Published on June 01 2013

Rick Rule’s Reasons to Buy Gold and Select Gold Stocks

Gold is now safely back under $1,400 spot for the moment.

The high tick in gold [around $1,423 spot] came about 9:30 a.m. on Friday morning Hong Kong time…and it was all down hill from there.  Quietly at first, but shortly before 1:00 p.m. BST in London, the sell-off became more pronounced…and the low of the day [$1,383.90 spot] came around 4:00 p.m. in electronic trading in New York.  After that, the gold price recovered a bit during the last hour of trading.

Gold closed on Friday in New York at $1,388.30 spot…down $25.40 on the day.  Net volume was around 154,000 contracts.

It was pretty much the same general price pattern in silver.  The high of the day [around $22.90 spot] came about 10:00 a.m. in Hong Kong.  The big difference between gold and silver's price path, was that silver's low tick [$22.10 spot] came shortly before 9:00 a.m. EDT in New York…and the subsequent rally wasn't allowed to get too far.

Silver closed at $22.65 spot…down 51 cents on the day.  Gross volume was about 51,500 contracts.

The dollar index closed at 83.01 on Thursday afternoon in New York.  It began to rally unsteadily almost right from the open of Friday trading in the Far East…and hit its high tick of 83.57 just minutes after 11:00 a.m. in New York…before giving up some of those gains as the afternoon wore on.  The index closed at 83.28…up 27 basis points on the day.

As I mentioned earlier this week, the gold price falls faster on dollar rallies than it rises on dollar declines…with yesterday's [and Thursday's] price action being a case in point.

The gold stocks gapped down about 2 percent at the open of the equity markets in New York at 9:30 a.m. EDT.  From there they chopped lower until ten minutes before the markets closed.  At that point, a buyer of some size showed up…cutting the days losses in half by the close.  The HUI finished down 1.53%.  It could have been worse.

However, the silver stocks weren't as fortunate, as they got pounded pretty good.  Nick Laird's Intraday Silver Sentiment Index closed down 3.03%.  You'll note that the same late-day mystery buyer showed up in the silver equities as well.

And here's the long-term Silver 7 chart, so you can see how the charts are doing on a longer time line.

The CME's Daily Delivery Report for 'Day 2' of the June delivery month in gold showed that 1,415 gold and 2 lonely silver contracts were posted for delivery within the Comex-approved depositories on Tuesday.  In gold, the biggest short/issuer was Deutsche Bank with 661 contracts.  JPMorgan Chase was a distant second with 192 contracts out of its proprietary [in-house] trading account.  The two biggest long/stoppers were HSBC USA with 798 contracts…and Barclays with 530 contracts.  Of those 530 contracts, 324 were from it's in-house trading desk…and the other 206 were out of its client account.  Once again, Canada's Bank of Nova Scotia was conspicuous by its absence.

This list of Issuers and Stoppers is quite extensive…and well worth checking out.  The link to that report is here.

For the second day in a row, there were no reported changes in either GLD or SLV.  I'll go out on a limb here and state that the withdrawals in GLD appears to have ended.

Joshua Gibbons, the Guru of the SLV Bar List, updated his website for activity within SLV for the week ending at the close of business on Wednesday, May 29th…and here, in part, is what he had to say: “Analysis of the 29 May bar list, and comparison to the previous week's list…5,649,010.9 troy oz. were removed (all from Brinks London).  No bars were added…or had a serial number change.”  The link to the rest of his brief comments is here.

The U.S. Mint had a small sales report to close off the month of May.  They sold an additional 8,500 ounces of gold eagles…and that was all.  For May, assuming there are no changes made in these statistics on Monday, the mint sold 70,000 ounces of gold eagles…12,500 one-ounce 24K gold buffaloes…and 3,458,500 silver eagles.  Based on these sales numbers, the silver/gold sales ratio for the month works out to a hair under 42 to 1…which is quite amazing.  The ratio would have been even more impressive if the U.S. Mint had received all the silver blanks they needed, as they are still sitting on massive unfilled orders for silver eagles.

In silver, over at the Comex-approved depositories on Thursday, they reported receiving 600,025 troy ounces…and shipped 141,008 troy ounces of the stuff out the door.  The link to that activity is here.

In gold, there were 3 kilobars shipped out of Brink's, Inc…and 6 kilobars shipped out of Scotia Mocatta.  You could easily carry all nine bars in two hands.  The link to that 'action' is here.

Well, the Commitment of Traders Report, for positions held at the close of Comex trading on Tuesday was precisely what I was expecting/hoping to see.  The missing data from last week's COT Report has appeared in this week's data…and what the numbers show is amazing.

In silver, the Commercial net short position declined by another 18.0 million ounces…and is now down to 41.7 million ounces.  According to reader E.W.F…that's the lowest it's been since August 7, 2001.

The Big 4 are short 194.0 million ounces of silver…and you read that right.  That represents 35.5% of the entire Comex futures market on a 'net' basis…once you subtract out all the market-neutral spread trades.

What it also means is that the 'Big 4' are short almost five times the total Commercial net short position in silver…41.7 million ounces vs. 194.0 million ounces.  That's astounding!

The '5 through 8' largest traders are short an additional 55.9 million ounces of silver…and that amount represents 10.2 percentage points of the Comex futures market.  So the largest 8 traders are short 45.7% of the entire Comex futures market in silver.

Reader E.W.F. also pointed out that…”The silver raptors [the 32 remaining traders in the Commercial category, other than the Big 8] hold their largest net long position in the history of the data (1987).  The silver non-commercials hold their smallest net long position since April 22, 2003.”

In gold, the numbers are just as amazing.  The Commercial net short position there declined by 2.49 million ounces…and is now down to an eye-watering 5.92 million ounces.  Reader E.W.F. says that…” The commercial net position in gold is at it's lowest level since May 2005.”

The Big 4 are short 8.8 million ounces of gold…and that represents a hair under 26.0% of the entire Comex futures market in gold on a 'net' basis….and 148% of the Commercial net short position.

The '5 through 8' largest traders in gold are short an additional 4.64 million ounces of gold and, on a 'net' basis that represents another 13.7 percentage points of the total Comex futures market in gold on a 'net' basis.  The 'Big 8' are short 127% of the Commercial net short position in gold.

As well, the 'Big 8' are short 39.7% of the entire Comex futures market in gold on a net basis.  Reader E.W.F. also pointed out that “The gold raptors hold their largest net long position since September 9, 2008.  The non-commercial gold traders hold their smallest net long position since January 2007.”

These numbers in both silver and gold redefine the meaning of the words “concentrated short positions”.

Silver analyst Ted Butler mentioned that something wasn't quite right about some of the numbers in this week's COT Report…especially in gold…and I'll be interested in what he has to say about it in his commentary to his paid subscribers later today…or tomorrow…as he's “on the road” at the moment.

Needless to say, we are at levels not seen [in some cases] in a decade or longer…and that's when the prices were at rock bottom.  Can we go lower from here?  I suppose, but if I were you I'd be buying physical metal with both hands if it does happen.

Here's Nick Laird's “Days of World Production to Cover Comex Short Positions” in all physical commodities traded on that exchange.

(Click on image to enlarge)

In silver, over 90% of that red line are the positions held by the 'Big 3' bullion banks…JPMorgan Chase, Canada's Bank of Nova Scotia…and HSBC USA.  The short positions of the fourth trader in the 'Big 4' category are immaterial.

Here are a couple of charts courtesy of Washington state reader S.A.  The top one is the 25-year chart for gold…and the second one is the 25-year dollar index chart.  The gold price and dollar index went in opposite directions up until the first part of 2008…and after that, the relationship blew up.  So when I hear all this b.s. talk about the gold price being tied in an inverse relationship with the dollar index, I know it just ain't so…and here's the proof.

(Click on image to enlarge)

(Click on image to enlarge)

And here's your “cute quota” before I get into today's stories…

I don't have a lot of stories today, but some of the ones I do have are quite long…and I've been saving them for today's column.  However what is lacking in quantity, I hope is made up by the quality of some of them.

No kingdom can be secured otherwise than by arming the people. The possession of arms is the distinction between a freeman and a slave. — “Political Disquisitions“, a British republican tract of 1774-1775

Today's pop blast from the past comes from the mid 1960s.  This baroque American group had two big hits…and this would be the biggest one of the bunch.  If you're of that vintage…you should know it instantly.  The link is here…and their other big hit is linked here.

Today's classical 'blast from the past' is Tchaikovsky's Piano Concerto #1 in B-flat minor, Op.23…and played by the incomparable Martha Argerich.  Charles Dutoit conducts the Orchestre de la Suisse Romande.  The video recording is from 1975…but it's first rate…and in some parts it sounds almost identical to the “Van” Cliburn recording of this work.  Both Martha and Charles were a lot younger back then…as were we all.  I thank Rob Bentley for sending me this clip back in mid February.  The link is here.

I forgot that yesterday was not only Friday, but also the last day of the month, so I'm not entirely shocked that the prices of all four precious metals got sold down.  Although it should be noted that the sell-off in the stock market and the rise in the dollar index probably were factors as well.

But as the Dow plunged into the 4:00 p.m. close in New York…the precious metal stocks were rallying sharply during the last twenty minutes of trading…and one has to wonder who was buying.  Whoever they were, it's a good bet that they were strong hands.

Gold is now safely back under $1,400 spot for the moment…and the rallies in both gold and silver 'failed' at their respective 20-day moving averages.

Although I was pleased and relieved to see the Commitment of Traders Report turn out as I expected, I must admit that it's been amazing to watch how easily JPMorgan et al have been able to maneuver precious metals prices lower over the last six months…and slowly but surely extricate themselves from a large chunk of their short positions.  They aren't totally out of the woods, but they are certainly in total command of precious metal prices at the moment.

But whenever this engineer price decline reaches its conclusion, it's a very good bet that “da boyz” will be well positioned to profit from the repricing of all four precious metals when the great financial reset I've been waiting for finally puts in an appearance.

Ted Butler was absolutely correct when he said that the final sell-off before the inevitable price reset would scare the hell out of everyone…and I'm sure he didn't know the form it was going to take.  I was expecting a scenario that unfolded much quicker than this, but that certainly didn't turn out to be the case.

It all appears to be quite well planned, as they don't seem to be in a big rush, but that's purely speculation on my part.  However, as I've pointed out countless times in this space, the world's economic, financial and monetary system as we know them today, are toast…and I'm not the only person who thinks that.  Everything I see happening out there is in preparation for whatever the powers-that-be have planned…and this is particularly true of what's happening in precious metals.  The only unknown is the timing of the “end of all things” as we know them today.

And as I've also said before…when that day does arrive…you'll either be all the way in, or all the way out.  I expect that JPMorgan et al will maneuver things in such a way that there will be no way to jump aboard if you want to go long…and it will be the perfect bear trap for all those currently short the market, as they will most certainly get hung out to dry.

Before signing off on today's column, here's Nick Laird's “Total PMs Pool” graph…and as I mentioned further up, it appears that we've reached the end of the withdrawals from GLD as the total ounces in that ETF has remained unchanged for the last two days in a row, which is the first time that's occurred in over six months.

(Click on image to enlarge)

That's it for the day…and the week.  Enjoy what's left of your weekend…and I'll see you here on Tuesday.

Sponsor Advertisement

The Energy Shortage Most Investors Don't Know About

There’s an energy crisis brewing that’s off virtually everyone’s radar. It will be so severe, so disruptive that it will cause a shocking rise in the cost of power around the world… and at the same time create a contrarian investing opportunity for the history books.

Russia is at the forefront of this budding crisis, which will begin in earnest when the Megatons to Megawatts agreement with the U.S. ends. That happens in just a few short months, giving you very little time to position yourself.  Read more now