Gold & Silver Daily
"The big decline in gold and silver prices in late the decline in the last week of December had absolutely zero to do with the dollar."

¤ Yesterday In Gold & Silver

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'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.

(Click on image to enlarge)

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.


¤ Critical Reads

Obama asks Congress for debt limit hike

President Obama formally notified Congress on Thursday of his intent to raise the nation’s debt ceiling by $1.2 trillion, two weeks after he had postponed the request to give lawmakers more time to consider the action.

Congress will have had 15 days to say no before the nation’s debt ceiling automatically is raised from $15.2 trillion to $16.4 trillion.

In a letter to House Speaker John A. Boehner (R-Ohio), Obama wrote that ”further borrowing is required to meet existing commitments.”

I borrowed this story from Friday's King Report...and it's posted in Thursday's edition of The Washington Post.  It's worth take the red pill...and then click here.


Bank of America, Big Banks Face Massive Credit Card Case

Private antitrust litigation pitting some five million retailers against Visa, MasterCard, and 13 large banks, has slipped under the radar of many analysts and investors who follow those companies, but the case may deliver a multi-billion dollar shock to bank bulls in the coming months. 

Estimates of the potential cost of a settlement of the antitrust case vary dramatically–from a few billion dollars into the hundreds of billions. At least as worrisome to the financial companies, according to Deutsche Bank research, is the risk that a settlement or judge’s ruling could take the 2% “interchange” fees banks and card companies charge retailers on credit card transactions to as low as .5%, That would equal the rate in Australia, but still be higher than the .3% charged in the European Union, according to a report by Sanford Bernstein analyst Rod Bourgeois.

The impact of such a change would be several times as costly as the Durbin Amendment, which caps fees banks can charge on debit cards and is one of the new rules most hated by the big banks.

This story appeared in Forbes on Thursday...and I thank reader 'David in California' for sending it along.  The link is here.


Americans Pay Wall Street $20 Billion for Bad Swaps

Seven months after Hurricane Katrina ripped holes in the Superdome’s roof in 2005, Louisiana State Bond Commission members made what they were told would be “the best of a bad situation” in financing the stadium’s renovation.

Acting against the recommendation of their staff, the commissioners voted for a Merrill Lynch & Co. plan to use debt and interest-rate swaps to pay for the job. While the deal helped keep the National Football League's New Orleans Saints from leaving town -- and the arena got new scoreboards while 12,000 seats were converted to luxury class -- taxpayers became the losers for supporting a winning team.

The cost of financing the work has reached $42 million, almost a quarter of the $187 million spent on Katrina-related repairs and enhancements and three times as much as expected. The deal became so expensive that the state repurchased the debt sold by the New York investment bank to stop the bleeding.

This sounds very similar to what happened to Jefferson County in Alabama. I thank Washington state reader S.A. for this sending this Bloomberg story my way yesterday.  Take another red pill and then click here.


Ron Paul’s achievement: Charles Krauthammer

There are two stories coming out of New Hampshire. The big story is Mitt Romney. The bigger one is Ron Paul.

Romney won a major victory with nearly 40 percent of the vote, 16 points ahead of No. 2. The split among his challengers made the outcome even more decisive. Rick Santorum and Newt Gingrich were diminished by distant, ­lower-tier finishes. Rick Perry got less than 1 percent. And Jon Huntsman, who staked everything on New Hampshire, came in a weak third with less than half of Romney’s vote. He practically moved to the state — and then received exactly one-sixth of the vote in a six-man contest. Where does he go from here?  

But the bigger winner was Ron Paul. He got 21 percent in Iowa, 23 in New Hampshire, the only candidate other than Romney to do well with two very different electorates, one more evangelical and socially conservative, the other more moderate and fiscally conservative.

This op-ed piece was in The Washington Post on Thursday...and I borrowed it from a GATA release yesterday.  The link is here.


The Rise of the Praetorian Class

This was the headline to yesterday's edition of Casey's Daily Dispatch.  It's actually the title to the featured article in David Galland's missive yesterday...and it's also your first must read of the day.  In fact, it's an absolute must read.  I've been around a while...and I never thought I'd read an article such as this, written about the United States...ever!!!  This is scary stuff...and the two red pills you took should last you through this essay as the next one.  The link is here.


Doug Casey: The U.S. Government is Bankrupt

Everyone knows that the US government is bankrupt and has been for many years. But I thought it might be instructive to see what its current cash-flow situation actually is. At least insofar as it's possible to get a clear picture.

So what can you do about it? Well, actually, there is nothing you can do about it. At least as far as changing the course of history is concerned. The best you can do is to speculate intelligently on further, new distortions that will be cranked into the system, as well as others that are inevitably going to be liquidated.

It seems to me that this is a trend that can no longer be turned around. The US government's budget is, in fact, the biggest thing in the world; it won't be turned around, because it's like a gigantic snowball rolling down a hill. It will only stop when it smashes into the village at the bottom of the valley. The best thing you can do is capitalize on it as well as you can...and get out of its way while you do.

Doug has been preaching this message ever since I heard him speak for the first time about ten years ago.  It was excellent advice then...and even more critical today, especially if you live in the United States.  This is another absolute must read...and do it before the effects of the pills wear off.

I thank West Virginia reader Elliot Simon for sending me Doug's essay.  It's posted over at the Casey Research website...and the link is here.


Faced with SOPA Protest, One Senator Just Blinked

The latest grumblings (or lack thereof) from the lawmakers on Capitol Hill suggest that they're coming around to the idea that the latest anti-piracy efforts in the House and the Senate might've been a little hasty. Patrick Leahy, a senator from Vermont who co-authored the PROTECT IP anti-piracy bill, posted a press release on Thursday, confessing that his legislation needed "more study" before implementation. It's a sure sign that's he's starting to cave to political pressure -- much of which is coming from the unexpectedly increasingly politically powerful Reddit -- and other lawmakers could follow suit.

Then again, they could not. Take Lamar Smith, the Texas congressman who authored the Stop Online Piracy Act (SOPA) which is the House's more incendiary and more draconian version of the Senate's PROTECT IP. News broke on Thursday that Smith himself engaged in some questionable copyright practices in building his personal website. The Texas congressman had used a photo that he didn't necessarily have the right permissions for, and in an unapologetic report, Vice's Jamie Lee Curtis Taete put him on the spot with a report unapologetically titled "The Author of SOPA Is a Copyright Violator." The photo thing was a small thing by any measure and probably not something that would get the man thrown in jail. But nobody likes a hypocrite.

Legal scholars -- including one well known Harvard Law professor Lawrence Tribe -- have called the bill unconstitutional, an assault on Americans' First Amendment rights. The Senate's PROTECT IP is, in many ways, a watered down version of SOPA, but it's also a bill that aim to solve a problem that Congress has more or less admitted it doesn't understand. So it's not a surprise at all that Senator Leahy would blink when confronted with the challenge of pushing the legislation forward.

This very interesting story was posted on The Atlantic Wire website yesterday...and I thank 'David in California' for sharing it with us.  The link is here.


Russian Move Against US Called 'First Shot' Of World War III

Here is a piece that reader Tariq Khan found on the website yesterday.  It's written by Sarcha Faal in Moscow.

The editor of the newspaper, Tim King, put this warning at the front of the story for his mostly hot-blooded American readers...but there's nothing in this piece that surprised Tariq Khan or myself.  Here's the second paragraph of Tim King's warning..."But just remember this when the inevitable begins: your country did it to you. U.S. politicians are militant, terrible people, and their motivations are dark, and this applies to almost all of them. Religious and political leaders in America don't like peace, the Iranians and Russians seemed to do fairly well with the concept, but they are pushed into a corner by the Americans time and time again and now perhaps it is too late, maybe it was always too late. So read on, swallow your bitter pill fellow Americans."

As a foreigner living next to The Empire, it's sad to see it come to this.  As I mentioned above, it's posted over at the website...and the link is here.


U.S. warns Iran ayatollah on strait threat

The Obama administration warned Iran's supreme political-religious authority closing the Strait of Hormuz would trigger a U.S. response, U.S. officials said.

The administration, using a secret communications channel officials would not describe, warned Iranian Supreme Leader Ayatollah Ali Khamenei that closing the narrow, strategically important strait between the Gulf of Oman and the Persian Gulf would be considered crossing a "red line" that would not be tolerated, the officials told The New York Times.

The officials would not say if Khamenei or any other Iranian official had replied to the unusual contact between the two countries, the Times said.

This UPI story was posted in the wee hours of yesterday morning...and I thank Roy Stephens for sending it along.  The link is here.


Debt crisis: Eurozone back on the brink as France has credit rating downgraded

Stock markets and the single currency fell sharply as Standard and Poor’s cut France’s AAA rating.

Italy saw its long-term rating drop by two notches, along with Spain, Portugal and Cyprus. Austria, Malta, Slovakia, and Slovenia had their ratings lowered by one notch.

The move triggered a backlash from European politicians and led to calls for Britain to be downgraded too.

It represents a further loss of confidence in the single currency and the agency’s move also threatens to torpedo the main European bail-out fund set up to support struggling countries such as Greece and Portugal.

This story was posted in The Telegraph yesterday evening...and is another offering from Roy Stephens.  The link is here.


Growing Worries in Athens: A Greek Default Would Hit the ECB Hard

The stakes for Athens are high. The Institute of International Finance is saying the deal on a 50 percent debt haircut for Greece may fail. Time is running out, and a number of key issues remain unresolved. The Greek Finance Ministry, for its part, insists that an agreement could be finalized by the end of next week.

Amid the confusion, however, one thing is clear: Should private investors not reach an agreement with Athens on debt reduction for Greece -- a step agreed to by European Union leaders at a summit last October -- the country and the entire euro zone face a disaster. An uncontrolled insolvency would be the result. In an effort to forestall that eventuality, euro-zone representatives met on Friday to discuss the debt reduction plans, parallel to the talks in Athens.

The hectic negotiations reveal that hopes have been dashed once again for an improved situation in Greece.  "When it comes to Greece, it's clear that it's hopeless," said Hans-Werner Sinn, president of the Munich-based Ifo Institute. "It would be better for the country to finally leave the euro and transform its foreign debts to drachma, than to constantly beg for new aid and set itself up for lasting charity."

This story was posted over at the German website yesterday...and I thank Roy Stephens for bringing it to my attention.  The link is here.


Jim Rickards Audio Interview at King World News

I posted the Jim Rickards blog in this column yesterday...and Eric King sent me the audio interview in the wee hours of this morning.  The link is here.


Miners see gold price hitting $2,000 this year

The overwhelming majority (80pc) of gold mining executives think the price will keep climbing in 2012, with just 6pc anticipating a fall, a survey by PwC found.

Last year, mounting fears over the eurozone crisis helped the "safe haven" metal hit $1,900 in September.

Many analysts believe that the ongoing economic uncertainties mean the price will keep climbing, albeit with further swings expected.

A $2,000 gold price would still be below the inflation-adjusted high the metal reached in 1980 of about $2,500 an ounce, following the oil price shock in the wake of the Iranian revolution.

This short piece showed up in The Telegraph yesterday...and I thank reader David Ball for sharing it with us.  It's worth the read...and the imbedded photo makes for terrific eye candy.  The link is here.


Chinese gold bugs take the lead

Did China just overtake India as the world's largest gold consumer?

Little more than a year ago it would have been almost laughable to ask that question. In 2010 India's gold consumption was a full 46 per cent -- or 275 tonnes -- higher than China's, according to data from consultants GFMS published in the World Gold Council's quarterly reports.

Even three months ago it would have been a stretch. In the first nine months of 2011, Indian gold demand totalled 743 tonnes, compared to 612 tonnes for China.

But data released in the past few days suggests that China may have closed the gold gap, inching ahead of India in terms of overall gold demand in 2011.

What makes this story so interesting is the fact that it showed up in London's Financial Times anti-gold newspaper if there ever was one.  Reader Richard Murphy sent me the story...and I forwarded it to Chris Powell who posted it in the clear in this GATA release.  It's a must read...and the link is here.


China Hoarding of Gold Turns More Traders Bullish

Gold traders are the most bullish in two months after mainland China imported the most metal ever from Hong Kong and investors bought U.S. bullion coins at the fastest pace in more than two years.

Eighteen of 23 surveyed by Bloomberg expect the metal to gain next week, the highest proportion since Nov. 11. Mainland China imported almost 102.8 metric tons in November, valued at about $5.4 billion, trade data on Jan. 11 showed. The U.S. Mint said it sold 85,500 ounces of American Eagle gold coins in the first 12 days of January. Full-month sales would reach 213,750 ounces at that pace, the most since December 2009.

Bullion rallied 6.2 percent since plunging to within 1 percentage point of a bear market on Dec. 29, on mounting concern that economic growth is slowing and European leaders are failing to contain the region’s debt crisis.  Holdings  in exchange-traded products backed by the metal are heading for the biggest weekly expansion since mid-November and are within 2 percent of an all-time high, data compiled by Bloomberg show.

“The thing that’s caught people’s minds is the massive increase in Chinese buying,” said Ross Norman, chief executive officer of Sharps Pixley Ltd., a brokerage handling physical bullion in London. “Gold has demonstrated time and time again its ability to hold purchasing power. It looks expensive and people talk about bubbles, but it’s not.”

Here's another must read story on the same issue...this one from Bloomberg yesterday.  It's Roy Stephens final offering of the day...and the link is here.



¤ The Funnies

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¤ The Wrap

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.

(Click on image to enlarge)

I wasn't overly happy with yesterday's data in the Commitment of Traders 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 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 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.