Massive Short Squeeze at Hand in Gold and Silver Markets

MINING.COM Staff Writer | December 6, 2010 | 10:46 am Precious Metals Gold Silver 

YESTERDAY IN GOLD AND SILVER

Gold was up about $7 by the time that Hong Kong trading was through for the day on Friday, but by the time that floor trading began in New York at 8:20 a.m. Eastern time, those gains had vanished… despite the fact that the dollar had declined about 25 basis points up to that point.


Once the job numbers were released, the dollar headed south as gold and silver prices headed north.  But the moment that London closed for the weekend, the gold price basically flat-lined until shortly before 4:00 p.m. Eastern time.  Then, in the space of 15 or 20 minutes, it tacked on another eight bucks or so… hitting its high of the day [$1,417.00 spot], before closing almost at that high.  This was highly unusual gold price behavior for a Friday afternoon.

Silver’s price path was very similar to gold’s… as the silver price graph shows.  Like gold, the standout on the silver price chart was the steady increase in prices after electronic trading began in New York after the floor close at 1:30 p.m. Eastern time.  Silver closed nearly on its high of the day… which was reported as $29.43 spot.  This is another 30-year high closing price for silver.

The world’s reserve currency really took it on the chin yesterday.  As I mentioned in the gold commentary, the dollar was down about 25 basis points going into the Comex open at 8:20 a.m. yesterday morning… and then fell of a pretty big cliff the moment that the job numbers were released.  The dollar closed virtually on its low of the day… down 115 basis points.  Ouch!

While on the subject of the dollar… here’s the 1-year chart.  It looks pretty ugly.

The gold shares climbed rapidly to their high of the day, which was around 11:15 a.m. Eastern… and then basically flat-lined for the rest of the trading day.  The HUI was 3.02%.  We’ll take it.  Here’s the 5-day chart of the HUI for the week that was.  We’ll take that too!

It was another interesting CME Delivery Report yesterday.  767 gold contracts were posted for delivery on Tuesday.  The big issuer was JPMorgan with 448 contracts in its client account, along with another 294 contracts in its proprietary trading [house] account.  Deutsche Bank was the big stopper with 563 contracts stopped [received] in its house account.

In silver, a smallish 64 contracts were posted for delivery.  The link to all this gold and silver delivery action is here.

The only ETF action yesterday was a small withdrawal of 13,415 troy ounces of gold out of GLD.  That might have been a fee payment.  There was no sales report from the U.S. Mint.

There was a fair amount of activity at the Comex-approved warehouses on Thursday… and at the end of the day… 270,989 ounces of silver had been withdrawn.  The link to that action ishere.

Yesterday’s Commitment of Traders report for silver was a bit of a surprise… but after a quick chat with Ted Butler, I understood what happened.  On the surface, the numbers showed was that the bullion banks in the Commercial category of the COT report had gone short another 2,917 contracts… which is 14.6 million ounces of silver.  Ted looks far deeper into this report that I can see.  What he said was that the ‘velociraptors’… the traders in the Commercial category other than the ‘8 or less’ bullion banks… had sold some of their long positions and taken profits.  This had the same effect on the report as a someone going short.  So it wasn’t a really big deal after all.

In actual fact, Ted said that the ‘4 or less’ bullion banks actually covered about 500 silver short positions during the last reporting week.

As for gold, the bullion banks decreased their net short position by 6,576 contracts… or 657,600 ounces.  The Commercial net short position in gold now stands at 27.0 million ounces.  The ‘8 or less’ bullion banks are short 28.7 million ounces of the stuff.

Ted said that the standout in this COT report is the fact that the bullion banks have basically withdrawn from the short side of the market.  This is the main reason that prices have been rising… and was certainly true in market action during the past week.

Of course the grotesque short positions in silver and gold held by the ‘8 or less’ traders still exist… and have yet to be dealt with either by delivering into, covering… or defaulting.  The margin calls that went out on Friday must be bleeding the shorts dry… especially the smaller short holders.  The screws are getting ever tighter.

Here’s Ted Butler’s “Days of World Production to Cover Short Contracts” graph that’s courtesy of Nick Laird over at sharelynx.com.

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¤ CRITICAL READS

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Fed Withholds Collateral Data, Denying Taxpayers Gauge of Risk

My first story today is one I ‘borrowed’ from yesterday’s King Report.  It’s another piece about the Fed’s largess with the free money that it was handing out to prevent the world from melting down in 2008.  It’s a Bloomberg article headlined “Fed Withholds Collateral Data, Denying Taxpayers Gauge of Risk“.  Although the Fed lived up to the letter of the Dodd-Frank law… it certainly didn’t live up to the spirit of it… as the Federal Reserve withheld details on individual securities pledged as collateral by recipients of $885 billion in central bank loans, denying taxpayers a measure of the risks they faced from its emergency aid.  The link to the story is here.

Bernanke Tells Nation This Sunday: More QE Coming

The next item for you today is courtesy of reader ‘David in California’.  It’s azerohedge.com posting that bears the headline “Bernanke Tells Nation This Sunday: More QE Coming”  Ben Bernanke is going to be on 60 Minutes on Sunday… and will tell all then.  The link to this very worthwhile article is here… and the two graphs are worth the trip all by themselves.

Interview with Chris Whalen of Institutional Risk Analytics

Reader Ken Metcalfe provides the next item.  It’s an msnbc.com interview with Chris Whalen of Institutional Risk Analytics… a frequent guest over at King World News.  This guy is one sharp cookie.  Jim Rickards calls him the best bank analyst in the world… and I’m not about to disagree.  The interview runs a bit over six minutes… and is definitely worth your time… and the link is here.

Bart Chilton Urges Corrupt CFTC Colleagues To Actually Act On Behalf Of Investor Protection For Once, Move On Position Limits

Here’s another zerohedge.com story.  This one’s courtesy of reader Phil Barlett.  The very long headline reads “Bart Chilton Urges Corrupt CFTC Colleagues To Actually Act On Behalf Of Investor Protection For Once, Move On Position Limits“.  Although the word ‘silver’ never appears in this piece… that, dear reader, is what it’s all about. The link to the story is here.

Statement on Position Limits, “Keeping Promises”

The full comments from CFTC Commissioner Bart Chilton is entitled Statement on Position Limits, “Keeping Promises”.  The short press release containing Chilton’s comments, is posted over at cftc.gov… and is linked here.  I thank reader Raymond Hay for sending it along.

Mystery trader captures 80% of London’s copper market

Reader Roy Stephens’ first offering of the day is this piece out of yesterday’s edition of The Telegraph.  The headline reads “Mystery trader captures 80% of London’s copper market”  A single trader has gobbled up to four-fifths of the copper traded in London, stockpiling it in warehouses.  It’s a very short read… and the link is here.

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‘David in California’ provides the next story, which is posted over atzerohedge.com.  The headline reads “Spanish Skies Shut Down After 90% Of Air Traffic Controllers “Call In Sick” In Protest Over Austerity“.  Now Spain has ordered its air traffic controllers to resume work or  the military will take over control of the airspace.  It’s also a very short read… and the link is here.

Total Precious Metals Pools

Before I get into my precious metals-related stories today… here’s another graph courtesy of Nick Laird at sharelynx.com.  It’s titled “Total Precious Metals Pools“… and shows the total ounces [and dollars] of all known precious metal depositories world-wide.  This graph only shows what’s happened so far this year… and precious metals are disappearing into these depositories at a record clip… as their values skyrocket.

China Should Consider Adding to Gold Reserves, PBOC Adviser Says

My first gold-related story today is a Bloomberg piece headlined “China Should Consider Adding to Gold Reserves, PBOC Adviser Says“.  China should consider adding to its gold reserves as a long-term strategy to pave the way for the yuan’s internationalization, central bank adviser Xia Bin wrote in the China Business News today.  The link is here.

Korea Zinc Wins $429.9 Million Silver Order From Japan

Tokyo reader Markus Ken Moriyama sent me the next read of the day.  It’s aBloomberg item filed on Wednesday, bearing the headline “Korea Zinc Wins $429.9 Million Silver Order From Japan“.  It’s a very short, but very interesting read… and the link is here.

China’s huge demand for gold surprises CPM’s Jeff Christian

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Massive Short Squeeze at Hand in Gold Market

My next precious metals item today is this interview with Hinde Capital CEO Ben Davies by Eric King of King World News.  Davies says a massive short squeeze is imminent in gold… and an even bigger short squeeze in silver. “Physical demand out of Asia is overwhelming the egregious paper gold shorts,” Davies says. Excerpts from the interview/blog are headlined “Massive Short Squeeze at Hand in Gold Market“… and is linked here.

An interview with Jim Rickards a must listen

My last two items are also King World News interviews with two well-know people in the gold world.  This first is An interview with Jim Rickards of Omnis Inc… a gentleman who I have all the time in the world for.  This must listen interview runs about twenty minutes… and the link is here.

An interview with John Hathaway a must listen

The second is An interview with John Hathaway, Senior Managing Director & Portfolio Manager, Tocqueville Funds.  This is another must listen interview… and the link to the interview is here.

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Lastly today is an interesting piece out of Thursday’s edition of spiegel.de that was sent to me on Thursday by reader Roy Stephens.  The headline reads “The Uncertainties of Global Warming:  Sea Level Could Rise in South, Fall in North“.  Climate change is expected to cause sea levels to rise — at least in some parts of the world. Elsewhere, the level of the ocean will actually fall. Scientists are trying to get a better picture of the complex phenomenon, which also depends on a host of natural factors.  It’s certainly worth the read… and the link to this 2-page essay is here.

¤ THE FUNNIES

¤ THE WRAP

It is absolutely bizarre that the very people who can’t tell us what the weather will be next Tuesday, can predict with absolute precision what the global temperatures will be in 100 years’ time.  They’re simply not believable… or credible. – Michael O’Leary, Ryanair CEO

Today’s ‘blast from the past’ is courtesy of reader David Mancini.  It’s a piece by Badfinger… with a short introduction by a then very young Kenny Rogers.  Was it only 38 short years ago?  The link is here.

Well, it was quite a day yesterday.  I’d forgotten about the jobs report… but in the end, it really didn’t mean much… as the important information was that the ‘4 or less’ traders have [at least for the moment] withdrawn from the short side of the precious metals market.  Let’s hope it lasts.  But don’t forget the horrendous short positions.  A lot of shorts must be in terrible pain… and that’s why Ben Davies and James Turk are talking the way they have this week.

However, silver analyst Ted Butler has been expecting the silver market to blow sky high for a long time… especially since CFTC Commissioner Bart Chilton made his famous speech on the subject of silver market manipulation.  But the shorts are obviously determined… and I can’t figure out for the life of me why the shorts in the Non-reportable category of the COT haven’t run for the hills months ago.  These are the small traders that hold less than 150 contracts each… and there are thousands of them, as most of them hold less than five contracts.  I just can’t see how they can keep on making these margin calls on their respective short positions, as most of them are highly leveraged.  I wonder who their brokerage firms are?

Volume on Friday was pretty decent in both metals… and the preliminary numbers show rather large increases in open interest in both metals.  But these figures can’t be believed… and the final figures that show up late on Monday morning, are the ones that I’m going to be paying attention to, when they’re finally posted.  It’s great to see the prices rise in both silver and gold… but who is taking the short side now that the ‘4 or less’ traders aren’t there… and in what volumes?

It’s obvious that precious metals prices will head higher for the foreseeable future, as the world’s central banks continue to melt down the printing presses in a futile attempt to revive world growth.  And as surely as night follows day… massive debasement of all paper currencies will be the inevitable outcome.  Gold and silver… and their shares… will be the immediate beneficiary, like they were this week, with the HUI up 7.7% in just five short days.

There’s still time to get fully invested in the continuing major up-leg of this bull market in both silver and gold… and I respectfully suggest that you take a trial subscription to either our International Speculator [junior gold and silver exploration companies], or BIG GOLD[large producers] today, as that will allow you the luxury of spending time this holiday weekend perusing the current issues, with all our best [and current] recommendations… as well as the archives.  Don’t forget that our 90-day guarantee of satisfaction is in effect for both publications.

I’m really looking forward to seeing how things turn out next week… as what’s left of 2010 could get very interesting from hereon in.

See you Tuesday.

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