Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
When I signed off on my report yesterday morning around 6:00 a.m. Eastern time, gold had just fallen out of bed to the tune of $13… and I was concerned that things would only get worse once New York started to trade Wednesday morning. That didn’t turn out to be the case, as gold’s low price [around $1,090 spot] was at 11:30 a.m. in London trading… 6:30 a.m. Eastern time. Gold gained back most of its losses going into the London p.m. gold fix… and then the London close… but drifted lower after that in rather lackluster trading on very quiet volume. Gold’s high of the day [around $1,108 spot] occurred shortly after 10:00 a.m. in Hong Kong.
Silver’s trading pattern on Wednesday was similar to gold’s. The main differences were where the highs and lows occurred. The low of the day appeared to be at the close of Hong Kong trading at 5:30 p.m. local time… one hour after the London open. The low was around $15.65 spot… and the high [$15.72 spot] was moments before the close of London trading at 4:00 p.m. local time… 11:00 a.m. in New York. The silver price dipped from there, but rallied almost back to it’s high of the day as electronic trading drew to a close in New York at 5:15 p.m. Eastern time. Volume [once the spread traders were removed] was anemic.
The dollar was a factor once again in precious metals trading. Gold and silver’s New York highs corresponded exactly with the dollar’s low of the day. From that low [minutes before 11:00 a.m. in New York] the dollar gained a rather substantial 70 basis points… and both precious metals have [more or less] responded in kind right up until midnight last night.
The shares struggled once again. And even though the HUI spent most of the day in slightly positive territory, the gains didn’t last, and the HUI lost 0.42 percent.
I was expecting/hoping that the price declines we saw on Tuesday would have resulted in some decent declines in open interest in both metals. Gold spoiled the party by showing an increase in o.i. of 1,786 contracts. Volume was just OK at 169,479 contracts. Silver open interest dropped 593 contracts. Volume was pretty big [70,570 contracts] because of options expiry, roll-overs, and the approaching first day notice for March delivery tomorrow. The final numbers for Tuesday’s trading also showed a further decline in March open interest… down 9,349 contracts… which leaves 22,545 contracts still open. When the preliminary numbers for Thursday’s trading are posted at the CME’s website in the wee hours of this morning, I will report on them in my closing commentary.
The CME Delivery Report today is for the last trading day in the February contract… tomorrow. It showed that 96 gold and zero silver contracts will be delivered on that day [Friday]. For the month of February there were 5,946 gold contracts delivered in total… 594,600 troy ounces of the stuff. In silver, there were 930 contracts delivered… which is 4,650,000 ounces. This may not sound like much but, in actual fact, it’s a huge number… as February is not a traditional delivery month. Several years back, 50 or 100 contracts delivered in a non-delivery month would have been a lot… so you can see how things have changed. When I report the first day notice numbers for silver in March [which is a delivery month] in my Friday commentary… it’s highly likely that more silver will be posted for delivery on Monday, March 1st… than all of February combined. As I mentioned in the previous paragraph, there are still 22,545 contracts open for March. If you multiply that number by 5,000 ounces/contract, it comes to more than all the silver currently sitting on the Comex. That’s why that number has to decline precipitously as time passes… because if all these contract holders stood for delivery… there would be a massive Comex default and a silver price beyond the orbit of Mars… or maybe even Jupiter.
There were no changes reported by either the SLV or GLD yesterday. But the U.S. Mint has finally spoken. The indicated that they had sold another 14,000 one-ounce gold eagles… and another 800,000 silver eagles. Month-to-date, the Mint has sold 80,000 gold eagles and 2,050,000 silver eagles. There might be one more update before the weekend… but I wouldn’t bet any money on it. Over at the Comex-approved depositories it was reported that 209,229 ounces were withdrawn from their collective inventories on Tuesday. Every depository [all 4 of them] showed activity on Tuesday… and if you want to see it for yourself… the link is here.
My first story is one I didn’t have room for yesterday. It’s Bloomberg piece bearing the headline “Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs“. The 5-page document shows that “the great vampire squid” underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. It’s a long story. I thank Joseph Weiler for sending it to me… and the link is here.
This next piece is certainly gold related. In his new commentary at MoneyWeek.com, Dominic Frisby joins those who don’t think that more gold sales by the International Monetary Fund will have much impact on the gold price, and he cites GATA in his arguments. Frisby’s commentary is headlined “Ignore the IMF Sales — Soros Is Right about Gold” and the link is here.
The story about the CFTC hearings into position limits and trading exemptions in both silver and gold on March 25th was picked up across the Atlantic in the Financial Times of London yesterday. Ted Butler told me on Tuesday that this story was coming… and that it was going to be a rather snide and disparaging piece. Well, it was all of that, but at least they spelled everyone’s name right… and got Ted Butler and GATA some high-profile international press. The headline reads “Silver and gold critics win CFTC hearing“… and the link is here.
The next item is the first of two Ambrose Evans-Pritchard offerings for you today. This story is headlined “Concerns grow over China’s sale of US bonds“… “Evidence is mounting that Chinese sales of US Treasury bonds over recent months are intended as a warning shot to Washington over escalating political disputes rather than being part of a routine portfolio shift as thought at first.” I would highly recommend that you take the time to read this… and the link is here.
The following graphical essay about gold was written by I.M. Vronsky… Editor & Partner over at gold-eagle.com. It’s entitled “I Knew I Should Have Bought Gold” It’s a lot of graphs… and very few words… and it’s very much worth your time. I thank Australian reader Wesley Legrand for sending it to me… and the link is here.
My second-last item today is from James Turk over at goldmoney.com. Turk says that “The US Treasury has taken another step on the road leading to hyperinflation. It announced that it will borrow $200 billion and leave this money on deposit with the Federal Reserve… the Fed is fanning inflation by creating more dollar currency, and easy money always leads to inflation. The US is now so far down the inflation road, having traveled it for decades, that it is hurtling pedal-to-the-metal toward hyperinflation.” The title to this short essay reads “Hyperinflation Watch“. Needless to say, this is a must read… and the link is here.
And lastly is this second story from Ambrose Evans-Pritchard over at The Telegraph in London. It takes a lot to shock me these days, as I’ve become pretty jaded over the last ten years or so… but this takes international brinkmanship to a whole new [and very ugly] level. “Greece has greatly damaged its chances of an EU bail-out by lashing out at Germany over war-time atrocities and accusing Italy of cooking its books to hide public debt.” The headline is a stunner… “Greek rescue in danger as deputy prime minister attacks ‘Nazi’ Germany“. I thank Wesley Legrand for sending me this story very late last night. It’s an absolute must read… and the link is here.
I was relieved to see that despite the very weak volume in both gold and silver yesterday, the U.S. bullion banks didn’t press their advantage and drive prices down further. Maybe then can’t… or won’t. But maybe they’re just biding their time. Meanwhile, the situation is still unresolved, with gold still under its 50-day moving average and silver still below it’s 200-day moving average.
It’s useless to speculate further on what’s going to happen in the very short term, so the best we can do is twiddle our thumbs and wait for a resolution one way or another.
Hong Kong is now closed for the day… and trading is about two hours old in London. Silver is down about 25 cents… and gold’s down about five bucks. Volume so far [at 5:25 a.m. Eastern time] in gold is a reasonably hefty 33,551 contracts in April… and silver’s volume is a very chunky 6,833 contracts for March, and an even larger 7,438 contracts for May. A lot of this would be spreads, switching, etc… as trading for the February contract had to be squared up by the end of the business day yesterday. February goes off the boards then… and March becomes the current month.
The CME has posted their preliminary volume numbers for Wednesday’s trading. Gold traded 185,187 contracts… and silver traded 78,377 contracts. But once all the spreads and switches were removed… volume was a lot less than that. I note that silver’s open interest for March took another big hit… showing a reduction of 8,049 contracts. Total March o.i. is now down to 14,496 contracts. I expect this number to decline further when the CME posts the final numbers later this morning.
There’s not much that can be done except to quietly wait this out… and that’s what I intend to do.
I hope your Thursday goes well… and I’ll see you here tomorrow.
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