I was very happy to see the price increases in both gold and silver yesterday, but I’m always concerned about who is taking the short side of the trade as the buyers go long.

By noon in London yesterday, the gold price was up about seven dollars, but lost most of that gain by the London p.m. gold fix at 10:00 a.m. Eastern time.

From that low, gold jumped higher…and around 11:30 a.m. Eastern, the high of the day was in…then the gold price more or less traded sideways in choppy action for the rest of the Comex trading session…and electronic trading session that followed.  Volume was light once again.

The silver price more or less followed the same price pattern as gold…but the rally that began shortly after the London gold fix was of more substance.  Silver’s high tick of the day came in the New York Access Market shortly after 4:00 p.m. Eastern, with silver closing up 94 cents on the day. Volume, net of roll-overs, was very light once again.

The dollar held steady up until noon in Hong Kong yesterday…and then rolled over and declined slowly for the rest of the Wednesday trading day…and was down about 38 basis points by 5:15 p.m. Eastern yesterday afternoon.  It’s still in decline as of this writing.

Needless to say, the gold stocks turned in their best performance between the London p.m. fix [minutes after 10:00 a.m. Eastern] and the 11:30 a.m. high tick in the gold price.  From that point the gold stocks remained high, but faded a hair into the close.  The HUI finished up 2.11%…which is a pretty good gain considering the fact that gold was only up nine bucks or so on the day.

The silver stocks started out slowly…and most were up a decent amount by the close of trading, but most finished well of their highs.  I must admit that I was expecting better price action than that.  Nick Laird’s Silver Sentiment Index was up only 2.28%.

The last CME Delivery Report for June showed the only issuer of the day in gold was Prudential with 36 contracts….and JPMorgan was the big receiver/stopper with 7 contracts in its client account and 24 contracts in its proprietary [house] trading account.  There were no silver deliveries reported…which is no surprise, as the July delivery month is now upon us.

About two hours after I wrote that above paragraph, the CME released its Daily Delivery Report for the first day notice in the July delivery month.  It was another stunner of a number in silver, as only 110 contracts were posted for delivery on Friday, July 1st.  I was expecting many thousands…and it just didn’t happen…and that’s not the first time this year that silver has started off a delivery month with almost no activity worthy of the name.  It’s going to be another interesting month.

The delivery month also started of with 83 gold contracts being posted for delivery…all from the Bank of Nova Scotia…with the biggest stopper being JPMorgan for its client account.  The link to the ‘action’, such as it was, is here.

Despite the fact that both gold and silver were up on the day, both ETFs showed withdrawals.  GLD declined 29,226 ounces…and SLV was down 633,631 troy ounces.

The U.S. mint had a sales report yesterday…and it was probably their final one for June.  They sold another 3,500 ounces of gold eagles, along with another 426,000 silver eagles.  June totals are as follows: 57,500 ounces of gold eagles, 4,000 one-ounce 24K gold buffaloes…and 3,374,000 silver eagles. 

Gold eagles sales in June were the lowest so far this year…and silver eagle sales were the third highest.  If you include the buffalo sales for June, one-ounce silver eagles outsold gold eagles by almost 55 to 1.  I sure hope you’re getting your share. 

Total ounces of gold eagles sold so far in the first six months of 2011 is 572,000 ounces, along with 78,000 one-ounce gold buffaloes…and a whopping 22,275,500 silver eagles.  Using all these numbers, one comes out with a silver/gold sales ratio of exactly 35 to 1.  For every ounce of gold the U.S. Mint is selling, it’s selling 35 silver eagles.  And that, dear reader, is phenomenal.

There was a lot of activity over at the Comex-approved depositories on Tuesday…but not a lot of silver was shipped in…or out.  They reported receiving 165,185 ounces…and shipped 235,267 ounces of the stuff out the door, for a net decline of 70,082 troy ounces.

Gold volume yesterday was a very light 85,000 contracts net of what few roll-over there were…and the preliminary open interest number showed a big increase of 9,619 contracts on the back of that jump in the gold price in New York yesterday morning.  Even though this number will show a reduction later this a.m…I’m sure that the U.S. bullion banks were the not-for-profit short sellers on the other side of this rally.

The final open interest number in gold for Tuesday’s trading day showed a decline of 2,031 contracts.  This data will be in tomorrow’s COT report.

Silver’s net volume yesterday was a very low 32,000 contracts…and the preliminary open interest number actually showed a decline of 565 contracts, which sure surprised the hell out of me.  With almost a dollar gain in the silver price, I was expecting an increase…but there may have been some off-setting spread trades that were lifted.  It’s also possible it could have been a short covering rally.  The final open interest number might possibly reveal more, but we won’t know for sure until next Friday’s Commitment of Traders report.

July [the current delivery month] open interest in silver crashed all the way down to 2,381 contracts in this morning’s preliminary report from the CME…and that number is certain to be reduced in the days ahead, so the July delivery month may end up being no big deal.  But, with only 110 contracts posted for delivery tomorrow, the July delivery month could end up being another long drawn-out process…just like it was in May.  Time will tell.

Tuesday’s final open interest number in silver showed a whopping decline of 3,680 contracts.  Both Ted and I feel that this was almost all spread related…and tomorrow’s COT report will tell all, as this data will be in it.

With the moving averages in both gold and silver still under their respective 50-day moving averages, I doubt very much that it was technical long buying that drove the prices up yesterday…although I reserve the right to be wrong about that.

We’re still wandering around in ‘no man’s land’ between the 50 and 200 day moving averages in both metals…and until we break through these moving averages to the upside, the tech funds have no reason to pour in on the long side, because their computer models tell them to sit on the sidelines until these moving averages are broken…and then they jump in.

The technical funds all trade out of the Non-Commercial category of the Commitment of Traders Report…and hold more than 150 contracts long or short in the Comex futures market.

I was very happy to see the price increases in both gold and silver yesterday, but I’m always concerned about who is taking the short side of the trade as buyers go long.

So where do we go price-wise from here?  That’s a good question…and nothing would surprise me either up or down for the next little while…although the silver price could blow up any time.  We still don’t know if JPMorgan et al are through doing their thing in the gold market yet, so we’ll just have to wait it out.

Nick Laird over at sharelynx.com sent me a very interesting chart in the wee hours of this morning…and it was accompanied by the following preamble…

“Here’s a chart of the Gold Price Oscillator I use to watch gold’s momentum. [It also works the same for silver.]  The oscillator is a derivative of the gold price & has no other inputs, so it’s created totally from gold’s movements.

“As can be seen here, there is a regular pattern that shows up in the oscillator plot that correlates to the gold price.  What I watch out for is the compression in the oscillator followed by the breakout. 

“As can also be seen in this chart, if we follow the normal pattern, there should be a sell-off ahead before the next rally begins.  That sell-off should occur over the next few weeks and we’re part way through that event. 

As you know, I’m not a huge T.A. fan…and you can read into this chart whatever you wish…but it certainly looks believable to me. 

The precious metals prices flopped about during Far East and early London trading this Thursday…and volume in both gold and silver is pretty light, so I wouldn’t read too much into the price action. 

You pretty much should have figured out by now that any significant price changes occur during the Comex trading session…and I doubt that today’s price trading action will prove to be an exception to this rule. 

I hope your Thursday goes well…and I’ll see you here on Friday.


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