The Golden Mean

Silver, as usual, got hit harder than gold.  Silver’s sell-off also began at 3:00 a.m. Eastern time… with the low [$17.96 spot] coming at 8:40 a.m. in New York.  This price was well below its 50-day moving average… and a lot of the technical funds [plus others] that had recently put on leveraged long positions during the recent rally, were forced to liquidate… which was the object of the exercise.

From that low, silver regained a lot of its losses by the end of floor trading… but went on to its high of the day [$18.48 spot] shortly after the FOMC announcement was made… and then got sold off a bit after that for a small loss for the day.

The world’s reserve currency gained about 70 basis points between the start of trading in the Far East on Tuesday morning… and 10:30 a.m. Eastern time in New York.  From that point, the dollar declined a bit, then fell of a cliff on the FOMC news.  There’s not a thing on this chart that convinces me that the US$ should be the world’s reserve currency… or a currency of any kind, for that matter.

The precious metals shares gapped down at the open… regained about a percent going into the FOMC announcement at 2:15 p.m. Tuesday afternoon… then blasted into positive territory, finishing with a tiny gain [up 0.18%] for the day.

Yesterday’s CME Delivery Report showed that 465 gold contracts were put up for delivery on Thursday.  Once again the big issuer [405 contracts] was the Bank of Nova Scotia… and the big stopper [379 contracts] was, once again, HSBC USA.  No silver contracts were put up for delivery.  The report, which is worth a look, is linked here.

There were no updates from either GLD or SLV… and the U.S. Mint had no report either.  Over at the Comex-approved depositories, another smallish amount of silver was withdrawn.  This time it was 94,452 ounces.  The link to that action ishere.

Today’s first one is about yesterday’s FOMC meeting.  It showed the first hints that more money was going to be created out of thin air to help America’s fading economy.  I dug this story up over at The Telegraph last night.  The headline reads “US Federal Reserve starts ‘QE-lite’ to placate markets“.  To quote a paragraph from this article… “the Fed’s decision was largely viewed by economists as a stop-gap measure to buy time.”  I fully agree with that statement… and the link to the story, which is very much worth the read, ishere.I don’t have a lot of stories today, which I [like you] am very happy about.

The next item of interest for you today, is an item posted over atzerohedge.com.  It appears that a senior analyst over at JPMorgan has cut another chunk off of the government’s second quarter GDP numbers… from 1.7% all the way down to 1.3%… which is essentially half of the actual released number.  The longish headline reads “Another Revision Of The Q2 GDP Number By JPM: Firm Now Estimates That The Real Economic Performance Was 1.3% (From 2.4%)“.  I thank reader ‘David’ for supplying this story… and the link is here.

My next item is courtesy of reader U.D… and it’s author is Paul Farrell over atmarketwatch.com.  David Stockman, President Ronald Reagan’s director of the Office of Management and Budget, recently wrote an op-ed piece in The New York Times that was headlined… “Four Deformations of the Apocalypse“.  Stockman pretty much nails what’s happened to America during the last fourty years… and exactly who is responsible… and Farrell really takes off on it.  It’s a longish read, but definitely worth your time, if you have it.  The headline reads “Reagan insider: ‘GOP destroyed U.S. economy’“… and the first ‘horseman’ that Stockman mentions is Nixon’s default on the gold standard back in 1971.  The link to the story is here.

Today’s first gold-related story is a short piece from the Monday edition of The Telegraph that was sent to me by reader Roy Stephens.  The story says that, during Q2 in Britain, precious metals outperformed every other asset class they were compared to.  The headline reads “Precious metals are best performing assets“… and the link is here.

My last gold-related story is one that I found posted over at the Tocqueville Asset Management website.  John Hathaway, manager of the $1.4 billion Tocqueville Gold Fund, did an interview with Barron’s on June 7, 2010… and here it is.  The headline to this 4-page article is “The Golden Mean“.  It’s a must read, of course… and the link is here.

The danger to America is not Barack Obama, but a citizenry capable of entrusting a man like him with the Presidency.  It will be far easier to limit and undo the follies of an Obama presidency than to restore the necessary common sense and good judgment to a depraved electorate willing to have such a man for their president.   The problem is much deeper and far more serious than Mr. Obama, who is a mere symptom of what ails America. Blaming the prince of the fools should not blind anyone to the vast confederacy of fools that made him their prince.  The Republic can survive a Barack Obama… who is, after all, merely a fool. It is less likely to survive a multitude of fools such as those who made him their president. – Author unknown

Watching silver blow throw its 50-day moving average to the downside yesterday, Ted Butler and I spent a lot of time talking about what may happen in the very short term. I pointed out that ‘da boyz’ possibly painted the gold chart by showing that gold ‘failed’ to break through its 50-day moving average to the upside on Friday… and that may have been a precursor for another attempt to take gold down through its 200-day moving average… which has yet to be broken to the downside on this move.  This would allow JPMorgan to cover more short positions like they did in silver on Tuesday’s bashing.  This is something that Ted mentioned in his interview on Friday… and I mentioned again in this column yesterday.

Anything is possible, I suppose… but it remains to be seen whether the bullion banks will, or can, do it.  I’d love to be proven wrong about this… but the possibility does exist.  As you can see from the 6-month dollar chart, it has broken through its 200-day moving average to the downside… and it remains to be see whether there will be a sustainable rally from that point or not.  I’m sure that if it can be arranged, it will happen.

There hasn’t been a lot of co-ordination between the dollar and gold for quite a while… but it has suddenly shown up again in the last 48 hours… so I’ll be watching both the dollar and gold quite closely to see if the long-term relationship has any legs to it this time.

Gold volume during Tuesday’s trading was pretty decent… and in silver it was huge.  As I mentioned at the beginning, I would suspect that there was pretty major tech fund long liquidation yesterday… but how much, still remains to be seen.  All this action should be in Friday’s Commitment of Traders report, as yesterday was the cut-off… but, on key days like this, when there’s lots of action happening that is positive for the COT report… the bullion banks are very good at being slow to report their numbers.  We may have to wait until next Friday’s report to get any kind of indication of what happened yesterday… and as you know by now, dear reader… they do this all the time.

As I write this last paragraph, I see that the dollar has gained back almost all the loses it incurred after the FOMC meeting yesterday… and both gold and silver were under a bit of pressure during the wee hours of this morning.  Volume in both metals is pretty decent.

I look forward with great interest to what the U.S. bullion banks have in store for us when New York opens in a bit.

See you on Thursday.