ECB President John-Claude Trichet Challenges Inflationism

Because of the scale of the graph, Monday’s action in silver looked more exciting than it really was.  The low of the day [around $17.95 spot] appears to have been at the London silver fix at 12:00 noon in London, with a double bottom at precisely one hour later at 1:00 p.m. in London… moments before the Comex in New York began to trade.  The high [$18.29 spot] was in shortly after 9:00 a.m. in New York… and that was basically it for the day.

Between the open on Monday morning in the Far East… and its low in the early afternoon in New York… the dollar lost about 60 basis points.  This decline is nowhere to be seen in Monday’s gold price action.  But, in actual fact there was a bit, however the co-relation ended at 9:00 a.m. in London when the bullion banks showed up… as the graph above clearly shows.

The serious New York selling pressure in gold began at 9:30 a.m. in New York… the very minute that the equity markets began to trade.  Another coincidence, you ask?  Not bloody likely, is the answer.  The precious metals equities headed into negative territory immediately… and stayed there for the rest of the day… finishing down 1.00% by the end of it all.  It could have been worse, dear reader… and I’m not reading anything into it.

Here’s the New York gold chart from yesterday.  I’m inserting it here just so you can see the absolute precision of the 9:30 a.m. hit on the gold price.  You can also see where ‘da boyz’ pulled their bids once the London p.m. gold fix was in at 10:00 a.m. Eastern time.

The CME’s Daily Delivery Report on Monday showed that 2 gold and 15 silver contracts have been posted for delivery on Wednesday.  The ‘action’ is linkedhere.  The GLD ETF showed a smallish decline of 9,777 ounces… and, for the 13th day in a row, there was no change reported in SLV.  The Zürcher Kantonalbank in Switzerland reported taking another 14,563 ounces of gold into their gold SLV last week… plus a chunky 576,989 ounces of silver… for the week ending July 23rd.  As usual, I thank Carl Loeb for these numbers.

The U.S. Mint had another report yesterday.  It showed that another 360,000 silver eagles were sold… bringing the month-to-date total up to 2,652,000.  Over at the Comex-approved depositories, a very tiny 15,731 ounces were taken out of their collective inventories on Friday…. which is hardly worth making up a report for.  The link is here.

Ted Butler over at butlerresearch.com had an essay for his subscribers on Sunday… and he was kind enough to allow me to quote one of the pertinent paragraphs from it.  Some of you may be aware that a hedge fund trader purchased 7% of the world’s annual cocoa production last week. Big cocoa users were up in arms and complaining to the exchange that the purchase represented a market corner… and would leave prices subject to a short squeeze.  There was a big story about it in the Saturday edition of The New York Times.  Ted had this to say about it… and I’m paraphrasing a bit here…

“If The New York Times and others imply that holding 7% of the world production of cocoa would artificially influence prices… why are they not also implying that ‘8 or less’ bullion banks holding from 25% to over 40% of world silver production short would influence prices even more? If holding 7% of the world production of any commodity is worthy of the front page, isn’t holding a short position many times larger than that, a story that’s fit to be printed as well?”

A good question, is it not, dear reader?

Because of the weekend, I have a lot of stories to post today… so I hope you can find the time to wade through them all.  Surprisingly enough, there weren’t any gold or silver stories worthy of posting since Saturday… although Jim Rickards talks about it at length in his King World News interview, which is my last offering of the day.

Today’s first story is a Bloomberg piece from last Friday that’s posted over atbusinessweek.com.  The lax lending standards… and a red-hot economy… will likely produce a lot of bad debt that will have to be written off.  The headline reads “Chinese Banks See Risks in 23% of $1.1 Trillion Loans“.  I thank reader Roy Stephens for sending it… and the link is here.

The next piece was sent to me by reader U.D… and it’s your first must readpiece of the day.  It’s an Ambrose Evans-Pritchard offering from the Sunday edition of The Telegraph.  The headline reads “The Death of Paper Money“.  As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974.  Like I said, this is a must read… and the link is here.

The next story was posted a week ago over at the realestatechannel.comwebsite.  The headline reads “Why Are Banks Withholding High-End Repossessions Over $300,000 From the Market?”  With twenty-seven years of residential real estate sales under my belt, I found this story of particular interest.  If you own a house in the U.S.A… this is a must read.  You’ll find this story very intriguing… and a bit frightening.  I certainly did.  I thank reader Roy Stephens for digging it up… and the link is here.

Here’s another very depressing U.S. housing story.  This one is courtesy of reader “David”.  It’s not an overly long piece… and is full of wonderful graphs… and is posted over at calculatedriskblog.com. The headline reads “New Home Sales: Worst June on Record“… and the link is here.

The next story is also from reader Roy Stephens.  It’s out of yesterday’s edition of The Telegraph.  The article states that… “Last week, President Obama signed into law the Dodd-Frank Wall Street Reform bill – hailed as the most sweeping overhaul of US financial regulation since the 1930s.”  But reporter Liam Halligan thinks otherwise… “Based on sound-thinking courageous judgment, the Glass-Steagall legislation was only 17 pages long. Packed with wheezes and loop-holes, Dodd-Frank runs to 2,319 pages. Enough said.”  The headline reads “Obama signs a bill that lets banks have US over a barrel once more“… and the link is here.

Obviously no one has much faith in the new U.S. Financial bill… just as they have no faith in the stress tests of the European banks late last week. Europe’s banks — or at least most of them — have passed a test that they more or less wrote themselves.  Here’s a story from yesterday’s English language edition ofspiegel.de.  This one is headlined “Stress Tests in the EU: The Triumph of the Financial World’s Lobbyists“… and, once again, I thank reader Roy Stephens for sharing it with us.  This is worth the read… and the link is here.

The next Roy Stephens offering is another must read.  It, too, is from the German website spiegel.de.  As many of you are aware, there have been many stories over the weekend [including the one I ran on Saturday] about the leak of the Afghanistan war documents.  This reminds me of the huge flap that surrounded the release of the Pentagon Papers by Daniel Ellsberg back in June of 1971 while the Vietnam war was raging. In this story, WikiLeaks founder Julian Assange, 39, discusses his decision to publish the Afghanistan war logs… the difficult balance between the public interest and the need for state secrets and why he believes people who wage war are more dangerous than him.  The headline reads “I Enjoy Crushing Bastards“… and on behalf of virtually all of my readers, I ask Julian to keep up the good work… and the link is here.

European Central Bank President John-Claude Trichet of all people had an op-ed piece in last Thursday’s edition of the Financial Times out of London.  In it he stated that the E.U. is not going to borrow and spend its way out of this economic mess… and that, in his opinion, inflation is not an option… as the consequences could be disastrous.  This is a direct affront to the U.S. policy of monetization.  The headline states “Stimulate no more – it is now time for all to tighten“.  It’s a must read from one end to the other… and the link is here.

Wading into this fray is Doug Noland over at prudentbear.com.  The title of his Friday Credit Bubble Bulletin reads “Trichet Challenges Inflationism“.  His essay on this issue is about three quarters of the way down in his commentary… and is an absolute must read.  Noland states that “Washington – or the states – can’t spend its way to fiscal recovery.  Instead, we’re witnessing a fiscal train wreck.  Our policymakers, economists, and pundits should read Mr. Trichet carefully and contemplate a course other than inflationism.”  I thank reader U.D. for brining it to my attention… and the link is here.

And finally, my last offering of the day is courtesy of reader Ken Metcalfe… who beat out the usually speedy Eric King of King World News with this interview with Jim Rickards.  I’ll leave it to GATA’s secretary treasurer to do the introductions… and by the time you’re through reading that, dear reader, you’ll probably decide that the interview is a must listen… which it is.  The link to the GATA release headlined “Jim Rickards: Fundamental analysis, fair value nullified by government intervention” is here.

Jim Rickards also has an exclusive piece for the King World News blog.  It’s headlined “The Myth of August“.  It, too, is worth your undivided attention… and the link to that is here.

There was monstrous volume in gold on Monday… but the lion’s share of that was roll-overs and spreads, as options expiry in the Comex futures market is tomorrow… and last day of trading in the July contract is on Thursday… as is the last day for delivery into the July silver contract.  So once you take out all that activity, there wasn’t much real trading going on.

Silver volume was very light… and there are still 129 silver contracts left to deliver in July… and they’ve got the next three working days [including today] to get it done.  I expect that this won’t be an issue, but why the issuers waited this long to deliver is still a mystery.

So what happens from hereon in is anyone’s guess.  Ted Butler says that the bullion banks came within a few dollars yesterday of setting a new low price for this move down in gold… and, as you are aware, they have also prevented gold from breaking out over $1,200/ounce… and have stopped silver from breaking through its 50-day moving average to the upside, which would be the signal for the technical funds to come pouring in on the long side.

Ted speculates that ‘da boyz’ may still have gold’s 200-day moving average in their sights… and, if that’s the case, we shouldn’t have to wait too long to wait to find out if that’s the plan or not.

Here’s gold’s 6-month chart.  Note what happened every time gold tried to break back over $1,200 the ounce.

Here’s the equivalent silver chart.  Note silver’s last two attempts to break above the 50-day moving average… Friday and yesterday… plus the ones in mid-July.

Neither silver nor gold did a thing in Tuesday trading in the Far East… and not much is happening in London as of 5:10 a.m. Eastern time as I write this.  Volumes, net of roll-overs and spreads, were almost non-existent in gold… and even less in silver… under 1,200 contacts [net].  I have never seen silver volume this low at this time of day… at least not that I can remember.  This situation will most assuredly change once New York opens… or a rally develops in London.

The next four trading days in the precious metals should be interesting.

See you on Wednesday.