The big decline in gold and silver prices in late September…plus the decline in the last week of December had absolutely zero to do with the dollar.

As I commented in ‘The Wrap’ in Friday’s column, the gold price got sold off as soon as trading began in the Far East on their Friday morning.  It hit its low price tick around 11:30 a.m. Hong Kong time, but rallied back to virtually unchanged just moments before London opened at 8:00 a.m. local time…which was 3:00 a.m. Eastern.

As you know, it was all down hill from there right up until the London p.m. gold fix at 10:00 a.m. Eastern.  Once the ‘fix’ was in, there was a willing seller that sold it down a percent to its New York low of the day, which was $1,624.20 spot.

Gold then regained all that loss by noon Eastern time, only to give most it up by the Comex close ninety minutes later…and then regained it again by the close of electronic trading at 5:15 p.m. in New York.

It was a roller coaster ride within a one percent price range.  A tempest in a teapot, perhaps?

Gold closed at $1,639.70 spot…down $8.90 on the day.  Despite all the shenanigans, Friday’s net volume [126,000 contracts] was only slightly higher than Thursday’s net volume, which was 112,000 contracts.

Silver’s price action on Friday was a virtual carbon copy of gold’s…with the timing of the price changes being identical as well.  Silver’s low price tick at 10:25 a.m. Eastern was $29.36 spot…and by the close had recovered 41 cents from the low.

Silver closed at $29.77 spot…down 48 cents from Thursday.  Net volume was 33,000 contracts..the same as it was on Thursday.

The dollar index opened about 80.80…and then fell to 80.60 by 2:00 p.m. Hong Kong time.  It sat at that price until about 8:30 a.m. in London, before rising just under 30 basis points by 8:40 a.m. in New York about five hours later.

Then the dollar really took off to the upside…and by 10:20 a.m. it had tacked on another 75 basis points.  This was its high of the day…and from there it gave up about 25 basis points going into the close of trading at 5:15 p.m. Eastern time.  The dollar index closed up 69 points.

Except for the New York high in the dollar…which corresponded exactly with the low in gold and silver…it’s a bit of a stretch to say that there was much real co-relation between the dollar and the precious metal prices yesterday.

The gold stocks were pretty much slaved to the gold price yesterday…and the HUI finished down 1.40% on the day, but up 4.1% year-to-date.

The silver stocks were down across the board yesterday…and Nick Laird’s Silver Sentiment’s Index closed lower by 2.19%.

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The CME’s Daily Delivery Report showed that 38 gold and 23 silver contracts were posted for delivery on Tuesday.  And, once again in silver, it was Jefferies delivering on the short side…and the Bank of Nova Scotia and JPMorgan receiving on the long side.  The link to yesterday’s Issuers and Stoppers Report is here.

There were no reported changes in either GLD or SLV…and the U.S. Mint had no sales report, either.

The silver action over at the Comex-approved depositories just doesn’t stop.  On Thursday they reported receiving 1,488,261 troy ounces of the stuff…and only shipped 250,774 ounces out the door.  The link to that action is here.

The Commitment of Traders Report yesterday was pretty much what I was expecting.  The Commercial net short position in silver increased by 3,146 contracts, or 15.73 million ounces…and I’m guessing that a huge chunk of that was the small Commercial traders, Ted Butler’s raptors, selling out their long positions to the tech fund shorts as the price rose.

It was almost the same thing in gold, but there wasn’t as much of a deterioration as I was expecting…which is certainly OK by me.  The Commercial traders only increased their net short position by 4,731 contracts, or 473,100 ounces of gold.  It was the raptors once again selling their long positions to the tech fund shorts as the price rose.

Here’s another chart from Washington state reader S.A. and, as is usually the case, it requires no further embellishment from me.  I have a couple of stories on this further down.

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Reader Scott Pluschau has done more T.A. work on the U.S. dollar now that the new COT report was released yesterday.  He had this to say in his covering e-mail to me…”COT report showed that the lights are still flashing a warning on the dollar.  There is a good chart showing weakness intraday, and a multipoint trend line that has formed on the daily.  Bulls don’t want to see this trend line break.  Commercials have got to know something.  Front-running QE3, perhaps?”  The link to Scott’s blog is here.

With ruthless editing, I’ve cut the number of stories down to as few as I could.

The problems we face today exist because the people who work for a living are outnumbered by those who vote for a living. – Author unknown

Today’s ‘blast from the past’ was recorded by a Canadian rock band that formed in Toronto back in 1968…and this tune of theirs was a Top-10 hit all across North America in 1973.  You should recognize it instantly…and the link is here.

The scale of the Kitco graph posted above makes it look like a lot happened on Friday and Thursday.  But, in actual fact, the price range in gold from it’s Thursday high to its Friday low was less than forty bucks.

Even though the dollar co-relation to the gold price wasn’t the greatest, it’s not hard to see how it affected prices in the very short term.

But, having said all that, there’s no question in my mind that there has been a lot of price direction changes [all down] in both silver and gold associated with the London open and the London p.m. fix…and it’s been that way for at least a decade.

Here’s a chart that I’ve posted before on many occasions.  It’s something that Nick Laird over at cooked up a couple of years ago…and it’s based on the prior work of German precious metals analyst, Dimitri Speck.

As Nick points out in the box on the graph…”The average gold price has been obtained from four years of data…from March 2006 through to March 2010…approximately 1,000 trading days.”

Using this much data over such a long period of time, takes out the day-to-day noise…and shows the underlying market trends.  Yesterday’s price action in both gold and silver is almost a carbon copy of this graph.  I urge you to use the ‘click to enlarge’ feature and spend a few minutes on it.

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I wasn’t overly happy with yesterday’s data in the Commitment of Traders Report…as it appears that the rally off the December 29th lows is showing signs that it will end the same old way as the previous ones have done…with the Commercials going massively short against all the longs.  It’s way too soon to tell if that will be the case or not, but at the moment, it’s shaping up that way based on the last two COT reports.

However, this dollar rally won’t last forever…and things are looking pretty serious over in the Persian Gulf.  But it’s hard to tell whether this dollar rally is on its last legs or not…or if these threats against Iran are purely posturing, or a count-down to the real thing.

No one knows the answer to either of those questions…and that certainly includes this writer…so we’ll just have to wait it out.

At the moment, gold is above its 200-day moving average…and has a ways to go to get to its 50-day moving average…and silver is still quite a distance below its 50-day moving average as well.

Here’s gold’s 1-year chart.  Although it’s too soon to read anything into it, it appears that the rally in gold [and also in silver] is showing signs of rolling over.  I wouldn’t bet the ranch on that, but we should have a better indication of what the trend is by the end of next week.

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And the 1-year silver chart…

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Here’s the U.S. dollar chart for the last year.  As you can see, this current rally is getting a little long in the tooth if one uses the RSI and MACD lines as clues…and it may be in your interest to re-read Scott Pluschau’s T.A. commentary on the dollar further up in this column.

But the take-away from this is that the big decline in gold and silver prices in late September…plus the decline in the last week of December had absolutely zero to do with the dollar…and everything to do with direct intervention in the price of both metals by the Commercial traders.  Even the gold and silver rally since the December 29th low flies directly in the face of a still-climbing U.S. dollar…and as I said in this column yesterday, that’s a bullish sign in my books.

When this dollar market finally heads south, it’s going to get interesting.

I’m still ‘all in’.

Enjoy what’s left of your weekend…and I’ll see you here on Tuesday.

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