [position].’

‘This week’s European Central Bank statement of condition indicates a sale by one captive Central Bank of €2 million [0.09 tonnes]. Last week’s disposal was 0.7 tonnes. This tiny amount might perhaps be an option being called. Evidently the ECB squadron is out of the gold market.’

‘Today, world gold took off about 3:30 a.m. NY time, peaking around 7 a.m. up $10.20. The dollar index slipped about an hour later, but much less: Euro gold had been tracing US$ gold quite closely.’

‘With India crippled and Japan selling, one wonders who the buyer was. Today caused another move in The Privateer‘s US$ 5×3 Long-Term chart, now looking immensely powerful.’ [Click here for the P&F chart. – Ed]

Richard Russell makes the interesting observation that… At present, gold is no further above its 10-month moving average than it has been during the last five years. So what makes gold’s current position so speculative? Then he adds… If this action continues, pretty soon we’ll feel the fever. What fever are you talking about, Russell? My subscribers of the 70s remember‘There’s no fever like gold fever!’

Yesterday, I had too many stories. Today I don’t have enough. But the two I’ve got are pretty hearty reading, so hopefully the lack of quantity will be made up for by their quality.

The first is a posting from over at zerohedge.com. The proprietor writes under the pseudonym of Tyler Durden. This gentleman knows a thing or three about international finance… and although you may not understand everything he has to say, it’s not that part that should bother you. It’s the parts the you do understand. Even for me, this article is at the very outer edges of my level of understanding. The piece is entitled ‘Why Did U.S. SDR Holdings Increase Five Fold in the Last Week of August?’ and the link is here.

The last piece was posted over at my friend David Tice’s website prudentbear.com. It falls into the must read category. The title says it all… ‘When Money Becomes Worthless’… and I thank Michael from Ottawa for sending it along. The link is here.

The dollar is a scrap of paper, or an electronic impulse, the value of which is anchored by the analytical acuity of the monetary bureaucracy that failed to predict the greatest financial crackup since the 1930s. – James Grant, WSJ, 20 September 2009

Another day… another record-high close… but not by a lot. It appears to me that the powers that be are trying to prevent a major breakout in the price… like a 5 or 10% move in one day, which would really draw a crowd of buyers of everything perceived to be precious metals related. This plan of theirs is doomed of course, because the market will have its way… sooner or later.

Trading activity in the Far East today has been interesting to watch… especially in silver… and volume is extremely heavy in both metals, so the New York bullion banks are already hard at work trying to keep the excitement [and the prices] down. London is now open and all appears quiet… or at least under control… for the moment.

I was just thinking about what Richard Russell said earlier. I remember the gold and silver craze of the late 1970s/early 1980s very well… and Richard Russell is right… ‘There’s no rush like a gold rush.’ I’ll think about that instead of counting sheep.

See you on Thursday.

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